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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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Replies to This Discussion

Please Discuss here about this assignment.Thanks

See the attached file for idea solution of MGT201 Assignment#01 Spring 2011
One more idea solution see the attached file please
both solutin are different.., Anybody share the sure solution idea..,
there is lot of confusion both the solutions are same so how we can judge which solution is rite? plz help me anyone soon

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.



syed munawar

yeh number Q diya hai?

copy & paste na karna. changing kar k likhna. mei ne as it is submit karwai hai assignment

@Abbas . ....tu theek solution kya hay bhai....aap koi idea he dy do phir sahe sol ka..??


koi to sure solution share kar dye..


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