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Assignment 2 Questions 1
Assignment 2 Questions 1
Assignment 2 Questions 1
The Code of this question is 39,374,434. Please take a print copy of this question and write
this code in the answer box at the bottom of this question. Finally, click on submit.
Requirements: (Write answers to the following questions in the 'Ques1' sheet of the
EXCEL TEMPLATE provided for Assignment-2.)
(a) Refer to the "Lecture Illustration - 4A-1" as discussed in the "Week-5 Recorded Topic
Discussion Session", calculate the (i) NPV, (ii) IRR, (iii) PVI, (iv) Payback period, (v)
Discounted payback period for ALTERNATIVE Investment Proposal-Q if the required rate
of return is 9.60 and the annual net cash flows of Proposal Q are: Year-0 ($300m); Year-1
$86m; Year-2 $105m; Year-3 $148m and Year-4 $169m.
(b) Calculate the crossover rate (between proposals P and Q) based on changed cash flow
data mentioned in the requirement-a above. Show the range of required rates for which either
proposal-P or proposal-Q would be preferred.
(c) Based on your findings in requirements a and b above, what would be the decision of
selection of proposal (when the required rate of return is 9.60 percent)?
(d) Refer to the "Lecture Illustration - 4B-2" as discussed in the "Week-6 Recorded Topic
Discussion Session", calculate the tax implication in the third year relating to the sale of the
equipment if the depreciation rate is 25% straight line and the purchase price (of the
equipment) is $39,374.
(e) Refer to the "Lecture Illustration - 4B-4" as discussed in the "Week-6 Recorded Topic
Discussion Session", prepare a new cash flow table (in the "CF-4B-4" sheet of the Excel
Template provided, using the way explained in the Week-6 eLearning video), and calculate
the NPV, IRR, PVI and discounted payback period after incorporating the following changes
(other information will remain the same as provided in the illustration):
The installation cost for the juice producing machine would be $4,000 and the
transportation cost of $6,000 would be paid by the supplier. The machine will
have an economic life of six years and would be depreciated at 12 percent straight
line for the tax purpose.
Sales are expected to grow at 23% in each year until the 6th year. Costs have been
estimated to be 43 percent of sales revenue. In addition, there would be an annual
fixed overhead cost of $6,018.
Annual sales of the company's cookies will increase by $10,000 in the first year
and that increased sales will further grow by 7 percent in each year until the 6th
year.
Applicable corporate tax rate would be 31 percent.
The cost of capital is estimated to be either 10.24 percent or 18 percent. The
management has targeted a discounted payback period of 2 years.
What would be your decision about this project at 10.24 and 18 percent costs of capital?
What would be your comment in recommending this project if you discover that this machine
has options to produce a range of variety of juices that are not 100% natural. Your further
investigation reveals that all data provided for this project is based on the production of juice
using multiple concentrated ingredients not considered healthy choices.
INSTRUCTIONS
Downloading Excel File Template for Assignment-2
1. Follow the instructions provided in the Excel File for calculating and writing your
answers.
2. In a Word doc file, write a formal report of 5 pages (A4 size, normal margin,
Times New Roman font size 12) with the following details and headings: