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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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Please discuss here

Please Discuss here about this assignment.Thanks

Our main purpose here discussion not just Solution

 

Dear Fellows,

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Mr Tariq Malik, you have written very easily that helping material is available on this website. I need help in gdb of MGMT629 and MGMT 630, I searched a lot but could nt find any helping material related to these books. Are you kidding every one by writing this statement that all you do not need to go any other website etc etc????????

anybody have idea solution of mgt201??

i think, its not very difficult assignment.........just study handout, topic "common life approach and its example" with concentration. hope you will find solution of this question but 1 thing that solve the question step by step. so it will be more easy to solve assignment.

yes ali123 not very difficult 

Nice advise 

Please send word file containing solution.

for calculating common life Npv for gamma you also need to show a cash out flow of Rs. 18000 in the third year if you are replicating the project, think about it as well, tc

18000 and 40000 are initial investments that go into both the projects. They dont count when youre doing it for each year. Thats the reason it is names FY0. I googled some similar samples for this type of question, they didnt use it either. If you want you can check in the handouts. We only need these two values to replace (− Io) in the NPV formula.

Simple NPV = − Io +PV (CF1) + PV (CF2) + PV (CF3) + PV (CF4) + ...+ ∞

Nadia thanks & keep it up 

Note @ All: You don’t need to go any other site for this assignment/GDB/Online Quiz solution, Because All discussed data of our members in this discussion are going from here to other sites. You can judge this at other sites yourself. So don’t waste your precious time with different links.

Theta ki values zada hn gama say lkn phr bhi gema better hy theta say

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