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“Capital Budgeting Techniques”
Mr. Amir is planning to purchase a new car bearing the brand name of Honda civic (Model 2011). He visits a nearby car showroom ‐ Hijaz Motors, and comes to know that price of the car is Rs. 1,200,000. Amir thinks to take an optimistic decision, so he visits a local branch of Habib Bank Limited for seeking some information. The branch manager tells him that he can purchase the car under a lease contract to be signed with HBL. Terms and conditions of the lease contract include: Down payment of Rs. 400,000 and monthly installment of Rs. 25,000 to be paid at the end of each month for next four years. The rate of interest to be charged by HBL on this lease will be equal to the discount rate as determined by State Bank of Pakitan, which is 15% at present. Moreover, a friend of Mr. Amir tells him that he is interested to sell his car bearing the same model for reasonable terms including Rs. 400,000 at the time of delivery of car, Rs. 10,000 p.m. for the next two years, a fixed amount of Rs.300,000 after 6 months of 3rd year (2.5 years) and Rs.200,000 at the end of 3rd year. You are required to guide Mr. Amir, as which option is better among the three options discussed above, i.e. to purchase from the car showroom, lease from HBL or buy form the friend. (Show complete calculations and provide all formulas as they carry marks)
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In 1st option
NPV = 12,00,000
In 2nd Option
NPV = 400,000 + 3,00,000/(1+15%)1 + 3,00,000/(1+15%)2 + 3,00,000/(1+15%)3 + 3,00,000/(1+15%)4
NPV = 400,000 + 3,00,000/(1+0.15)1 + 3,00,000/(1+0.15)2 + 3,00,000/(1+0.15)3 + 3,00,000/(1+0.15)4
NPV = 400,000 + 3,00,000/(1.15)1 + 3,00,000/(1.15)2 + 3,00,000/(1.15)3 + 3,00,000/(1.15)4
NPV = 400,000 + 3,00,000/1.15 + 3,00,000/1.3225 + 3,00,000/1.520875 + 3,00,000/1.74900625
NPV = 400,000 + 260869.5652 + 226843.1002 + 197254.8697 + 171525.9737
NPV = 1256493.509
In 3rd Option
Interest rate is not mentioned in the Question so Rate of Interest will be 10%.
NPV = 400,000 + 120,000/(1+10%)1 + 120,000/(1+10%)2 + 3,00,000/(1+10%)2.5 + 2,00,000/(1+10%)3
NPV = 400,000 + 120,000/(1.1)1 + 120,000/(1.1)2 + 3,00,000/(1.1)2.5 + 2,00,000/(1.1)3
NPV = 400,000 + 120,000/1.1 + 120,000/1.21 + 3,00,000/1.269058706 + 2,00,000/1.331
NPV = 400,000+109090.9091+99173.55372+236395.6833+150262.9602
NPV = 994923.1063
Mr. Amir will choose 3rd option.
yeh number Q diya hai?
@Abbas . ....tu theek solution kya hay bhai....aap koi idea he dy do phir sahe sol ka..??