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A pound today is more valuable than a pound a year hence

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Question-1 Money has Time value. “A pound today is more valuable than a pound a year hence.” Elaborate the statement giving reasons.                                                                    

Question-2 Amaya limited is considering two projects Alpha and Beta. Each of which requires an initial cash outlay of $50 million. The expected cash inflows from these projects are:

Year

Alpha

Beta

1

11

38

2

19

22

3

32

18

4

37

10

a)      What is the payback period and the discounted payback period for each project if the cost of capital is 12%?

b)      What is the NPV of the two projects, if the COC is 12%?

c)      Explain various advantages and disadvantages of Net present value method? 

 

Question-3 “Despite the tax disadvantage of dividends and the costs associated with external equity, firms pay dividends.” In light of the above statement explain various reasons behind payment of dividends by firms?

Reference no: EM13868128

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