Calculate irr and npv rate, Financial Management

Assignment Help:

Question 1

You have been asked by the president of your company to evaluate the proposed acquisition of a new special purpose truck. The truck's basic price is Rs.50,000 and it will cost another Rs.10,000 to modify it for special use by your firm. The truck falls into MACRS three-year class and it will be sold after three years for Rs.20,000. Use of the truck will require an increase in net working capital (spare parts inventory) of Rs.2,000. The truck will have no effect on revenues. But it is expected to save the firm Rs.20,000 per year in before tax operating costs, mainly labor. The firm's marginal tax rate is 40%.

(a)    What is the net investment in the truck? (That is, what is the  Year 0 net cash flow?)

(b)    What is operating cash flow in Year 1, 2 and 3?

(c)    The truck's cost of capital is 10%. What is NPV?

(d)   What is additional (non-operating) cash flow in Year 3?

Question 2

(a) Pak manufacturers are able to reduce average inventory levels to Rs.250 billion and average accounts receivable to Rs.300 billion.

At the same level of inventories, accounts receivable and accounts payable, Pak manufacturers can increase production and sales by 10%. What will be the effect on the cash conversion cycle?

(b) Suppose Pak manufacturers are able to reduce average inventory levels to Rs.250 billion and average accounts receivable to Rs.300 billion. By how many days will this reduce the cash conversion cycle?

Question 3

Given the following information, what is the required cash flows associated with the acquisition of a new machine that is in project analysis, what is the cash outflow at t = 0?

Purchase price of new machine                                       Rs.8,000

Installation chare                                                              2,000

Market value of old machine                                               2,000

Book value of old machine                                                 1,000

Inventory decrease if new machine is installed                     1,000

Accounts payable increase if new machine is installed              500

Tax rate                                                                                      34%

Cost of capital                                                                             15%

 

Question 4

Calculate NPV of an investment project with the following characteristics:

Units sold per year                  55,000

Price per unit                          Rs.800

Variable cost per unit             Rs.720

Fixed cost                                    0

Initial cost                              Rs.20 million

List of project                          10 years

Discount rate                              10%

Depreciation                       straight line

Tax rate                                     34%

(a)    Suppose an additional investment of Rs.5 million would reduce the variable cost per unit to Rs.700. figure NPV of this alternative.

(b)   What is the break-even (NPV) number of units for the two alternatives?

Question 5

The Lucky star Mining Co. is considering reopening one of its old silver mines. New extraction techniques will allow the company to mine one year production of silver worth Rs.3 million in after-tax profit. However, in the second year of operation, the cost of returning the mine to the natural condition mandated by law will cost Rs.1 million. Opening and preparing the mine will cost rs.1 million in the present year. The cost of capital is 8%.

(a)  What is the NPV of the reopened mine?

(b)   What is the IRR?


Related Discussions:- Calculate irr and npv rate

Business proposal of a pet care shop, With the advent of globalization ther...

With the advent of globalization there had been much importance which is being given to the issues related to the general health of pets and other associated services as the people

Define modern approach of financial management, Define Modern Approach of f...

Define Modern Approach of financial management Modern approach views the term financial management in a broad sense and provides a conceptual and analytical framework for fina

Price of equity shares, please give us the formula of price of equity share...

please give us the formula of price of equity shares of walter''s and gordon''s model

What is an lbo, What is an LBO? What are the risks for the equity investor...

What is an LBO? What are the risks for the equity investors and what are the potential rewards? A leveraged buyout is a buy of a publicly owned corporation by a small group of

Regarding the assigment below, a-ii, should i calculate the co-variance of ...

a-ii, should i calculate the co-variance of the 30 securities?

par value, The face value of the debt security can be thought of as ...

The face value of the debt security can be thought of as the principal amount on which interest is paid by the issuer. It is the amount the issuer is willing to r

Portfolio management a financial tool for a firm''net worth, I need your...

I need your assistance on how to group the relevant data so as to help me in the data analysis

Estimate the npv of the project?, Wing Yin Tsui, CEO of Lian Huang & Wong B...

Wing Yin Tsui, CEO of Lian Huang & Wong Bin Dean Hwang Manufacturing Limited is considering a four year project. The project requires an initial investment of $10,000,000 to buy ne

Benefits of the proposed policy change, Q. Benefits of the proposed policy ...

Q. Benefits of the proposed policy change? Short-term sources of debt finance comprise overdrafts and short-term loans. An overdraft offers elasticity but since it is technical

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd