Calculate irr and npv rate, Financial Management

Assignment Help:

Question 1

You have been asked by the president of your company to evaluate the proposed acquisition of a new special purpose truck. The truck's basic price is Rs.50,000 and it will cost another Rs.10,000 to modify it for special use by your firm. The truck falls into MACRS three-year class and it will be sold after three years for Rs.20,000. Use of the truck will require an increase in net working capital (spare parts inventory) of Rs.2,000. The truck will have no effect on revenues. But it is expected to save the firm Rs.20,000 per year in before tax operating costs, mainly labor. The firm's marginal tax rate is 40%.

(a)    What is the net investment in the truck? (That is, what is the  Year 0 net cash flow?)

(b)    What is operating cash flow in Year 1, 2 and 3?

(c)    The truck's cost of capital is 10%. What is NPV?

(d)   What is additional (non-operating) cash flow in Year 3?

Question 2

(a) Pak manufacturers are able to reduce average inventory levels to Rs.250 billion and average accounts receivable to Rs.300 billion.

At the same level of inventories, accounts receivable and accounts payable, Pak manufacturers can increase production and sales by 10%. What will be the effect on the cash conversion cycle?

(b) Suppose Pak manufacturers are able to reduce average inventory levels to Rs.250 billion and average accounts receivable to Rs.300 billion. By how many days will this reduce the cash conversion cycle?

Question 3

Given the following information, what is the required cash flows associated with the acquisition of a new machine that is in project analysis, what is the cash outflow at t = 0?

Purchase price of new machine                                       Rs.8,000

Installation chare                                                              2,000

Market value of old machine                                               2,000

Book value of old machine                                                 1,000

Inventory decrease if new machine is installed                     1,000

Accounts payable increase if new machine is installed              500

Tax rate                                                                                      34%

Cost of capital                                                                             15%

 

Question 4

Calculate NPV of an investment project with the following characteristics:

Units sold per year                  55,000

Price per unit                          Rs.800

Variable cost per unit             Rs.720

Fixed cost                                    0

Initial cost                              Rs.20 million

List of project                          10 years

Discount rate                              10%

Depreciation                       straight line

Tax rate                                     34%

(a)    Suppose an additional investment of Rs.5 million would reduce the variable cost per unit to Rs.700. figure NPV of this alternative.

(b)   What is the break-even (NPV) number of units for the two alternatives?

Question 5

The Lucky star Mining Co. is considering reopening one of its old silver mines. New extraction techniques will allow the company to mine one year production of silver worth Rs.3 million in after-tax profit. However, in the second year of operation, the cost of returning the mine to the natural condition mandated by law will cost Rs.1 million. Opening and preparing the mine will cost rs.1 million in the present year. The cost of capital is 8%.

(a)  What is the NPV of the reopened mine?

(b)   What is the IRR?


Related Discussions:- Calculate irr and npv rate

Protected put, Protected Put A protected put would involve a long put a...

Protected Put A protected put would involve a long put and a long stock. For example - ONGC. Underlying stock = Rs. 809 Buy Mar Rs. 900 Put @ Rs.68.8   Total cos

Define gatt and what is its goal, What is GATT, and what is its goal? GAT...

What is GATT, and what is its goal? GATT is also termed as General Agreement on Tariffs and Trade.  It is a treaty which seeks to decrease trade barriers among participant nation

Define the services that international banks provide, Briefly discuss some ...

Briefly discuss some of the services that international banks provide their customers and the market place. Answer:  International banks can be categorized by the types of servic

Debt securities, Fixed income security is a financial obligation of an ...

Fixed income security is a financial obligation of an entity, which promises to pay a pre-specified amount of money at per-specified date. Debt securities (

State the term- pass through certificates, State the term- Pass Through Cer...

State the term- Pass Through Certificates (PTCs) Pass through Certificates (PTCs) are debt securities which pass through income from debtors through intermediaries to investors

Explain benefits of currency option contract as hedging tool, What are the ...

What are the advantages or benefits of a currency options contract as a hedging tool compared with the forward contract? Answer:  The major advantage of by using options contra

Types of capital budgeting, Types of Capital Budgeting Decisions: A bu...

Types of Capital Budgeting Decisions: A business organization has to quite normal face the problem of capital investment decisions. Capital investment defines as the investmen

Obtain a market arbitrage position, (a) One could obtain a market arbitrag...

(a) One could obtain a market arbitrage position as follows: buy Honeywell shares as well as sell General Electric shares. If the merger gets place the Honeywell shares will conve

Enumerate the potential drawbacks of divestment, Potential drawbacks of div...

Potential drawbacks of divestment - There may be some loss of economies of scale. Fixed overheads would have a lower capacity to recover them. - Cash generated may not be

Budget, what are the advantages and disadvantages of incremental budgeting?...

what are the advantages and disadvantages of incremental budgeting?

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd