Solve the following using MS Excel

1. A project will cost Rs 50,000 today. It is expected to generate cash flows of Rs 30,000, Rs 25,000 and Rs 15,000 each year through year 1 to 3. The discount rate is 18%. Calculate the project's NPV and IRR.

2. A firm whose cost of capital is 10% is considering two mutually exclusive projects X and Y with details as follows:

ParticularsProject X

(Rs)Project Y

(Rs)

Investment 70,000 70,000

Cash flow in year 1 10,000 50,000

Cash flow in year 2 20,000 40,000

Cash flow in year 3 30,000 20,000

Cash flow in year 4 45,000 10,000

Cash flow in year 5 60,000 10,000

Evaluate the projects using discounted cash flow methods.

3. Case study:Calmex is situated in North India and specializes in manufacturing overhead water tanks. The company is thinking of producing a new type of overhead water tank. The survey of the company’s marketing department reveals that the company could sell 1,20,000 tanks each year for 6 years at a price of Rs 1,500 each. As the current facilities cannot be used , it will have to buy a new machinery. A manufacturer offered two options for the company. One is that the company can buy four small machines with the capacity of manufacturing 30,000 tanks at Rs 115million each. The machine operation and manufacturing cost of each tank will be Rs 535. Alternatively, Calmex can buy a larger machine with a capacity of 120,000 units per annum for Rs 500 million. The machine operation and manufacturing costs of each tank will be Rs 450. The company has a required rate of return of 12%. Assume the company does not pay any taxes.

i. Which option should the company accept? Use the most suitable method of evaluation to give your recommendation and state your assumptions.

ii. Give the computation of alternative methods.

B.S. ABDUR RAHMAN UNIVERSITYCRESCENT BUSINESS SCHOOL

MS 622 FINANCIAL MANAGEMENTASSIGNMENT – 2

Date of submission: 14.03.2011Solve the following case:G.S. Petropull Company is a fast growing profitable company. Its sales are expected to grow about three times from Rs 360 million in 2003-04 to Rs 1,100 million in 2004-05. The company is considering of commissioning a 35 Km pipeline between two areas to carry gas to a state electricity board. The project will cost Rs 250 million. The revenue from sale to SEB is expected to be Rs 120 million per annum. The pipeline will also be used for transportation of LNG to other users in the area. This is expected to bring additional revenue of Rs 80 million per annum. The useful life of the pipeline is 20 years. The financial manager estimates cash profit to sales ratio of 20% per annum for first 12 years and 17% per annum for the remaining life of the project. The project has no salvage value. The project being in backward area is exempt from paying taxes. The company requires a rate of return of 15% from the project.

i. What is the project’s payback and ARR?ii. Compute project’s NPV and IRR.

iii. Should the project be accepted and why?