ACC501 Assignment 1 Solution and Discussion

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:
24 hours extra / grace period after the due date is usually available to overcome uploading difficulties. This extra time should only be used to meet the emergencies and above mentioned due dates should always be treated as final to avoid any inconvenience.
OTHER IMPORTANT INSTRUCTIONS:
DEADLINE:
Make sure to upload the solution file before the due date on VULMS.
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FORMATTING GUIDELINES:
Use the font style “Times New Roman” or “Arial” and font size “12”.
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You may also compose your assignment in Open Office format.
Use black and blue font colors only.
RULES FOR MARKING
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It is submitted after the due date.
The file you uploaded does not open or is corrupt.
It is in any format other than MSWord 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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Q.1 Solution:
Q.2 Solution:

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.