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MGT201 Financial Management, GDB # 1 Opening Date 01 June 2015, Closing Date 03 June 2015.

Important announcement

Graded Discussion Board

Financial management (MGT201)

 

Dear Students!

This is to inform that Graded Discussion Board (GDB) No. 01 opening Date June 01, 2015 for discussion and last date for posting your discussion will be June 03, 2015.


Topic/Area for Discussion

 Capital Budgeting

 

This Graded Discussion Board will cover lesson 01 to 14.

Learning Objectives

To improve understanding regarding major criteria of capital budgeting and practical view of NPV and equivalent annuity approach in real life.

Scenario

Sufi Bakers - a growing food processing firm in Pakistan having high market share is planning to invest further in its baking facility to gain more market share. The firm’s finance manager has identified the following two independent proposals accompanied by the related cash flows:

Proposal

Life (Yrs.)

Discount Rate

Co

C1

C2

NPV

Rs. in Lac

A

2

11%

80

52

61

16.09

B

1

72

88

-

7.27

 

Requirement 
Considering the above information, answer the following:

1)     Is the available information is sufficient enough to decide on any proposal” If not, what other information would like to include in the above?

2)     Using the given information in the above table only, select the proposal giving appropriate support to your selection?

Note: Necessary calculations must be provided.

Important Instructions:

  1. Solution must be provided in the recommended format
  2. Do not copy or exchange your answer with other students. Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.
  3. Obnoxious or ignoble answer should be strictly avoided.
  4. Questions / queries related to the content of the GDB, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of GDB is over.

 

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Replies to This Discussion

i think project B is best because its inflow is greater than outflow after one year and inflow of project A is less than inflow in same time period.project B gives more benefits in short time period.

-8000000 + 52000000 / (1+0.11) + 61000000 /(1+0.11)2

-8000000 + 96355815

NPV= 88355815

PV= 8000000 + 88355815 = 96355815

-7200000 + 88000000 / (1+0.11) 

-7200000 + 7927928

NPV =727928

PV = 7200000 + 727928 = 7927928 

 ya theek ha???

 aaga kuch samj nai a raiii 

thnxx dear kafi hai

Plzzz full solution upload kr dy................. :)

give any main idea solution for this Graded Discussion

  1.   Above information is absolutely enough to decide about the selection from above two projects.No extra information is required.
  2. Both proposals have different lives. It is not accurate to calculate NPV in simple as Proposal B generates cash flow for one year and Proposal A Generates cash flows for two Years. Use Equivalent Annual Annuity approach (EAA) and will calculate EAA for both the proposals.As under

 

Proposal A:

EAA Factor = (1+i)n/(1+i)n -1= (1+.11)2/(1+.11)2-1 = 5.308

EAA = Simple NPV *EAA Factor = 16.09*5.308= 85.413 Rs

 

Proposal B

EAA Factor = (1+i)n/(1+i)n -1 = (1+.11)1/(1+.11)1-1 = 10.09

EAA = Simple NPV *EAA Factor = 7.27 * 10.09 = 73.360 Rs

 

As Project A have more EAA so Poposal A is better and can be choosen.

thanko thanko 

:0

Thanks ......

Ma'am, aap chhaaa gayi hain. I am indeed grateful to you. :)

great work maham.Allah ap ko khush rakhay

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