Reference no: EM132476953
Assignment question
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:
Question 1: Calculate the payback period for both machines. (answers must be expressed in years, months and days)
Question 2: Calculate the discounted payback period for both machines (answers in years, months and days)
Question 3: Calculate the net present value for both machines. (to the nearest Rupee)
Question 4: Calculate the Profitability Index for Machine ASUX.
Question 5: Calculate the Internal Rate of Return for both machines (Use interpolation to arrive at your final answer.)
Question 6: Write a brief report to the management to determine whether the company should buy any photocopying machine.
Part B
Question 1: 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
Question 2: 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.
Attachment:- Fundamentals of Finance.rar