ALL UNIVERSITIES AND SERVICE COMMISSIONS PAST PAPERS IN PAKISTAN: Re: ::: vuaskari.com ::: FIN622 assignment discussion

Sunday, November 18, 2012

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

bro g itna tou maine pehly hi solve kar liya hai kindly tell me k profitability index kaise find karna hai ....aur IRR rate ko kaise use karna hai..

On Sun, Nov 18, 2012 at 12:40 PM, Hadayat-u-Allah Shahzad <hadayatskp@gmail.com> wrote:

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

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