Summarise the net cash flows for each opportunity

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Reference no: EM13873171

A brilliant UTM student at the end of his graduation is in presence of two opportunities and has to choose between them. One is a job offer with a salary of Rs15,000 per month (with no other benefits except for one month end of year bonus). It is expected that the monthly salary will increase on average by 10% every year for the first 5 years of his career. His personal costs amount to Rs5,000 per month and is expected to increase by 5% every year for the next 5 years. The next opportunity is the possibility of creating his own call centre which promises the following benefits: a steady revenue stream of Rs100,000 per month with an increase of 30% every year.

Operational costs for the call centre are about Rs65,000 per month and will increase by 10% each year for the fi rst 5 years. It is assumed that an investment of Rs500,000 will be required in the second case which will be granted as an interest free loan by the Government with annual repayments of Rs100,000 over the next 5 years.

(a) Summarise the net cash flows for each opportunity for a period of 5 years. For simplification purposes, ignore the effect of taxes (both corporate and income tax).

(b) Calculate the Net Present Value for each opportunity. Use 10% as discount rate.

(c) Which opportunity is better from the financial point of view?

Reference no: EM13873171

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