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ACC501 Business Finance-Assignment NO 2 Spring 2014 Due Date 25th July 2014
Important:
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To open the assignment file, you must have Adobe Acrobat Reader/ PDF Reader installed on your computer.
For acquiring the relevant knowledge, do not rely only on handouts but watch the course video lectures and read additional material available online or in any other mode.
Keeping your task into consideration, provide answers to the following:
1. Calculate net cash flows for 10 years. (10 Marks)
2. Evaluate the project by using the following capital budgeting techniques:
a. Payback Period (The desired payback period is 4.5 years) (04 Marks)
b. Net Present Value (10 Marks)
c. Profitability Index (03 Marks)
3. Is there any contradiction among the results of above used techniques? What would be your final recommendation regarding the acceptance/rejection of the project? Support your recommendation with financial rationale. (03 Marks)
profibility index = PV of future cah flows / initial investments
Net present value = The difference between an investment market value and its cost is called the NPV.
When cash inflows are even:
NPV = R × 1 − (1 + i)-n − Initial Investment
i
R= is the net cash inflow expected to be received each period;
i=is the required rate of return per period;
n =are the number of periods during which the project is expected to operate and generate cash inflows.
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