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MGT201 GDB No. 01 Solution and Discussion Due Date Dec 08, 2014

Graded Discussion Board

Financial management (mgt201)

 

Dear Students!

This is to inform that Graded Discussion Board (GDB) No. 01 will be opened on December 03, 2014 for discussion and last date for posting your discussion will beDecember 08, 2014.

 

Topic/Area for Discussion

 “Capital Budgeting techniques”

 

This Graded Discussion Board will cover Audio/Video lessons 1 to 14.

Views: 5336

Replies to This Discussion

Please Discuss here about this GDB.Thanks

Our main purpose here discussion not just Solution

We are here with you hands in hands to facilitate your learning and do not appreciate the idea of copying or replicating solutions.

Learning Objective:

To develop student's understanding about Capital budgeting techniques.

Learning Outcome:

After attempting this GDB, students will be able to comprehend the idea of capital budgeting techniques i.e. net present value and Payback period.

 

Scenario:

Good Waters - a sole proprietor is selling the pure drinkable water under the brand name of Khalis Pani in posh area of the city. The water processing and filtration plant is installed in the nearby area. Everything is going fine and the firm is enjoying huge profits while holding handsome market share for the last 4 years.

Recently, Mr. S - son of the entrepreneur has returns from abroad after getting a business degree and started interfering in business affairs as per his father’s wish. After a short market analysis, he proposed his father to expand the operations by installing two more water plants on different locations in the same city. Mr. S assigned the task to Mr. F – the firm’s newly appointed finance manager for the very same purpose.

Mr. F prepared two initial proposals for the intended plants. Plant – 1 requires Rs. 1 million as initial investment with the payback of 4 years and net present value of Rs. 0.6 million.  Plant – II requiring the same initial investment entails a positive net present value of Rs. 0.8 million with the payback period of 7 years.

While reviewing both the proposals, it comes to know that owing to financial constraints, the firm can install only one plant. The firm’s owner is in the favor of Plant-I but, Mr. S is interested in Plant-II.


Requirement:

If you were their finance manager, what would be your opinion on the following issues?

a.      On which ground, the firm’s owner is favoring the Plant-I?

b.      On which ground, Mr. S is favoring the Plant-II?

c.       Which plant would be selected by you under the above scenario? Why?

(Your answer in each part should not more than two lines)

Dear Students Don’t wait for solution post your problems here and discuss ... after discussion a perfect solution will come in a result. So, Start it now, replies here give your comments according to your knowledge and understandings....

this is not so helping but here are some ckear clues which may be help in solving that problem..

1.the shorter the pay back period of a project,an investor would be willing to invest his money in the project.

2,the positive npv raise the share holder walth or comapay value,and so it is also increase the economic value added for the firm or compnay..

hope my clue wil be visible

well done ms. ambreen. i appreciate your efforts.

agreed 

a- shorter the payback period is advantage to choose the project

b- NPV is greater than project-1, while payback time is long, But in capital budgeting techniques always prefer to good NPV  

c- Project-11 is suitable option with good NPV, payback ignore the rule of TIME VALUE OF MONEY and NPV measure everything which is necessary for profitability of organization

 

pleassssssssssssssssss help me mera pehla GDB hai

 

I second you... abdul majid bro.

we have also studied this earlier that when we receive conflicting signals in terms of an investment; as in this case the criteria that should be preferred is NPV...to come up with a decision...

Regards...

Payback, vs npv, ignores any benefits that occur after the payback period. It also does not measure total incomes. An implicit assumption in the use of payback period is that returns to the investment continue after payback period. Payback method does not specify any required comparison to other investments or investment decision making. It indicates the maximum acceptable period for the investment. While NPV measures the total dollar value of project benefits. NPV, payback period fully considered, is the better way to compare with different investment projects.

Samra sis I have submitted with option-ll 

NPV is better 

 Relying solely on the Payback Method might result in poor purchasing decisions. A quick NPV calculation may save you the disappointment from future low returns on the cash you spend today.

thanks 

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