MGT201 Financial Management Assignment No.1 Solution Spring Semester 2013

SNT Company is considering purchase of a new plant and machinery to supplement its manufacturing process. It has been anticipated that the new plant and machinery will involve an immediate cash investment of Rs. 500,000 and Rs. 8,000,000 in year 1. The after-tax cash inflows will be Rs. 150,000, Rs. 200,000 and Rs. 250,000 for year 2, 3 and 4 respectively. Afterwards, there will be a cash inflow of Rs. 300,000 each year from year 5 to year 10. Though the plant might be viable after 10 years but the company prefers to be conservative and end all calculations at that time. The company’s required rate of return is 14 percent.

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Considering yourself as financial analyst of the company, you are required to make the following calculations along with interpretations: