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QUESTION 1

a)Matahari Architechture is planning to venture into new project and is currently gauging the

viability and profitability of two mutually exclusive projects. Provided below is the after tax cash flow for both systems.


Year                      Project A ($)                               Project B ($)

0                               (580,000)                                      (600,000)

1                                100,000                                         200,000

2                                150,000                                          200,000

3                                 200,000                                         200,000

4                                  230,000                                         200,000

5                                  270,000                                         200,000

 

The firm's cost of capital is 12 percent. Calculate:

i)                   the Payback period for both projects.

ii)                  the Net present value for the two projects. 

iii)                the Internal rate of return for project B only.

iv)                Which project should be selected and state the reason.

 

b) Differentiate between independent project and mutually exclusive project.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

QUESTION 2

a) Laila Enterprise has estimated that the company requires 32,000 units of t-shirt as its Inventory for the year 2019. One unit of doll will be purchased at $8.50. The supplier will deliver the order in 14 days after it has been placed. Cost per order is estimated at $102 and holding cost will be at 20 percent of purchased price. Usually the company carries 2,500 units of safety stock. The company works 360-days per year.

i)Determine the optimal Economic Order Quantity (EOQ). Orders must be placed in 200 units.

ii) What is the average inventory?

iii) What is the reorder point?

iv) What is the company's total inventory cost of the year?


b) Victor Buyck Company is planning to determine the firm's minimum operating cash to reduce the firm's cost of investment Presently the firm is holding $30,000 cash on the average continuously. The firm is selling on term 3/10 net 50. All customers normally pay on the last day. The firm pays all credit purchases on net 35. The firm takes 30 days to produce and 25 days to collect its account receivable. The firm's yearly cash outlay is $400,000. (use 360 days in a year). Calculate:


i)the cash cycle.

ii)the cash turnover.

iii) the minimum operating cash balance the firm must maintain to meet its obligation.

iv) is the current cash holding sufficient to meet its needs? Why?

Top Answer

1. a. (i) The PBP for project A is 3.56 years and for project B is 3 years. (ii) The NPV for project A is $70,595.25 and the... View the full answer

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