Submitted by: Submitted by guglaniamit
Views: 272
Words: 410
Pages: 2
Category: Business and Industry
Date Submitted: 05/23/2011 12:52 PM
1.
(a) Project Cash Flows (Rs. in million)
Year 0 1 2 3 4 5 6 7
1. Plant & machinery (150)
2. Working capital (50)
3. Revenues 250 250 250 250 250 250 250
4. Costs (excluding de-
preciation & interest) 100 100 100 100 100 100 100
5. Depreciation 37.5 28.13 21.09 15.82 11.87 8.90 6.67
6. Profit before tax 112.5 121.87 128.91 134.18 138.13 141.1143.33
7. Tax 33.75 36.56 38.67 40.25 41.44 42.33 43.0
8. Profit after tax 78.75 85.31 90.24 93.93 96.69 98.77100.33
9. Net salvage value of
plant & machinery 48
10. Recovery of working 50
capital
11. Initial outlay (=1+2) (200)
12. Operating CF (= 8 + 5) 116.25 113.44 111.33 109.75 108.56 107.6 107.00
13. Terminal CF ( = 9 +10) 98
14. N C F (200) 116.25 113.44 111.33 109.75 108.56 107.67 205
(a) IRR (r) of the project can be obtained by solving the following equation for r
-200 + 116.25 x PVIF (r,1) + 113.44 x PVIF (r,2)
+ 111.33 x PVIF (r,3) + 109.75 x PVIF (r,4) + 108.56 x PVIF (r,5)
+107.67 x PVIF (r,6) + 205 x PVIF (r,7) = 0
Through a process of trial and error, we get r = 55.17%. The IRR of the project is 55.17%.
5. A. Initial outlay (at time 0)
i. Cost of new machine Rs. 400,000
ii. Salvage value of the old machine 90,000
iii. Net investment 310,000
B. Operating cash flow (years 1 through 5)
Year 1 2 3 4 5
i. Depreciation
of old machine 18000 14400 11520 9216 7373
ii. Depreciation
of new machine 100000 75000 56250 42188 31641
iii. Incremental
depreciation
( ii – i) 82000 60600 44730 32972 24268
iv. Tax savings on
incremental
depreciation
( 0.35 x (iii)) 28700 21210 15656 11540 8494
v. Operating cash
flow 28700 21210 15656...