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Thread: Mgt 201

  1. #1
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    18 Mgt 201

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    Opening a new branch....A capital investment
    The Premier National Bank has just a single banking office located in a small city Chitral.
    As per the changing style of population and emerging trends in the banking sector,
    Premier National Bank has seen its share of both local banking deposits and profits
    decline. Two of the bank’s vice presidents have proposed that Premier National Bank
    should try to reverse the trend by building a branch in a new location of this small city.
    They have presented the following information to the Bank’s executive committee.

    The initial cost of the bank building and equipment is Rs.1 million. This facility is
    expected to have a useful life of 10 years. Also, in 10 years at the end of the project, the
    branch building and its equipment are expected to be sold for Rs.200,000 salvage value.
    The branch building and equipment will be depreciated over their 10-years life using
    straight-line depreciation. Moreover, the bank’s building is to be constructed on land
    leased for Rs.20,000 per year.
    Based on customer survey, population trends, the location of competitors, and the
    experience other area banks have had with their branches, it is estimated that the annual
    revenues from the new branch will be:
    Year 1-6 Rs. 510,000 each year
    Year 7 410,000
    Year 8 450,000
    Year 9 500,000
    Year 10 400,000

    In addition to Rs.20,000 annual expenses for the land lease, the new branch will incur
    about Rs.230,000 per year in other expenses including personnel costs, utilities and
    interest paid on accounts. Both expenses and revenues are expected to remain
    approximately constant over the branch’s 10-year life. The bank’s cost of capital is 9%
    after taxes.
    Based on the information contained in the case, use Net Present Value decision criteria to
    suggest whether it is feasible for Premier National Bank to start the new branch in such a
    small city.

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  2. #2
    Senior Member viki's Avatar
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    bahi what is this ????

  3. #3
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    assignmnet hai kar k do... :P

  4. #4
    Senior Member viki's Avatar
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    Net Cash Inflow / Out flow

    Yearly Cash Inflow / Outflow
    1. 510,000 – 20,000 – 230,000 = 260,000
    2. 510,000 – 20,000 – 230,000 = 260,000
    3. 510,000 – 20,000 – 230,000 = 260,000
    4. 510,000 – 20,000 – 230,000 = 260,000
    5. 510,000 – 20,000 – 230,000 = 260,000
    6. 510,000 – 20,000 – 230,000 = 260,000
    7. 410,000 – 20,000 – 230,000 = 160,000
    8. 450,000 – 20,000 – 230,000 = 200,000
    9. 500,000 – 20,000 – 230,000 = 250,000
    10. 600,000 – 20,000 – 230,000 = 350,000 (Including Residual Value)
    2,520,000

  5. #5
    Senior Member viki's Avatar
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    Arrow

    PV (CF1) = CF1 / (1+ i)^1 = 260,000 / (1.09)^1 = 238,532/-
    PV (CF2) = CF2 / (1+ i)^2 = 260,000 / (1.09)^2 = 218,837/-
    PV (CF3) = CF3 / (1+ i)^3 = 260,000 / (1.09)^3 = 200,768/-
    PV (CF4) = CF4 / (1+ i)^4 = 260,000 / (1.09)^4 = 184,191/-
    PV (CF5) = CF5 / (1+ i)^5 = 260,000 / (1.09)^5 = 168,982/-
    PV (CF6) = CF6 / (1+ i)^6 = 260,000 / (1.09)^6 = 155,030/-
    PV (CF7) = CF7 / (1+ i)^7 = 160,000 / (1.09)^7 = 87,525/-
    PV (CF8) = CF8 / (1+ i)^8 = 200,000 / (1.09)^8 = 100,373/-
    PV (CF9) = CF9 / (1+ i)^9 = 250,000 / (1.09)^9 = 115,107/-
    PV (CF10) = CF10/ (1+ i)^10 = 350,000 / (1.09)^10 = 147,844/-
    1,617,189/-

    hope u can make the soultion now let me know what u want ?????

  6. #6
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    samjh bhi do ab... :P

  7. #7
    Senior Member sanam's Avatar
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    app ka nam kia hai g?

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