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Determining Cash Flows for Investment Analysis
1. PBP 4, 10, 6.13, 2.88, 6.67 Years
ARR 25%, 6.67%, 22.61%, 29.57%, 10%
NPV 166866, (28727), 35703, 1832, (3133)
IRR 18.62%, 5.56%, 15.37%, 21.82%, 8.14%
2. (X) 3.91 Years, (2222), 5.54%, 0.89
(Y) 3.94 Years, (1800), 4.88%, 0.88
3. (M) (11926), 5.22%, 4.58 Years
(N) 3695, 10.98%, 4.08 Years
4. (a) NPV = 10694, 1650, 2431, Project O is the most desirable.
(b) Incremental Cash flow for project P & Q = -3000 7670 7670 -12900 Project Q is more desirable.
5. Project B, NPV & IRR both higher. (A) = 4428, 65.61 %, (B) = 5650, 78.08%. Project life is different, if we use AEV concept, in that case also Project B would be a better choice.
Incremental Cash flows in project A & B = 6000 -16000 10000 2000
Incremental NPV = 1222, Project B is more desirable. Rate of return on incremental cash flows cannot be calculated in this situation.
6. Yes, NPV = 7333, IRR (4.48%).
7. Yes, NPV on replacement is 11465/-
8. Proposal II is more desirable i.e. leaving employment and opening of store.
NPV = Proposal I = 174461, Proposal II = 207877
· Discount rate taken as 10.5% in both the proposal. However, it would be more appropriate to take higher discount rate in Proposal II being more risky as compare to Proposal I.
· It has been assumed that salvage value of store pertains to building & fixtures only. Value of Merchandise treated as part of working capital.
· Salary has taken as taxable salary.
9. NPV = (a) (13902) (b) (2062) (c) (2796)
10. NPV = (a) 25085 (b) 32607
11. NPV = (a) 133536 (b) (28343) New Machine.
12. NPV = (46935), No, Assuming all operating expenses as variable exp. Tax on capital gain ignored.
13. Hiring is preferable. Present value of outflow in case of purchase is Rs. 103583, & in case of hiring = 79607.
14. NPV = (P) (25634) (Q) (23823).
15. 16705, Cost of Capital taken as Ke.
16. 21747, Cost of Capital taken as Ke.
17. Yes NPV on replacement is 58580.