Calculate the net present value for both machines

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Reference no: EM132476428

Fundamentals of Finance - Open University of Mauritius

Assignment

Part A
Excelsior Limited has the intention to purchase a new photocopying machine and has a choice between the following two machines:

	ASUS	XEROX
Initial cost	Rs 120 000	Rs 120 000
Expected economic life	5 years	5 years
Expected disposal/residual value	Rs12 500	0
Expected net cash inflows	Rs	Rs
End of: Year 1	-	35 000
Year 2	48 000	35 000
Year 3	37 000	35 000
Year 4	39 000	35 000
Year 5	31 000	35 000

The company estimates that its cost of capital is 9%.

Required:

Q1: Calculate the payback period for both machines. (answers must be expressed in years, months and days)

Q2: Calculate the discounted payback period for both machines (answers in years, months and days)

Q3: Calculate the net present value for both machines. (to the nearest Rupee)

Q4: the Profitability Index for Machine ASUX.

Q5: Calculate the Internal Rate of Return for both machines (Use interpolation to arrive at your final answer.)

Q6: Write a brief report to the management to determine whether the company should buy any photocopying machine.

Part B

Q1: Mr Bruce deposits Rs 500 every month for 10 years in his saving account paying 8 % interest per annum. He wants to determine how much sum of money he will have at the end of the 10th year if interest rate is compounded :

i) Annually
ii) Quarterly

Q1: Mr Willis would like to save a sum of money for his newborn son's college education. How much must he deposit in a savings account now if the account grows at a rate of 7% a year and he desires a balance of Rs1,200,000 eighteen years from now?

Part C

"Finance is crucial....."

With reference to a business of your choice, evaluate the validity of the above statement.

Reference no: EM132476428

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