SEMESTER FALL 2014
FINANCIAL MANAGEMENT (MGT201)
ASSIGNMENT NO. 01
DUE DATE: 26TH NOVEMBER, 2014
MARKS: 10
Learning Objective
The students are expected to develop understanding about the concept of capital budgeting
and the way capital budgeting techniques are used to analyze investment feasibility of any
business projects.
Learning Outcomes
After attempting this assignment, the students would be able to use capital budgeting
techniques particularly the Net Present Value and Profitability Index techniques to analyze
and interpret any projects’ feasibility.
Assignment
Dear Students!
Suppose; the top management of a famous hotel chain is planning to construct a new hotel
on Murree Express Way adjoining Muree. This project requires an initial investment of Rs.
30,125,700; while the proposed income from this project is Rs. 8,400,000, Rs. 8,400,500,
Rs. 8,500,000 and Rs. 8,65,4000 annually for next four years. The required rate of return for
this project is 19%. The company hires you as its financial analyst and requires you to do
the following: 1. Evaluate the project feasibility through using Net Present Value technique. (4 marks)
2. Evaluate the project feasibility through applying Profitability Index (PI) technique. (4
marks)
3. Based on both calculations, interpret and suggest whether the XYZ Construction
Company should invest in this project? (2 marks)
(Note: proper formulas; step-wise complete working is required concerning both
techniques)
IMPORTANT:
24 hours extra / grace period after the due date is usually available to overcome uploading
difficulties. This extra time should only be used to meet the emergencies and above
mentioned due dates should always be treated as final to avoid any inconvenience.
IMPORTANT INSTRUCTIONS/ SOLUTION GUIDELINES/ SPECIAL
INSTRUCTIONS
BE NEAT IN YOUR PRESENTATION
OTHER IMPORTANT INSTRUCTIONS:
DEADLINE:
Make sure to upload the solution file before the due date on VULMS.
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FORMATTING GUIDELINES:
Use the font style “Times New Roman” or “Arial” and font size “12”.
It is advised to compose your document in MS-Word format.
You may also compose your assignment in Open Office format. Use black and blue font colors only.
REFERENCING GUIDELINES:
Use APA style for referencing and citation. For guidance search “APA reference
style” in Google and read various websites containing information for better
understanding or visit
http://linguistics.byu.edu/faculty/henrichsenl/apa/APA01.html
RULES FOR MARKING
Please note that your assignment will not be graded or graded as Zero (0), if:
It is submitted after the due date.
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Note related to load shedding: Please be proactive
Dear students!
As you know that Pre Mid-Term semester activities have started and load
shedding problem is also prevailing in our country. Keeping in view the fact,
you all are advised to post your activities as early as possible without waiting for
the due date. For your convenience; activity schedule has already been uploaded
on VULMS for the current semester, therefore no excuse will be entertained
after due date of assignments or GDBs.
Tags:
PI= Present Value of Future Cash Flows / Initial Investment Required
PI= [ΣCFt / (1+i) t ] / IO
Above both the PI formulas and both have the same function. in first formula you must calculate the PV value before putting the formula and in 2nd Pv Value also included in formula [ΣCFt / (1+i) t ]
see the above solved solution
plz putout profitability index formula in figure.
C1 C2 C3 C4
48400000 + 8400500 + 8500000 + 8654000
(1+.19)^1 (1.19)^2 (1.19)^3 (1.19)^4
8,400,000 + 8,400,500 + 8,500,000 + 8,654,000
1.19000 + 1.41610 + 1.68516 + 2.00534
7,058,824 +5,932,138 + 5,044,034 + 4,315,479 PV=22350475
Profitability Index =
Present Value of Future Cash Flows = 22,350,475
Initial Investment Required 30,125,700
Profitability Index = 0.7419
ap ne decimal k baad ki figures kyun choor di hain ?? C1, C2, C3 aur C4 main ??
smile decimal k baad ky figures be note krn
7058823.529 + 5932137.560 + 5044034.420 + 4315479.374
yes, maine full figures li hain with decimal
so my answer is quit different.
NPV= -7775263.45
wow,, it was an easy assignment
yeah it is
HALWA :D
by Rida Gull
MC130401845
RIDA GULL
FINANCIAL MANAGEMENT (MGT201)
ASSIGNMENT NO. 01
Net Present Value (NPV):
NPV = -IO+ΣCFt/ (1+i) t
Where CFt = cash flows occurring in different time periods
-IO = Initial cash outflow
I = discount /interest rate
T = year in which the cash flow takes place
NPV= -IO+ΣCFt/ (1+i) t
Initial Value C1 C2 C3 C4
-30125700 +8400000 + 8400500 + 8500000 + 8654000
(1+.19)^1 (1.19) ^2 (1.19) ^3 (1.19) ^4
-30,125,700 +8,400,000 + 8,400,500 + 8,500,000 + 8,654,000
1.19000 + 1.41610 + 1.68516 + 2.00534
7,058,824 +5,932,138 + 5,044,034 + 4,315,479 PV=22350475
NPV=-30125700+22350475
NPV=-7,775,225.115
The VPV comes with negative answer so project is not acceptable by company.
Profitability Index =
Profitability Index = 0.7419
By parishey
1
where:
Ct = net cash inflow during the period
Co= initial investment
r = discount rate, and
t = number of time periods
Net Present Value (NPV) where: Ct = net cash inflow during the period Co= initial investment r = discount rate, and t = number of time periods
2
Profitability index is an investment appraisal technique calculated by dividing the present value of future cash flows of a project by the initial investment required for the project.
Profitability Index | ||
= | Present Value of Future Cash Flows | |
Initial Investment Required | ||
= | 1 + | Net Present Value |
Initial Investment Required |
Sollution is here
NPV
Initial Value C1 C2 C3 C4
-30,125,700 + 8,400,000 + 8,400,500 + 8,500,000 + 8,654,000
(1+.19)^1 (1.19)^2 (1.19)^3 (1.19)^4
8,400,000 + 8,400,500 + 8,500,000 + 8,654,000
1.19000 + 1.41610 + 1.68516 + 2.00534
7,058,824 + 5,932,138 + 5,044,034 + 4,315,479
PV= 22350475
NPV= -7775225.115
NPV=-30125700+22350475=-7775225.115
Profitability Index =
Present Value of Future Cash Flows
Initial Investment Required
= 22,350,475
30,125,700
Profitability Index = 0.7419
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