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Assignment Question: Ghani Textiles Industry is a large producer of silk fabrics in the local market. The management has decided to install four new Air Jet Looms (AJ-500 Model) for the manufacturing of premium quality Silk Fabric, which will increase the overall production of the organization by 55 percent. The Production department has submitted the project proposal that estimates the investment requirements as follow: Initial Investment required for the new AJ-500 Loom is Rs. 212,500 each which will be paid in the first year to the importer. Furthermore, an amount of Rs. 275,000 is required for the installation of the machines. Delivery and installation of the machine is estimated to take almost one year. The production manager also estimated that an amount of Rs. 25,000 annually required for the repair and maintenance of these machines. The total useful life of the machines is five years with an estimated salvage value of Rs. 116,250 each. The project schedule calls for the benefits to begin in the second year and a project profit is estimated to be Rs. 495,000, Rs. 515,000, Rs. 525,000 and Rs.424,000 in the 2nd, 3rd, 4th and 5th years respectively. The project manager has an estimated hurdle rate of 13% for this investment and the expected rate of inflation is 3.5 percent over the life of the project. The management has hired you as a consultant and given the task to evaluate the proposal using the following format and provide working where required: 





Net flow

Discount Factor

Net Present Value

Year – 1






Year – 2






Year – 3






Year – 4






Year – 5












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Replies to This Discussion

do not worry guys there is an extended day.

extend day to hai par koi proper solution ni hai :(


salvage value=116250


but their 640250 ? how

and in handout 

Net Flow =In Flow-Out Flow

but their

=In Flow-Out Flow-inflation rate 

little bit confusion

yes you are right that was a calculation mistake


 Year 5 cash inflows = Salvage value + cash inflows

                                      = 116250+424000 = 540250

can you please tell me.. handouts me net flow = in flow-outflow ha just but ur calculating in flow - outflow-inflation rate.. how?


i know net flows = inflows - outflows. but there is an element of inflation rate.

Those student who do not want to treat inflation rate. They may solve the assignment by following pattern.

years    inflows    outflows    net flows    dis.fac    net present value

year2    495000   25000        470000     0.783       368010

and most important thing year 5 cash inflows is salvage value+ inflows ( 116250+424000) 540250.

(540250-25000) = net cash flows ( 515250)

net present value = 515250*0.542=279265

discount factor calculation you must have scientific calculator:

search a sign ''^'' now write as it is i am mentioning:

1.13^-2 and you will get your discount factor for second year which is 0.783

1.13^-3 for third year which is 0.693

enjoy everyone

one more question plz tell me how to find Net Present Value???
i'm confused

for year2 ki net present value kise calculate kerni ha wo bata deta hon baqi sab years ki isi tareqe se npv nikle gi.

inflows-outflows= net flows*discount factor

495000-25000=470000 *(0.783)=368010

yani net flows to discount factor se multiply kerna ha to ap ko npv mil jaye gi.

thanks :)


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