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Assignment no 1 fall 2014 solved

Money & Banking MGT 411

Fall 2014

Assignment1 Solution

Student Id: Mc140201118

Solved:

Calculate the Present Value of 10 years’ future cash inflows (by using: net profit after tax figure
and 40% Discount rate.

First we calculate ten years present value for solution.

 The formula we use is as under:

Present Value 

                                     PV = FV/ (1+i) ^{n      = PV= 23, 32,115/ 28.92          = 806,400}

In this question first we calculate Present value so, we add all possible values.

Present Values are added by sum

94,123

274,257

355,033

382,847

340,376

270,619

213,335

167,584

131,312

102,629

23, 32,115

(B) By comparing Total Project Cost: Rs. 673,258 with the answer of “part a”, comment weather the project is profitable or not?

Answer:

 Project is Profitable because the amount of Answer A is greater much required amount.

c. Calculate the IRR of the project, by using the same cash inflows of Part a.
 

Solution:

Formula: IRR =   PV/1+i^n

Now: PV=   -80, 6400

Year 1                                           80, 6400/1.4          = 576, 000

Year 2                                           80, 6400/1.4^2       = 3, 31, 776

Year 3                                           80, 6400/1.4^3      = 1, 91, 102

Year 4                                           80, 6400/1.4^4       = 1, 10, 075

Year 5                                           80, 6400/1.4^5       = 6, 34, 03

Year 6                                           80, 6400/1.4^6       = 36, 520

Year 7                                           80, 6400/1.4^7       = 21, 035

Year 8                                           80, 6400/1.4^8       = 12, 116

Year 9                                           80, 6400/1.4^9       = 6, 979

Year 10                                          80, 6400/1.4^10    = 4, 019