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ACC501 Assignment 1 Solution and Discussion
SEMESTER FALL 2019
BUSINESS FINANCE (ACC501)
ASSIGNMENT NO. 01
DUE DATE: JANUARY 27, 2020 MARKS: 20
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.
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.
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)
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.
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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
chose the project with high NPV
Project B has higher NPV
NPV is better capital budgeting technique then IRR.