ACC501 Assignment 1 Solution and Discussion


  • Cyberian's Gold

    SEMESTER FALL 2019
    

    BUSINESS FINANCE (ACC501)
    ASSIGNMENT NO. 01
    DUE DATE: JANUARY 27, 2020 MARKS: 20
    LEARNING OBJECTIVES:
    After attempting this assignment, the students will be able to:
     Evaluate any proposed project by using different capital budgeting techniques.
     Understand the difference between NPV and IRR.
     Derive inferences regarding the acceptance/rejections of the project.
    ASSIGNMENT:
    Alfa Corporation has identified the following two mutually exclusive projects. The CFO of the company wants to evaluate the identified projects. For this purpose he asked Mr. Naveed to evaluate those projects and establish their feasibility with the help of different capital budgeting techniques. Following are the details of the two mutually exclusive projects.

    Period Project A (Rs.) Project B (Rs.)
    0 -42,000 -42,000
    1 25,000 15,000
    2 21,000 17,000
    3 15,000 23,000
    4 11,000 27,000

    As per the company policy, Mr. Naveed decided to evaluate both projects with the help of IRR and NPV techniques of capital budgeting.
    Requirements:
    I. What is the IRR for each of these projects? Which project company should accept according to IRR rule? (13 Marks)
    II. What is the NPV for each of these projects? If the required rate of return is 12 percent. Which project company should accept according to NPV rule? (5 Marks)
    III. If the decision on the basis of NPV is different than that of IRR, which particular criteria company should prefer and why? (2 Marks)

     IMPORTANT INSTRUCTIONS:
    

     Complete calculations are required for every part of the problem. Incomplete calculations will result in loss of marks.
     Discount factors and resulting figures should not be rounded up more than four decimal digits.
    IMPORTANT:
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    OTHER IMPORTANT INSTRUCTIONS:
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     Use the font style “Times New Roman” or “Arial” and font size “12”.
     It is advised to compose your document in MS-Word format.
     You may also compose your assignment in Open Office format.
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    RULES FOR MARKING
    Please note that your assignment will not be graded or graded as Zero (0), if:
     It is submitted after the due date.
     The file you uploaded does not open or is corrupt.
     It is in any format other than MS-Word or Open Office; e.g. Excel, PowerPoint,
    PDF etc.
     It is cheated or copied from other students, internet, books, journals etc.
    Note related to load shedding: Please be proactive
    Dear students!
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  • Cyberian's Gold

    Q.1 Solution:
    3d630e23-897e-4f0a-9f23-dd54293205aa-image.png 8555233f-9514-46e4-839a-3efd0fa4f0b1-image.png

    Q.2 Solution:
    c33539af-1f75-4a50-93f2-1145cadc3bf9-image.png b4521319-fee5-4d50-828a-a21b883828bf-image.png


  • Cyberian's Gold

    Question 1

    I think 30% irr is better to calculate for project A

    where NPV is not equal to zero but near

    to find out irr go to excel and =irr(array) formula

    it will help u to find out the exect irr for any array

    And 29% for project B

    QUestion 2

    chose the project with high NPV

    Project B has higher NPV

    Question 3

    NPV is better capital budgeting technique then IRR.



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