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Corporate Finance (FIN722) Assignment No. 1: Requirement 1

This document contains calculations and analysis for 4 requirements of a corporate finance assignment. It presents: 1) Calculations of NPV and IRR for Project 1, finding an IRR of 17.44% 2) Calculations of NPV and profitability index for Project 2, finding a positive NPV and low profitability index 3) Calculations of NPV, payback period, and IRR for Project 3, finding a positive NPV, payback period of 4 years and 19 days, and IRR of 18.17% 4) A ranking of the 3 projects based on NPV, IRR, and profitability index, concluding that Project 2 is most profitable

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26 views

Corporate Finance (FIN722) Assignment No. 1: Requirement 1

This document contains calculations and analysis for 4 requirements of a corporate finance assignment. It presents: 1) Calculations of NPV and IRR for Project 1, finding an IRR of 17.44% 2) Calculations of NPV and profitability index for Project 2, finding a positive NPV and low profitability index 3) Calculations of NPV, payback period, and IRR for Project 3, finding a positive NPV, payback period of 4 years and 19 days, and IRR of 18.17% 4) A ranking of the 3 projects based on NPV, IRR, and profitability index, concluding that Project 2 is most profitable

Uploaded by

mudassar saeed
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 4

Corporate Finance (FIN722)

Assignment No. 1
Requirement 1:

At 15% NPV=125,246 (Given)

AT 25% NPV=-490902.4 (Calculated)

IRR=15 %+[( 10 %/( 125246+388502.4) ×125246]

=15%+2.44%

=17.44 % approximate (Calculated)

Workings:

1): NPV at 25% calculated as:

Year Cash Flow Discount Factor Discounted Cash Flows

1 400000 (1.25) ^1 320000

2 400000 (1.25) ^2 256000

3 600000 (1.25) ^3 307200

4 600000 (1.25) ^4 245760

5 600000 (1.25) ^5 196608

6 900000 (1.25) ^6 235929.60

Total Discounted Cash Flows 1561497.6

Less Initial Investment 1950000

NPV -388502.4

Requirement 2:

Year Cash Flow Discount Factor Discounted Cash Flows


1 300000 (1.28) ^1 234375

2 300000 (1.28) ^2 183105.47

3 300000 (1.28) ^3 143051.14

4 300000 (1.28) ^4 111758.74

5 300000 (1.28) ^5 87311.50

6 500000 (1.28) ^6 113686.83

Total Discounted Cash Flows 873288.68

Less Initial Investment 900000

NPV 26711.31

Profitability Index: 0.02967

=Present Value of FCF/Initial Outlay

=26711.31/900000

Note: This calculation has been done to solve the requirement 4:

Year Cash Flow Discount Factor Discounted Cash Flows

1 300000 (1.15) ^1 260869.56

2 300000 (1.15) ^2 226843.10

3 300000 (1.15) ^3 197254.86

4 300000 (1.15) ^4 171525.97

5 300000 (1.15) ^5 149153.02

6 500000 (1.15) ^6 216163.79

Total Discounted Cash Flows 1221810.30

Less Initial Investment 900000

NPV 321810.30
Requirement 3:

Year Cash Flow Discount Factor Discounted Cash Flows

1 250000 (1.15) ^1 217391.30

2 310000 (1.15) ^2 234404.54

3 400000 (1.15) ^3 263006.50

4 460000 (1.15) ^4 263006.50

5 580000 (1.15) ^5 288362.50

6 600000 (1.15) ^6 259396.55

Total Discounted Cash Flows 1525567.84

Less Initial Investment (1270000+180000) 1450000

NPV 75567.50

Payback Period:

Year Cash Flow Total

1 250000 250000

2 310000 560000

3 400000 960000

4 460000 1420000

5 580000 2000000

6 600000 2600000

Payback Period:

Payback period to recover initial investment 1450000 (1270000+180000) is:

=4 Years+ (12/580000) ×30000

=4 Years+19 days approximate

Requirement 4:
Ranking: NPV IRR PI

Project 1 125246 17.44 %

Project 2 321810.30

Project 3 75567.50 18.17%

When mutually exclusive projects rank differently because of cash-flow-pattern


differences, the net present value rankings should be used. In this fashion we can
identify the project that adds most to shareholder wealth . In the light of above facts
project 2 is more profitable as compare to other two

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