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Financial Management (MGT201)
Due Date: 16th November, 2017
Assignment #01 Marks: 25

AMS manufacturer is considering to expand its business by installing a new production unit.Management is considering two options for new production unit; both suppliers are claiming their offer as best in terms of less cost and more future inflows. To analyze the feasibility of two options, management has to take decision on the basis of NPV and payback period of two investment options. Details of two production units are given below:
Year Cash Flows (Option 1) in Rs. Cash Flows (Option 2) in Rs.
0 -1,200,000 -1,200,000
1 500,000 400,000
2 300,000 500,000
3 300,000 450,000
4 400,000 350,000
Being the student of financial management; you have to help company to choose the best option between above two mutually exclusive options (1 and 2), if interest rate is 12%. Your decision should be based on following criteria:
1. If you apply Net present value (NPV) criterion, you will select which project and why? (5.5+5.5+1 marks)
2. If you apply payback period criterion, you will select which project and why (5+5+1 marks)
3. If management wants to take an option that is most liquid; you will select which project for AMS and why? (1 mark)
4. Is it rational to take decision solely on the basis of capital budgeting techniques? Why or why not? (1 mark)
NOTE:
Formula and complete working of each part is mandatory; marks will be deducted in case on incomplete calculations

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MGT201 Assignment#01 Solution 

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Financial Management (MGT201)

ASAD ZAMAN SOLUTION
MC160200476
Due Date: 16th November, 2017


Assignment #01 Marks: 25

AMS manufacturer is considering to expand its business by installing a new production unit. Management is considering two options for new production unit; both suppliers are claiming their offer as best in terms of less cost and more future inflows. To analyze the feasibility of two options, management has to take decision on the basis of NPV and payback period of two investment options. Details of two production units are given below:


Year Cash Flows (Option 1) in Rs. Cash Flows (Option 2) in Rs.
0 -1,200,000 -1,200,000
1 500,000 400,000
2 300,000 500,000
3 300,000 450,000
4 400,000 350,000

Being the student of financial management; you have to help company to choose the best option between above two mutually exclusive options (1 and 2), if interest rate is 12%. Your decision should be based on following criteria:
If you apply Net present value (NPV) criterion, you will select which project and why?
(5.5+5.5+1 marks)
Solution

PROJECT A = : -$1200,000 + $500,000/(1.12)^1 + $300,000/(1.12)2 + $300,000/(1.12)3+ $400,000/(1.12)4 = - $46669.

446429+239158+213534+254210 = 1153331

-1200000+1153331= -46669
Reject A project as decreasing shareholder wealth
Project A has negative npv lets check know project B

Project B -$1200,000 + $400,000/(1.12)^1 + $500,000/(1.12)2 + $450,000/(1.12)3+ $350,000/(1.12)4 =98475 .


357143+398597+320301+222434=1298475
-1200000+1298475=98475

Project B is selected because it has positive npv and increase shareholders wealth

If you apply payback period criterion, you will select which project and why (5+5+1 marks)
Solution
Pay back of project A:
PP =Cost of project / Annual cash inflows
=1200000/375000
=3.2

Payback period of project B
PP =Cost of project / Annual cash inflows
=1200000/425000
=2.8

MGT201_Assignment_01_Solution

Attachments:

sir can you please help us in these two questions as well which are missing in attached file.

3. If management wants to take an option that is most liquid; you will select which project for AMS and why? (1 mark)

4. Is it rational to take decision solely on the basis of capital budgeting techniques? Why or why not? (1 mark)

Financial Management (MGT201)

SOLUTION

Assignment#01

AMS manufacturer is considering to expand its business by installing a new production unit. Management is considering two options for new production unit; both suppliers are claiming their offer as best in terms of less cost and more future inflows. To analyze the feasibility of two options, management has to take decision on the basis of NPV and payback period of two investment options. Details of two production units are given below:


Year Cash Flows (Option 1) in Rs. Cash Flows (Option 2) in Rs.
0 -1,200,000 -1,200,000
1 500,000 400,000
2 300,000 500,000
3 300,000 450,000
4 400,000 350,000

Being the student of financial management; you have to help company to choose the best option between above two mutually exclusive options (1 and 2), if interest rate is 12%. Your decision should be based on following criteria:
If you apply Net present value (NPV) criterion, you will select which project andwhy?
(5.5+5.5+1 marks)
Solution

PROJECT A= : -$1200,000 + $500,000/(1.12)^1 + $300,000/(1.12)2 + $300,000/(1.12)3+ $400,000/(1.12)4= - $46669.

446429+239158+213534+254210 = 1153331

-1200000+1153331= -46669
Reject A project as decreasing shareholder wealth
Project A has negative npv lets check know project B

Project B -$1200,000 + $400,000/(1.12)^1 + $500,000/(1.12)2 + $450,000/(1.12)3+ $350,000/(1.12)4=98475.


357143+398597+320301+222434=1298475
-1200000+1298475=98475

Project B is selected because it has positive npv and increase shareholders wealth

If you apply payback period criterion, you will select which project and why(5+5+1 marks)
Solution
Pay back of project A:
PP =Cost of project / Annual cash inflows
=1200000/375000
=3.2

Payback period of project B
PP =Cost of project / Annual cash inflows
=1200000/425000
=2.8

mgt201 assignment solution

Attachments:

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kai ye solution bilkul theak ha plz koi bata do

Engineer naeem bhatti,,, or Hafiz Faisal safder ,, here is solution 

where is solution?

Question 3 and 4 ka ANS khan hy ???

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