Re: ::: vuaskari.com ::: FIN622 assignment discussion

Question No. 1

Calculate the Net Present Value and Profitability Index for each project.

Year	Project Alpha Rs.(000)	Project Beta Rs.(000)
0	(200,000)	(200,000)
1	60,000	55,000
2	80,000	65,000
3	75,000	70,000
4	60,000	80,000

Ans:   

Present value of Project Alpha.

As we know that

NPV=Sum of Net Cash Flows from each future year – Initial investment

In the preset question we have 4 years cash flows so we will calculate one by one as…

PV (CF1) =  =  = 53,428.317

PV (CF2) =  =80,000/ (1.123^2) = 63,435.224

PV (CF2) =  = 75,000/ (1.123^3) = 52,956.832

PV (CF2) =  = 60,000/ (1.123^4) = 37,725.259

TOTAL CASH FLOWS = 2, 07,545.632                  Now,

 

NPV=Sum of Net Cash Flows from each future year – Initial investment

NPV= 2, 07,545.632 – 200,000

NPV= 7545.632 or 7546        in positive

 

Present value of Project Beta.

 

PV (CF1) =  =  = 48,975.957

PV (CF2) =  =65,000/ (1.123^2) = 51,541.119

PV (CF2) =  = 70,000/ (1.123^3) = 49,426.376

PV (CF2) =  = 80,000/ (1.123^4) = 50,300.345

TOTAL CASH FLOWS = 200,243.797                    Now,

 

NPV=Sum of Net Cash Flows from each future year – Initial investment

NPV= 200243.797 – 200,000

NPV= 243.797 or 244            in positive

--
We say, "Be one as Pakistani Nation and grow up for Pakistan's Future". Wish you all the best. Join www.vuaskari.com,
To post to this group, send email to vuaskari_com@googlegroups.com
Visit these groups:
This (Main) Group:http://groups.google.com/group/vuaskari_com?hl=en?hl=en
MIT/MCS Group: http://groups.google.com/group/vu_askarimit?hl=en?hl=en
HRM Group: http://groups.google.com/group/askari_hrm?hl=en?hl=en
Banking Group: http://groups.google.com/group/askari_banking?hl=en?hl=en
Management: https://groups.google.com/group/vuaskari_mgt?hl=en
Marketing: https://groups.google.com/group/vuaskari_mkt?hl=en
MIS Group: http://groups.google.com/group/askari_mis?hl=en