ECO602 Assignment 2 Solution and Discussion

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    MARKS: 15
    Question 1
    Suppose MAC Estate & Builders Company is considering an investment project which requires initial investment of Rs.950,000. Annual cash inflows of this project from year 2019 to year 2024 are given in the following table.

    Years Annual cash Inflows (Rs.)
    2019 150,000
    2020 180,000
    2021 200,000
    2022 250,000
    2023 270,000
    2024 280,000

    Calculate net present value using 5% discount rate. Also suggest whether the project is acceptable or not.

    Question 2:
    Suppose PAIR Investment Company limited is working on a project whose profitability index value is 5. The present value of cash inflows of this project is Rs. 20,00,000. Calculate the present value of cash outflows of this project from given information.

    Question 3:
    Suppose a firm has two investment projects, A and B, under consideration. Data on Accounting Rate of Return (ARR) and Required Rate of Return of both projects is given

     in the table below:
    Projects Accounting Rate of Return (ARR) Required Rate of Return
    A 75% 60%
    B 55% 60%

    Consider the given data and logically discuss the firm’s decision about investment in projects A and B.
    (Marks: 5+5+5)
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