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    620669c280570504de6f585f Office Document

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    Paras Rastogi
    The document contains 7 questions about calculating net present value (NPV) for various investment projects. Projects are described with initial investments, expected cash flows over multiple years, salvage values, and required rates of return. Calculations are to determine which projects have positive NPV and should be accepted.

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    620669c280570504de6f585f Office Document

    Uploaded by

    Paras Rastogi
    10 views3 pages
    The document contains 7 questions about calculating net present value (NPV) for various investment projects. Projects are described with initial investments, expected cash flows over multiple years, salvage values, and required rates of return. Calculations are to determine which projects have positive NPV and should be accepted.

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    The document contains 7 questions about calculating net present value (NPV) for various investment projects. Projects are described with initial investments, expected cash flows over multiple years, salvage values, and required rates of return. Calculations are to determine which projects have positive NPV and should be accepted.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    10 views3 pages

    620669c280570504de6f585f Office Document

    Uploaded by

    Paras Rastogi
    The document contains 7 questions about calculating net present value (NPV) for various investment projects. Projects are described with initial investments, expected cash flows over multiple years, salvage values, and required rates of return. Calculations are to determine which projects have positive NPV and should be accepted.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    1.

    From the following information calculate the NPV of the two projects and suggest which
    of the two projects should be accepted assuming a discount rate of 10%.

    Project X Project Y
    Initial investment Rs 20,000 Rs 30,000
    Estimated Life 5 years 5 years
    Scrap value Rs 1,000 Rs 1,000
    The profit before depreciation and after taxes (cash flows) as follows:

    1 2 3 4 5
    Project X 5,000 10,000 10,000 3,000 2,000
    Project Y 20,000 10,000 5,000 3,000 2,000

    2. No project is acceptable unless the yield is 10%. Cash inflows of a certain project along
    with cash outflows are given below:

    Year Outflows Inflows


    0 1,50,000 --------------
    1 30,000 20,000
    2 30,000
    3 60,000
    4 80,000
    5 30,000
    th
    The salvage value at the end of 5 year is Rs. 40,000. Calculate Net Present Value.

    3. A choice is to be made between the two competing proposals which require an equal
    investment of Rs. 50,000 and are expected to generate net cash flow under:

    Years Project A (Rs) Project B (Rs )


    1 25,000 10,000
    2 15,000 12,000
    3 10,000 18,000
    4 Nil 25,000
    5 12,000 8,000
    6 6,000 4,000
    Cost of capital of the company is 10%. The following are the present value factor at 10%
    p.a.

    Year 1 2 3 4 5 6
    P.V factor @10% 0.909 0.826 0.751 0.683 0.621 0.564

    Which proposal should be selected using NPV method? Suggest the best project.
    4. The Gama Co.ltd, is considering the purchase of a new machine. Two alternative
    machines (X and Y have been suggested, each having an initial cost of Rs. 4,00,000 and
    requiring Rs. 20,000 as additional working capital at the end of the 1st year. Earnings after
    taxation are expected to be as follows:

    Cash inflows
    Year Machine X Machine Y
    1 40,000 1,20,000
    2 1,20,000 1,60,000
    3 1,60,000 2,00,000
    4 2,40,000 1,20,000
    5 1,60,000 80,000
    The company has a target of return on capital of 10% and on this, you are required to
    compare the profitability of the machines and state which alternative you consider financially
    preferable.

    Note: - The present value of Re. 1 due in ‘n’ number of years:

    Year : 1 2 3 4 5

    P.V at 10% : 0.91 0.83 0.75 0.68 0.62

    5. Calculate the NPV for a project, which require an initial investment of Rs. 20,000 and
    which, involves a net cash inflow of Rs. 6,000 each year for 6 years. Cost of funds is at
    8%.
    6. A new machine costs Rs 20,000, requires no increased investment in working capital and
    is expected to yield Rs.6,000 profit per year for 10years, at which time its scrap value
    will be negligible. Assume straight-line depreciation and a 30% tax rate.
    If management requires at least a 10% return on any new investment, would this
    investment qualify? At rate of return what is the present value of rupee of investments.
    7. No project is acceptable unless the yield is 10%. Cash inflows of a certain project along
    with cash outflows are given below.

    Year 0 1 2 3 4 5
    Cash 1,50,000 30,00 ---- ---- ----- ----
    outflow 0
    Cash ---- 20,00 30,000 60,000 80,00 30,000
    outflow 0 0
    The salvage value at the end of 5th year is Rs. 40,000. Calculate the NPV

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