Calculate internal rate of return ans1449 easwar

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Calculate internal rate of return [Ans:14.49 %] Easwar limited company is considering an investment in a project with a capital outlay of Rs.2,00,000. The estimated annual income after depreciation but before tax is Rs. 1,00,000; each in the first and second year 80,000; each in the third and fourth year and Rs.40,000 in the fifth year. Depreciation may be taken at 20% on original cost and taxation at 50% of net income you are required to evaluate the project according to each of the following method: a) Payback period method b) Rate of return on original investment method c) Rate of return on average investment method d) Net present value method discounting in flow at 10% YEAR 1 2 3 4 5 P.V.F 0.909 0.826 0.751 0.683 0.621 Ans : a)2.25 years b)20 % c) 40 % d) 1,08,130 The expected cash flows of a project are as follows : Year 0 1 2 3 4 5 Cash flow 1,00,000 20,000 30,000 40,000 50,000 30,000 The cost of capital is 12% calculate: a) NPV (b) IRR (c) Payback period and (d) Discounted payback period Ans: a ) 19,060 b) 20.56% c) 3 years 2 months d) 3 yrs 11 months Capital rationing A ltd. has an investment budget of Rs.25 Lakh for next year.it has under consideration three projects A,B and C(B and C are mutually exclusive )and all of them can be completed within a year. Further details are given below : Project Investment required Net present value A B C 14 12 10 5.6 7.2 5.0 Recommend the best policy to utilize budget, supported by proper reasoning [Ans: A&B is not possible as investment required exceeds Rs.25 lakh. B&C is not possible as they are mutually exclusive projects:
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241 A&C is only possible option thought NPV is lowest(i.e.,10.6lakh] 1. In capital rationing situation (investment limit Rs.25 Lakh ),suggest the most desirable feasible combination on the basis of the following data (indicate justification) Project Initial outlay NPV A B C D 15 10 7.5 6 6 4.5 3.6 3 Project B and C are mutually exclusive. [Ans: Projects A and B combination give highest NPV of Rs. 10.50 lakh. by undertaking these projects wealth maximization is possible] 2. APJ Ltd. has the following proposals Project Cost Net present value A B C D E 1,00,000 3,00,000 50,000 2,00,000 1,00,000 20,000 35,000 16,000 25,000 30,000 Total funds available are Rs.3, 00,000 determine the optimal combination of projects assuming that (i) the projects are divisible and (ii) if the projects are not divisible [Ans i. The company can get a NPV OF Rs.72,125 by selecting projects C+E+A+ ¼ of D; ii. (ii)Combination of A+C+E(Total outlay Rs 2,50,000) is the best it gives a maximum NPV of Rs.66,000] 3. Ram Ltd is considering the following six proposals Project Cost NPV 1 2 3 4 5 6 1,000 6,000 5,000 2,000 2,500 500 210 1,560 850 260 500 95 You are required to calculate the profitability index for each projects and rank them which projects would you choose if the total funds are Rs.8000. [Ans: P.I:P1:1.21; P2:1.26; P3:1.17; P4:1.13; P5:1.20; P6:1.19;1,2 and 6 is the best combination as it gives the highest NPV of Rs.1,865]
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242 OTHER PROBLEMS FOR BEST PRACTICE 1. Evaluation of Cash Flows. Below are the cash flows for two mutually exclusive projects.
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