momik123
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PROBLEMS :


[IMG]file:///C:/Users/CC/AppData/Local/Temp/msohtmlclip1/01/clip_image001.gif[/IMG]1. A firm is considering replacing a computer system with a new one. Purchase price of new computer is Rs. 80,000. 00 and its installation costs are Rs. 1,000.00. The cash flow from the sale of the old computer is expected to be Rs. 20,000.00. The CFAT, after the installation of the new computer is expected to be Rs. 15,000.00 each year for five years. T he Salvage value at the end of 5 years has been calculated as Rs. 20,000.00. Should the proposal of replacing the computer be accepted on the basis of NPV as a decision criteria discounted @ 12%. What is Profitability Index (P.I) is used as decision criteria?

2. Discuss the role of IRR, NPVR and pay back period as alternative Investment criteria. A perfect requires an investment of $ 2.0 million at the end of tenth year. The capital cost (discount rate) of the project financing is estimated to be 10 %

a) What is the pay back period?

b) Using NPV as appraisal criterion, would your accept or reject the period

c) If IRR were used as decision criterion, would you get the same result as in (b)? Why or Why not?
3. M/s Delta corporation has been offered following three investment opportunities with the following cash flow. You have been hired t appraise these project proposals. Use project appraisal techniques to decide which is better?


4. During the project appraisal study, it found that a project offered to your company has internal rate of return (IRR) in 25% and it’s expected to generate a net cash flow of Rs. 500,000 per year for next 5 years and it is going to start with initial investment of RS.1, 500,000. Justify by giving calculations whether it is feasible or not.

5. Calculate payback period, NPV & IRR for project with following cash flow with discount rate of 10%




























Year
0
1
2
3
4
5
Benefits ($)
0
10,000
20,000
40,000
50,000
60,000
Cost ($)
1000,00
20,000
5000
1000
500



6. There are 3 investment opportunities A, B and C with the following cash flow. Which one is better?





7 Project A has an economic life of 7 years. The investment cost being Rs. 60 million. The project has been estimated to generate cash inflow of Rs.10 million each in the first four year and Rs.20 million each in remaining period of its life. The interest rate to be considered is 12%. Project B has been economic life of 6 years. The investment cost being 100.million. the project has been estimated to generate cash flows of 25 million each in the first four years and Rs.15 million each in remaining period of its life. The interest rate to be considered is 10% if you have to choose and appraise any of the above projects by using NPVR technique, which project will choose. Support your answer with relevant calculations.

8 a) A small industrial business (SIB) plan to launch a product in a market with tag price of $5. Its fixed cost in $3 million and variable cost is 70 cents/ units produced. What is the quality that SIB must produce to achieve breakeven.
b) A small industrial business (SIB) is in process of analysis for setting up the price of the product. The companies fixed cost is Rs. 10 million whereas variable costs Rs. 10/unit. The company’s marketing department has given a green signal that they can easily sale 5 million units. What should be the breakeven price of the product?

9. Project A has an economic life of 8 years. The investment cost being Rs. 50 million. The project has been estimated to generate cash inflows of Rs. 10 million each in the first four years and Rs.20 million each in remaining period of its life. The internet rate to be considered is 12% . Project B has an economic life of 7 years. The investment cost being Rs.60 million. The project has been estimated to generate cash flows of Rs. 25 million each in the first four years and Rs. 15 million each in remaining period of its life. The internet rate to be considered is 10%. If you have to choose and appraise any of the above projects by using NPVR technique, which project will you choose? Support your answer with relevant calculations.

10. a) A small industrial business (SIB) plans to launch a product in a market with tag price of Rs.20. Its fixed cost in Rs 30 million and variable cost is Rs.5/ units produced. What is the quality that SIB must produce to achieve breakeven.
b) A small industrial business (SIB) is in process of analysis for setting up the price of the product. The companies fixed cost is Rs. 10 million whereas variable costs Rs. 10/unit. The company’s marketing department has given a green signal that they can easily sale 5 million units. What should be the breakeven price of the product?
11. A project has an economic life of 7 years. It was constructed over a period of two years. The investment cost being Rs.90 million. The project has been estimated to generate cash inflow of 10 million each in the first four years and Rs. 15 million each in remaining period of its life. Demonstrate whether the project would be acceptable at a discount rate of 12% if NPV is used as decision criteria.

12. If a project’s internal rate of return (IRR) is 18% and is expected to generate a net cash flow of 7 million Rs. Per year for next 4 years and it is going to start an initial investment of Rs. 25 million . Justify whether it is feasible or not.
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Aarishshah
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