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    Section - A:: (15 Marks)

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    Anonymous duzV27Mx3
    This document contains information about capital budgeting techniques for evaluating three potential projects - Project A, B, and C. It provides the expected cash flows for each project over three years and notes they have similar risk profiles to the firm's average risk of 12%. It asks to calculate various capital budgeting metrics for each project: 1) Payback period and discounted payback period for Projects A and B. 2) Net present value for all three projects using a 12% discount rate. 3) Profitability index for all three projects. 4) Accounting rate of return for Projects A and B, providing projected profit after tax figures for each over three years.

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    Section - A:: (15 Marks)

    Uploaded by

    Anonymous duzV27Mx3
    55 views2 pages
    This document contains information about capital budgeting techniques for evaluating three potential projects - Project A, B, and C. It provides the expected cash flows for each project over three years and notes they have similar risk profiles to the firm's average risk of 12%. It asks to calculate various capital budgeting metrics for each project: 1) Payback period and discounted payback period for Projects A and B. 2) Net present value for all three projects using a 12% discount rate. 3) Profitability index for all three projects. 4) Accounting rate of return for Projects A and B, providing projected profit after tax figures for each over three years.

    Original Description:

    Financial management questions

    Original Title

    FM 2015

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    This document contains information about capital budgeting techniques for evaluating three potential projects - Project A, B, and C. It provides the expected cash flows for each project over three years and notes they have similar risk profiles to the firm's average risk of 12%. It asks to calculate various capital budgeting metrics for each project: 1) Payback period and discounted payback period for Projects A and B. 2) Net present value for all three projects using a 12% discount rate. 3) Profitability index for all three projects. 4) Accounting rate of return for Projects A and B, providing projected profit after tax figures for each over three years.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    55 views2 pages

    Section - A:: (15 Marks)

    Uploaded by

    Anonymous duzV27Mx3
    This document contains information about capital budgeting techniques for evaluating three potential projects - Project A, B, and C. It provides the expected cash flows for each project over three years and notes they have similar risk profiles to the firm's average risk of 12%. It asks to calculate various capital budgeting metrics for each project: 1) Payback period and discounted payback period for Projects A and B. 2) Net present value for all three projects using a 12% discount rate. 3) Profitability index for all three projects. 4) Accounting rate of return for Projects A and B, providing projected profit after tax figures for each over three years.

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    Section - A: Each question carries 05 marks.

    [15 Marks]
    1
    2
    3

    What do you mean by Shareholders wealth maximization (SWM)? How


    Shareholders wealth maximization is different than profit maximization?
    What do you mean by Financial system? Discuss the components of formal financial
    system.
    What is capital budgeting? Discuss the process of capital budgeting.

    Section B:
    Marks]
    4

    [10

    A firm borrows Rs. 20,00,000 at an interest rate of 15% and the loan is to be repaid
    in five equal installments payable at the end of each of the next five years. Answer
    the following
    a Calculate annual installment payment amount.
    b Prepare loan amortization table showing the breakup of Interest and Principle
    amount in each installment and balance of loan left to be paid every year.

    Section - C:

    [15

    Marks]
    5

    Ashish limited is a leading manufacturer of automotive components. It supplies to


    the original equipment manufacturers as well as the replacement market. Its
    projects typically have a short life as it introduces new models periodically.
    As a Financial Analyst of the company you are provided with the following
    information of three projects.
    Project A - Extension of an existing line.
    Project B - New product.
    Project C - sponsoring a pavilion at a Trade fair.
    The expected net cash flows of the three projects are as follows:
    Year

    Project A

    (30,000)

    1
    2
    3

    22,000
    14,000
    9,600

    Project
    B
    (30,000
    )
    7,000
    16,000
    26,000

    Project C
    (30,000)
    84,000
    (4,000)
    -----

    CFO of the company believes that all three projects have risk characteristics similar
    to the average risk of the firm and hence the firm's cost of capital, viz. 12 percent,
    will apply to them.
    You are required to evaluate the projects under following:
    a) What is pay back period (PBP) and discounted pay back period (DPBP)?
    Calculate the PBP and DPBP for Project A and B.
    b) What is Net present value (NPV)? Calculate the NPV for all three projects.
    c) What is profitability Index (PI)? Calculate PI for all three projects.

    d) What do you mean by Accounting/Average rate of return (ARR)? Calculate


    ARR
    for
    Project
    A
    and B. (Projected Profit after tax (PAT) of project A is Rs. 12,000, Rs. 4,000,
    and Rs. (400) for first, second and third year respectively. And for Project B
    projected PAT is Rs. (3,000), Rs. 6,000 and Rs. 16,000 for first, second and
    third year respectively).

    *******

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