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    2213029-Mid Term - CFII

    Uploaded by

    Guhan bhavani
    The document provides instructions for an exam including duration of 75 minutes, how to save and submit the file, and that there are 4 compulsory questions. It then provides calculations for discounted payback period for different initial investment costs of a project with annual cash inflows. Key details include discounted payback periods of 1.78 years for initial cost of $8,000, 2.69 years for $12,000 initial cost, and 3.57 years for $16,000 initial cost. It also provides brief explanations of equivalent annual cost, differences between conventional and unconventional cash flows, differences between IRR and MIRR, approaches to calculate MIRR, and defines erosion in the context of capital budgeting. Finally

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    2213029-Mid Term - CFII

    Uploaded by

    Guhan bhavani
    11 views6 pages
    The document provides instructions for an exam including duration of 75 minutes, how to save and submit the file, and that there are 4 compulsory questions. It then provides calculations for discounted payback period for different initial investment costs of a project with annual cash inflows. Key details include discounted payback periods of 1.78 years for initial cost of $8,000, 2.69 years for $12,000 initial cost, and 3.57 years for $16,000 initial cost. It also provides brief explanations of equivalent annual cost, differences between conventional and unconventional cash flows, differences between IRR and MIRR, approaches to calculate MIRR, and defines erosion in the context of capital budgeting. Finally

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    2213029-Mid term - CFII

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    The document provides instructions for an exam including duration of 75 minutes, how to save and submit the file, and that there are 4 compulsory questions. It then provides calculations for discounted payback period for different initial investment costs of a project with annual cash inflows. Key details include discounted payback periods of 1.78 years for initial cost of $8,000, 2.69 years for $12,000 initial cost, and 3.57 years for $16,000 initial cost. It also provides brief explanations of equivalent annual cost, differences between conventional and unconventional cash flows, differences between IRR and MIRR, approaches to calculate MIRR, and defines erosion in the context of capital budgeting. Finally

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xlsx, pdf, or txt
    11 views6 pages

    2213029-Mid Term - CFII

    Uploaded by

    Guhan bhavani
    The document provides instructions for an exam including duration of 75 minutes, how to save and submit the file, and that there are 4 compulsory questions. It then provides calculations for discounted payback period for different initial investment costs of a project with annual cash inflows. Key details include discounted payback periods of 1.78 years for initial cost of $8,000, 2.69 years for $12,000 initial cost, and 3.57 years for $16,000 initial cost. It also provides brief explanations of equivalent annual cost, differences between conventional and unconventional cash flows, differences between IRR and MIRR, approaches to calculate MIRR, and defines erosion in the context of capital budgeting. Finally

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xlsx, pdf, or txt
    of 6

    Instructions

    1) Exam duration is 75 minutes


    2) Save the file with your registration number and upload it within the stipulated time
    3) The question paper has 4 questions and all the questions are compulsory
    4) All the answers are to be provided in this excel sheet only
    An investment project has annual cash inflows of $5,000, $5,500, $6000 and
    $7,000, and a discount rate of 11%. What is the discounted payback period for
    these cashflows if the initial cost is $8,000? What if the initial cost is $12,000?
    What if it is $16,000? (5 Marks)

    Years Cash flows Discounted payback Payback period


    0 ₹ -8,000.00
    1 ₹ 5,000.00 $4,504.50 $3,495.50 $1.78 years
    2 ₹ 5,500.00 $4,463.92 $8,968.43
    3 ₹ 6,000.00 $4,387.15 $13,355.58
    4 ₹ 7,000.00 $4,611.12 $17,966.69

    Years Cash flows Discounted payback


    0 ₹ -12,000.00
    1 ₹ 5,000.00 $4,504.50
    2 ₹ 5,500.00 $4,463.92 $8,968.43 3,031.57 2.691012 years
    3 ₹ 6,000.00 $4,387.15 $13,355.58
    4 ₹ 7,000.00 $4,611.12 $17,966.69

    Years Cash flows Discounted payback


    0 ₹ -16,000.00
    1 ₹ 5,000.00 $4,504.50
    2 ₹ 5,500.00 $4,463.92 $8,968.43
    3 ₹ 6,000.00 $4,387.15 $13,355.58 $2,644.42 3.57348879429 years
    4 ₹ 7,000.00 $4,611.12 $17,966.69
    Write a brief note on following (5 marks)

    a) Equivalent Annual Cost


    b) Difference between conventional cashflow and unconventional cashflow
    c) Differences between IRR and MIRR
    d) Different approaches of calculating MIRR
    e) In the context of capital budgeting, what is erosion?

    a) Equivalent annual cost


    Equivalent annual cost is the payment of an cash outflow in a year

    b) Conventional cashflow Uncoventional cash flow


    Cash inflows and Cash inflows and outflows
    outflows are relevent to are irrelevent or not
    the cost and sales related to the cost and
    sales

    c) IRR MIRR
    Internal rate of return Multiple Internal rate of
    is meant by npv of all return is meant by npv of
    the cash flows from a all the cash flows from
    particular investment the all investment
    including reinvestments
    also

    d) Different approaches of calculating mirr


    By calculating all NPV's including reinvestment cost also
    By using formula =mirr()

    e)
    Down under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset invest
    The fixed asset will be depreciated straight-line to zero over its three year life, after which it will be worthless. The pr
    generate $1.09 million in annual sales, with costs of $4,75,000. The tax rate is 25% and the required return is 12%. W
    NPV, IRR and the Discounted Payback period? (10 marks)

    Year Cost/inflow Cost Depreciation EBT Tax@25%


    0 $ (1,420,000.00)
    1 $ 1,090,000.00 $ 475,000.00 $ 473,333.33 $ 141,666.67 $ (35,416.67)
    2 $ 1,090,000.00 $ 475,000.00 $ 473,333.33 $ 141,666.67 $ (35,416.67)
    3 $ 1,090,000.00 $ 475,000.00 $ 473,333.33 $ 141,666.67 $ (35,416.67)
    4

    NPV $ (27,938.63)
    IRR 10.85%
    Discounted payback 3.0758509927
    s an initial fixed asset investment of $1.42 million.
    h it will be worthless. The project is estimated to
    he required return is 12%. What is the project's

    Net income Operating cash flows Discounted paCumlative cash flow


    $ (1,420,000.00)
    $ 106,250.00 $ 579,583.33 $517,485.12
    $ 106,250.00 $ 579,583.33 $462,040.28 $979,525.40
    $ 106,250.00 $ 579,583.33 $412,535.97 $1,392,061.37 $27,938.63 0.075851
    $ 579,583.33 $368,335.69 $1,760,397.06
    Consider a series of cash flows provided below which requires an initial investment
    of INR 380000. Does it make sense to invest in this, if your required rate of return
    is 20%. Evaluate the investment proposal based on its internal rate of return (5
    marks)

    Year Cash flows


    1 120000
    2 281250
    3 281250
    4 281250
    5 281250
    6 -895883

    Year Cash flows Discounted cashback


    0 -380000 IRR 2.86%
    1 120000 $100,000.00
    2 281250 $195,312.50
    3 281250 $162,760.42
    4 281250 $135,633.68
    5 281250 $113,028.07
    6 -895883 ($300,029.40)

    IRR<RRR So we reject the investment. And do not invest on this

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