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 Capital Budgeting Techniques for Projects with Unequal Lives

Learning Objectives - The students are expected to understand the application of usual capital budgeting techniques applied particularly to the projects with unequal lives. Learning Outcomes - After going through this activity, the student would be able to apply capital budgeting techniques especially in the case of projects with unequal lives. Case: Fiber Limited (FL) is involved in processing of cotton and sale of fiber to the country’s textile sector. On the basis of a recent market research, Fiber has found two mutually exclusive projects – Theta and Gamma. The cash flows associated with these projects are:

projects – Theta and Gamma.The cash flows associated with these projects are: Project Cash Flows (Rs. ‘000) FY- 0 FY-1 FY-2 FY-3 FY-4 FY-5 FY-6 Theta(40,000) 8,00014,00013,0005,00011,000 10,000Gamma(18,000) 9,00015,10012,000--- --- ---

Discount rate for both projects is 8.4%. The management of FL wants to undertake only one project. Required 1. Determine the viability of both projects by applying Common life approach and Equivalent Annuity Approach method (EAA). (11 + 6) 2. Which project would be feasible for Fiber Limited and why? (3) Hint: Formula for calculating EAA is PV ÷ [{1-(1+i)-n} ÷ i] Show formulas and complete calculations as they carry marks.

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Replies to This Discussion

Tariq bhai plz full calculation wala solution share ker dain plz.....

here some whose know why this also posted in Question 

PV ÷ [{1-(1+i)^-n} ÷ i]

with reference 

Masood bhai agr book wala formula use kia jaye wo ess say kafi easy hay

Which project would be feasible for Fiber Limited and why?

is ka answer kya ho ga????


u  can't do any thing other than raising questions!!!!!!!!!!!!

Mine answers:

Simple NPV's

For Theta = 6634.4

For Gamma = 12574.02

By Common life Approach:

CL NPV for Theta = Same as Before

Cl NPV for Gamma = 36576.931

By Equivalent Annual Annuity Approach:

EAA Factor for Theta = 2.606

EAA factor for Gamma = 4.654

EAA for Each Project:

= Simple NPV * EAA factor

Theta = 17289.25

Gamma = 58519.49

Project Gamma is better.

Cl NPV for Gamma = 36576.931 yah galat hy

22 something hy 3rd year minus hoga investment main

EAA to ap ny book sy kiya hy jab is ka real formula hy then why you take this 


Masood khan jb online aoo message me.. i want to ask something realted to calculations hmm?

i am on;ine

Muhammad Hasnain Sadiq 

By Common life Approach ko kasay find out kiya hy plz tell me


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