MGT411 Money & Banking
Assignment No.1 Solution Fall 2014
The concept of Time value of money is very important in Finance. Every Transactional Event in Business/ Project results in the future cash inflows or outflows. Whenever there are several years/ time periods and manager has to make decision, he always takes into account the concept of Present value. The application of present value is very important to understand.
Download a file: “Feasibility Study- Steel Products Welding.pdf” in the “Downloads” section in your VULMS account. After extracting the data, solve the assignment according to the given questions:
a. Calculate the Present Value of 10 years’ future cash inflows (by using: net profit after tax figure and 40% Discount rate). (4 marks)
b. By comparing Total Project Cost: Rs. 673,258 with the answer of “part a”, comment weather the project is profitable or not? (1 mark)
c.Calculate the IRR of the project, by using the same cash inflows of Part a. (Hint: Calculation of IRR has been discussed on the MDB board: Lecture 11. IRR) (5 marks) (Show complete working of all the calculations)
ReplyDeleteYears NPAT + Dep CF PV @ 40% Years NPAT + Dep CF PV @ 97%
1 131,773 81,700 213,473 152,481 1 131,773 81,700 213,473 108,362
2 537,542 81,700 619,242 315,940 2 537,542 81,700 619,242 159,561
3 974,213 81,700 1,055,913 384,808 3 974,213 81,700 1,055,913 138,111
4 1,470,746 81,779 1,552,525 404,135 4 1,470,746 81,779 1,552,525 103,080
5 1,830,625 81,779 1,912,404 355,582 5 1,830,625 81,779 1,912,404 64,454
6 2,037,638 85,564 2,123,202 281,983 6 2,037,638 85,564 2,123,202 36,324
7 2,248,830 85,655 2,334,485 221,460 7 2,248,830 85,655 2,334,485 20,273
8 2,473,180 85,655 2,558,835 173,388 8 2,473,180 85,655 2,558,835 11,280
9 2,713,045 85,655 2,798,700 135,458 9 2,713,045 85,655 2,798,700 6,263
10 2,968,566 85,761 3,054,327 105,593 10 2,968,566 85,761 3,054,327 3,469
(A) 2,530,826 651,178
673258 673258
(B) 1,857,568 (22,080)
Ra 0.4
NPVa 1,857,568
Rb 0.97
NPVb (22,080)
IRR 96%