mgt411 idea solution assignment no 1 spring 2011

[Vuhelper]

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for full solution in attachment



For IRR
( ) ( ) ( ) ( 1 2 3 )4 ( )5
1 2 3 4 5 0
1 1 1 1 1 O
CF CF CF CF CF CF
IRR IRR IRR IRR IRR
+ + + + + =
+ + + + +
USING TRIAL AND ERROR METHOD, we try with some IRR, and continue until
find the rate that forces the equation to equal to zero. The discount rate that causes the
equation to equal to zero will be IRR.
Let put the IRR =10 PERCENT THEN
( ) ( ) ( ) ( ) ( )
( ) ( ) ( ) ( ) ( )
1 2 3 4 5
1 2 3 4 5
1 2 3 4 5 0
1 1 1 1 1
, , , , , , , 0
1 0.10 1 0.10 1 0.10 1 0.10 1 0.10
2000000 2084932.71 0
O
CF CF CF CF CF CF
IRR IRR IRR IRR IRR
+ + + + + =
+ + + + +
- + + + + + =
+ + + + +
- + =
2 000 000 550 000 550 000 550 000 550 000 550 000
THIS IS NOT SUITABLE,BECAUSE ITS ANSWER NOT BRING THE
EQUATION TO ZERO, the IRR will be HIGHER from this, now tries with the 15
percent
( ) ( ) ( ) ( ) ( )
( ) ( ) ( ) ( ) ( )
1 2 3 4 5
1 2 3 4 5
1 2 3 4 5 0
1 1 1 1 1
, , , , , , , 0
1 0.15 1 0.15 1 0.15 1 0.15 1 0.15
2000000 1843693.049 0
O
CF CF CF CF CF CF
IRR IRR IRR IRR IRR
+ + + + +

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[Xpert]

What kind of assignment it is.

[ahsan_ali]

Yeh ki bongiyan mari hain

[ahsan_ali]

or sath ye har assignment k solution ko Zip karne ka kia maqsaad ha is tarhan students or mushkil main parh jate hain time ni hota hamre pass itna k extract karne bethain

[Xpert]

Zip say size chota ho jata hai. Jo students kay liya munasib hai. Warna barday size say masla ho sakta hai.

[shebi]

yar 3rd question ka solution b snd kr dain

[Xpert]

post kahan par mari hai janab na?

[ahsan_ali]

Acha g theek ha ....

[Vuhelper]

full solve assignment in attachment


“Money & Banking (MGT411)”
Mr Ahmad, the director of Supreme Textile Limited, is deciding to install a new plant for fiber spinning. Mr Ahmad has a choice to install a plant that will transform the raw cotton into yarn, project costs Rs 2,000,000/- and will generate revenue of Rs 550,000 for the next five years.

Assume the company’s discount rate/cost of borrowing is 9%.
Calculate IRR for above project by using trial and error method.
The IRR is calculated by a trial and error process
1. The NPV is calculated using discount rate r.
2. If the NPV is close to zero then r is the IRR.
3. If the NPV is positive r is increased.
4. If the NPV is negative r is decreased.
First we calculate the NPV using the discount rate which is 9% given in question
NPV = CF0 + CF1/ (1+r) + CF2/ (1+r) 2 + CF3/ (1+r) 3 +CF4/ (1+r) 4 + CF5/ (1+r) 5
0= -2000000+550000/ (1.09) +550000(1.09)2+550000(1.09) 3 +550000(1.09)4 +550000(1.09)5
0= -2000000+504587+462924+424700+389633+357462
0= 139306
It is Positive so we increased our r 9% to 12% and use 12% instead of 9%
NPV = CF0 + CF1/(1+r) + CF2/(1+r)2 + CF3/(1+r)3 +CF4/(1+r)4 + CF5/(1+r)5
0= -2000000+550000/ (1.12) +550000(1.12)2+550000(1.12) 3 +550000(1.12)4 +550000(1.12)5
0= -2000000+491071+438456+391479+349534+312085
0= -17375