Which projects do you accept and which project do you reject

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Reference no: EM132075114

Questions :

 1.  Payback Period - Given the cash flows of the four projects, A, B, C, and D, and using the Payback Period decision model, which projects do you accept and which projects do you reject with a three year cut-off period for recapturing the initial cash outflow? Assume that the cash flows are equally distributed over the year for Payback Period calculations.

Projects

A

B

C

D

Cost

$10,000

$25,000

$45,000

$100,000

Cash Flow Year  One

$4,000

$2,000

$10,000

$40,000

Cash Flow Year Two

$4,000

$8,000

$15,000

$30,000

Cash Flow Year Three

$4,000

$14,000

$20,000

$20,000

Cash Flow Year Four

$4,000

$20,000

$20,000

$10,000

Cash Flow year Five

$4,000

$26,000

$15,000

$0

Cash Flow Year Six

$4,000

$32,000

$10,000

$0

2. The following information is available from Tina Ltd. as at 31st March,

2017:

 

Capital :

Amount in $

1,000, 5% Preference Shares of $. 100 each fully paid

1,00,000

2,000 Equity Shares of $. 100 each fully paid

   2,00,000

Reserve and Surplus

 2,00,000

6% Debentures

  1,00,000

Current Liabilities

  1,00,000

 

Assets: Fixed Assets

   4,00,000

Current Assets

  3,00,000

For the purpose of valuation of shares, fixed assets and current assets are to be depreciated by 10% ; Interest on debentures is due for six months; preference dividend is also due for the year. Neither of these has been provided for in the balance sheet.

Calculate the value of each equity share under Net Asset Method.

3. Capital Budgeting is one of the crucial decisions of the financial management. Explain the significant process of capital budgeting at the time of implementing a new project.

Reference no: EM132075114

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