demand and supply, Degree thesis for Financial Accounting. Virtual University of Pakistan
riffat.a.khan.71
riffat.a.khan.7110 April 2013

demand and supply, Degree thesis for Financial Accounting. Virtual University of Pakistan

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Assignment No.01 by Riffat Ali Khan

Corporate-finance FIN-622

Answer No. 01

Calculation of NPV of Project Alpha & Beta

Calculation of NPV of Project Alpha NPVa = -Io+PV PV = [(CIF1)/(1+I)1] + [(CIF2)/(1+I)2] +[(CIF3)/(1+I)3] + [(CIF4)/(1+I)4] +[(PV)/ (1+I)4]

= [(60,000)/(1+.123)1] + [(80,000)/(1+.123)2] +[(75,000)/(1+.123)3] + [(60,000)/(1+.123)4]

= [(60,000)/(1.123)1] + [(80,000)/(1.123)2] +[(75,000)/(1.123)3] + [(60,000)/(1.123)4] = [60,000/1.123] + [80,000/1.2611] +[75,000/1.4162] + [60,000/1.5904] = [53,428.317] + [63,436.682] + [52,958.621] + [37,726.358] = 2,07,549.978

NPVa = -Io+PV = -200,000+2, 07,549.978 = 7,549.978

Calculation of NPV of Project Beta NPVb = -Io+PV PV = [(CIF1)/(1+I)1] + [(CIF2)/(1+I)2] +[(CIF3)/(1+I)3] + [(CIF4)/(1+I)4] +[(PV)/ (1+I)4]

= [(55,000)/(1+.123)1] + [(65,000)/(1+.123)2] +[(70,000)/(1+.123)3] + [(80,000)/(1+.123)4]

= [(55,000)/(1.123)1] + [(65,000)/(1.123)2] +[(70,000)/(1.123)3] + [(80,000)/(1.123)4] = [55,000/1.123] + [65,000/1.2611] +[70,000/1.4162] + [80,000/1.5904] = [48,975.957] + [51,542.304] + [49,428.046] + [50,301.810] = 200248.117

NPVb = -Io+PV = -200,000+200248.117 = 248.117

Calculation of NPV of Project Alpha PIa = PVa/-Io

= 2,07,549.978/200,000 = 1.037

PIb = PVb/-Io = 200248.117/200,000 = 1.001

Answer No. 02 Alpha Project is selected using NPV. NPV of Alpha project is higher than Beta Project. I will choose project Alpha as using NPV as the higher/positive NPV is better decision of project selection.

Answer No. 03 Alpha Project is selected using PI PI of Alpha project is higher than Beta Project. I will choose project Alpha as using PI as the higher/ positive PI is better decision of project selection. Answer No. 04 Alpha Project is selected using IRR IRR of Alpha project is higher than Beta Project. I will choose project Alpha as using IRR as the higher/positive IRR is better decision of project selection.

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