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[mc080203379]

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• Of MTH202 Spring 2011 Assignment#6 idea solution July 2011

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.

[viki]

bahi what is this ????

[mc080203379]

assignmnet hai kar k do... :P

[viki]

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

[viki]

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 ?????

[mc080203379]

samjh bhi do ab... :P

[sanam]

app ka nam kia hai g?

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