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Case:
Suppose, you have been appointed as a financial analyst at a company named
ABC Incorporation, which requires you to think over and analyze two projects
so that a wise investment decision can be made for future expansion of the
business. The details of both projects are as follows:
Project 1 requires an initial investment of Rs. 700,000. Expected cash inflows of
the project for next five years are Rs. 162,000, Rs. 173,600, Rs. 185,550, Rs. 189,850
and Rs. 192,980. Required rate of return for this investment is 8%.
Project 2 requires an initial investment of Rs. 830,000. Expected cash inflows of
the project for next five years are Rs. 163,000, Rs. 167,456, Rs 172,850, Rs. 177,940
and Rs. 181,550. Required rate of return for this project is 9%.
Required:
Analyze the feasibility of project 1 by using ‘Net Present Value’ method.
(Marks 7)
Analyze the feasibility of project 2 with the help of ‘Profitability Index’.
(Marks 8)
Calculate ‘Payback Period’ of each project and analyze which project will
recover the invested money in less time.
(Marks 5)
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+ Click Here to Search (Looking For something at vustudents.ning.com?) + Click Here To Join (Our facebook study Group)yar is ma pay back period kaisy nikly ga iska formula snd kro jaldi
plz share the assignment sollution .i didnt understand
Question NO.1
162000/1.08+173600/(1.08^2)+185550/(1.08^3)+189850/(1.08^4)+192980/(1.08^5)700000 = 17013
Question No. 2
(830000+163000/(1.09)+167456/(1.09^2)+172850/(1.09^3)+177940/(1.09^4)+181550/(1.09^5)+830000)/830000 = 0.8048
Question No. 3
Part 1 = 3.94 years
part 2 = 4.82 years
Shahzad Sadiq gud keep it up
Thanks Tariq bhai........:)
Aslam o alekum
yar complete with formulae k sath send karo.............short cut kahan se bna lia direct
Solution of Financial Management MGT201 by
Muhammad Adnan
Question#1
NPV= IO+sum of CFt/(1+i)t  HO page # 41
here
IO= 700000
CF= 162000 n 173600 n 185550 n 189850 n 192980
I = 8% = 0.08
T = 1 , 2 ,3 4, 5
NPV= 700000+ 162000/(1+0.08)^1 + 173600/(1+0.08)^2 + 185550/(1+0.08)^3 + 189850/(1+0.08)^4 + 192980/(1+0.08)^5
NPV= now calculate
Question#2
PI = {sum CFt/(1+i)^t}/IO  HO page #42
PI = {sum 163000/(1=0.09)+167456/(1+0.09)^2 + 172850/(1+0.09)^3 + 177940/(1+0.09)^4 + 181550/(1+0.09)^5}/830000
PI =
Question#3  HO page # 40
Payback period for 1^{st} project
Investment = 700,000
So 700,000(cash inflows )
162000+173600+185550+189850=711000
so payback period is about $ years
Payback period for 2^{nd} project
Investment = 830000
So 830000(cash inflows)
163000+167456+172850+177940+181550=862807
so payback period is about 5 years
if some one want to find the exact answer for the 3rd question that is to find the payback period of the given project read out the attached /below image file that will have formula and example for finding the exact number of years required for finding the Payback period.the snap short is taken from the book Theory & Practice by Brigham that is the recommended reference book for MGT201
Suppose, you have been appointed as a financial analyst at a company named ABC Incorporation, which requires you to think over and analyze two projects so that a wise investment decision can be made for future expansion of the business. The details of both projects are as follows:
Project 1 requires an initial investment of Rs. 700,000. Expected cash inflows of the project for next five years are Rs. 162,000, Rs. 173,600, Rs. 185,550, Rs. 189,850 and Rs. 192,980.
Required rate of return for this investment is 8%.
Project 2 requires an initial investment of Rs. 830,000. Expected cash inflows of the project for next five years are Rs. 163,000, Rs. 167,456, Rs 172,850, Rs. 177,940 and Rs. 181,550. Required rate of return for this project is 9%.
Q; 01 Analyze the feasibility of project 1 by using ‘Net Present Value’ method?
Answer
Calculation: this can be calculated simply by using this technique.162000/1.08+173600/(1.08^2)+185550/(1.08^3)+189850/(1.08^4)+192980/(1.08^5)700000
= 17013
Q:II. Analyze the feasibility of project 2 with the help of ‘Profitability Index’.
Answer
Calculation: this can be calculated simply by using this technique.
(830000+163000/(1.09)+167456/(1.09^2)+172850/(1.09^3)+177940/(1.09^4)+181550/(1.09^5)+830000)/830000 = 0.8048
Answer: ‘Payback Period’ of each project and analyze which project will recover the invested money in less time.
Solution:
Solution for the project I

Solution for the project II


Years  Investment  Cash Flow  C.C.in flow  Years  Investment  Cash Flow  C.C.in flow 
0  (700000)    (700000)  0  830000    (830000) 
1  162000  (538000)  1  163000  (667000)  
2  173000  (364400)  2  167456  (499544)  
3  185550  (178850)  3  172850  (326694)  
4  189850  11000  4  177940  (148754)  
5  192980  203980  5  181550  32796 
Calculation of Pay Back Periods
Project I = 3Years + 178850/189850*12
= 3Years and 11Months or 3.94 years
Same Method for Second Project
Project II = 4Years + 1478754/181550*12
=4 Years 10Months or 4.82 years
Always accept the project which gives investment back as soon as possible but disadvantage of that technique is that it ignore profitability In above case Project I will be accepted if mutually exclusive.
MGT201 Assignment#01 Solution Spring 2012
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