Department of Finance

FIN 3323 Financial Modeling and Forecasting

Practical Session 01 Financial Functions

Question 01
Kelsen PLC is looking forward to invest in a project which will initially cost the company
Rs.1 Million to commence operations. This project is expected to generate the following year-
end net cash flows throughout its life of five years.

Year 1 2 3 4 5

Net cash flow (Rs.) 200,000 200,000 400,000 400,000 500,000

The cost of capital applicable for the project is 15% p.a.

Based on the above information, you are required to,

i. Determine the NPV of the project using the time line approach, and NPV function.
ii. Determine the IRR of the project using IRR function.
iii. Graphically present the relationship between the cost of capital and NPV of this project.
(You may use cost of capital values of 10%, 11%,., 20% p.a.)

Question 02
Assume that an year-end annual cash flow of Rs.500,000 is to be received for five years. The
appropriate discount rate is 12% p.a.

Determine the following;

i. Present value of the series of cash flows using the time line approach, formula, and the
PV function.
ii. Future value of the series of cash flows (at the end of year 5) using the time line
approach, formula, and the FV function.
iii. Annual cash flow using PMT function.
iv. Underlying discount rate using RATE function.
v. Number of cash flows using NPER function.
vi. Sections i. to v. above assuming that the cash flows are received at the beginning of
each year for five years under the same discount rate.

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Question 03
FinanceFirst PLC has agreed to provide a housing loan of Rs.3,000,000 to you which has to be
repaid at 14% p.a. in 10 equal annual installments.
i. Calculate the value of the annual installment, assuming you agreed to pay it at the end
of each year (starting from the first year) using the formula and the PMT function.
ii. What would be the outstanding amount of the loan (using the Formula and the PV
Function) after three years?
iii. Construct a loan amortization schedule for the loan repayment period.
iv. Redo above sections assuming that you agreed to pay the loan installment at the
beginning of each year, starting from the first year (assume other factors remain
constant).

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