Académique Documents
Professionnel Documents
Culture Documents
1. A project will cost Rs 50,000 today. It is expected to generate cash flows of Rs 30,000,
Rs 25,000 and Rs 15,000 each year through year 1 to 3. The discount rate is 18%.
Calculate the project's NPV and IRR.
2. A firm whose cost of capital is 10% is considering two mutually exclusive projects X and
Y with details as follows:
Project X Project Y
Particulars
(Rs) (Rs)
3. Case study:
Calmex is situated in North India and specializes in manufacturing overhead water tanks.
The company is thinking of producing a new type of overhead water tank. The survey of
the company’s marketing department reveals that the company could sell 1,20,000 tanks
each year for 6 years at a price of Rs 1,500 each. As the current facilities cannot be used ,
it will have to buy a new machinery. A manufacturer offered two options for the
company. One is that the company can buy four small machines with the capacity of
manufacturing 30,000 tanks at Rs 115million each. The machine operation and
manufacturing cost of each tank will be Rs 535. Alternatively, Calmex can buy a larger
machine with a capacity of 120,000 units per annum for Rs 500 million. The machine
operation and manufacturing costs of each tank will be Rs 450. The company has a
required rate of return of 12%. Assume the company does not pay any taxes.
i. Which option should the company accept? Use the most suitable method of
evaluation to give your recommendation and state your assumptions.
ii. Give the computation of alternative methods.
B.S. ABDUR RAHMAN UNIVERSITY
CRESCENT BUSINESS SCHOOL
MS 622 FINANCIAL MANAGEMENT
ASSIGNMENT – 2