Qs 1

Qs 1a.
Qs 2
Calculate ENPV if the initial investment is ₹ 10000 and a discount rate of 10%

Qs 3

Debby’s Dance Studios is considering the purchase of new sound equipment that will
enhance the popularity of its aerobics dancing. The equipment will cost Rs.25,000. Debby is
not sure how many members the new equipment will attract, but she estimates that her
increased annual cash flows for each of the next five years will have the following probability
distribution. Debby’s cost of capital is 11 percent.
Cash Flow Probability
Rs.3,600 .2
............................................
5,000 .3
............................................
7,400 .4
............................................
9,800 .1
............................................

a) What is the expected value of the cash flow? The value you compute will apply to each
of the five years.
b) What is the expected net present value?
c) Should Debby buy the new equipment?
Qs 4
Qs 4a

Qs 5

Qs 6
Qs 7

A company has made following estimates if the CFAT of the proposed project. The company
use decision tree analysis to get clear picture of project’s cash inflow. The project cost `
80,000 and the expected life of the project is 2 years. The net cash inflows are:
In year 1, there is 0.4 probability that CFAT will be ` 50,000 and 0.6 probability that CFAT
will be ` 60,000. The probabilities assigned to CFAT for the year 2 are as follows:

If CFAT = ` 50,000 If CFAT = ` 60,000

` Probabilit ` Probabilit
y y
24,000 0.2 40,000 0.4
32,000 0.3 50,000 0.5
44,000 0.5 60,000 0.1
The firm uses 10% discount rate for this type of investments.