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Problem 9
Satya corporation is toying with the idea of replacing its existing machine. The following
are the relevant data
1. Existing Machine
2. New machine
1
322
30
75
40
55
50
2
322
40
75
45
60
38
3
418
85
85
54
110
28
4
418
85
100
70
145
21
Page 1
1
-6
-50
2
34
-20
3
54
10
4
74
20
5
108
45
6
142
100
7
156
155
8
230
190
9
330
230
10
430
330
Assume
1. Discounting rate to be 15%
2. Rate of Income tax to be 50%
3. Central subsidy is not to affect depreciation or tax.
4. No other relief and rebates will be available to the company other than those
mentioned above.
Problem 12
X ltd. is considering two mutually exclusive projects X and Y. Following details are made
available to you:
Rs. In lacs
Project cost
Cash inflows
Year
Project Project
X
Y
1,000
1,000
Page 2
200
150
320
450
500
200
600
250
100
150
Assume no residual value at the end of fifth year. The firms cost of capital is 10%.
Required, in respect of each of the two projects:
i. NPV using 10% discounting rate
ii. IRR and
iii. Profitability index
iv. Payback period
Problem 2
A company proposes to undertake two mutually exclusive projects AXE and BXE :
Initial capital outlay
Economic life (years)
After tax annual cash inflows
Year
1
2
3
4
5
6
7
AXE
Rs 22,50,000
4
6,00,000
12,50,000
10,00,000
7,50,000
-
BXE
Rs. 30,00,000
7
5,00,000
7,50,000
7,50,000
12,00,000
12,50,000
10,00,000
8,00,000
The companys cost of capital is 16%. Please calculate the net present value and IRR for
both the projects
Problem 3
Precision instruments is considering two mutually exclusive projects X and Y. Following
details are made available to you :
Rs. In lacs
Project X
Project Y
Project cost
Cash inflows
Year
1
2
3
700
700
100
200
300
500
400
200
Page 3
450
600
100
100
Assume no residual value at the end of fifth year. The firms cost of capital is 10%.
Required, in respect of each of the two projects :
i. NPV using 10% discounting rate
ii. IRR and
iii. Profitability index
Problem 12
X ltd. is considering two mutually exclusive projects X and Y. Following details are made
available to you :
Rs. In lacs
Project X
Project Y
Project cost
Cash inflows
Year
1
2
3
4
5
1,000
1,000
200
150
320
450
500
200
600
250
100
150
Assume no residual value at the end of fifth year. The firms cost of capital is 10%.
Required, in respect of each of the two projects:
i. NPV using 10% discounting rate
ii. IRR and
iii. Profitability index
iv. Payback period
Problem 13
A company is considering as to which of two mutually exclusive projects it should
undertake. The finance directors thinks that the project with the higher NPV should be
chosen whereas the managing director thinks that the one with higher IRR should be
undertaken especially as both the projects have the same initial outlay and length of life.
The company anticipates a cost of capital of 10% and the net after tax cash flows of the
project are as follows
Year
Project X
Project Y
0
(200)
(200)
1
35
218
2
80
10
3
90
10
4
75
4
5
20
3
Page 4
10%
0.91
0.83
0.75
0.68
0.62
20%
0.83
0.69
0.58
0.48
0.41
Page 5