CHAPTER 06 DISCOUNTED CASH FLOWS

LO.1 ANNUITIES:
An annuity is a series of regular periodic payments of equal amount, for example Rs. 30000 each
year for year 1 to 5. Rs. 500 each month for months 1 to 24.
Types of Annuities:
1.1 Ordinary Annuity:
Payments are in arrears or at the end of the time period.
1.2 Annuity Due:
Payment is in advance or in the beginning of each payment period.
1.3 Deferred/Delayed Annuity:
First Payment is to be made after some delay time period.
LO.2 ORDINARY ANNUITY:
2.1 Future Value:
(1 + r)n − 1
S = R( )
r
r nm
(1 + m) − 1
S = R( r )
m
Amount of interest I = S – (nm) R
Note: If Examiner is Silent then by Default use ordinary annuity

2.2 Present value:

1 − (1 + r)−n
P = R( )
r
r −nm
1 − (1 + m)
P = R( r )
m
Amount of interest I = (nm) R – P
EXAMPLES
Ex-1 A saving scheme involves investing Rs. 100,000 p.a for 4 years. If rate of interest is 10%
p.a. What is the sum to be received at the end of 4 years?
Sol: (464100)
Ex-2 Find the future value of an annuity of Rs. 500 for 7 years at interest rate of 14%
compounded annually.
Sol: (5365.24)
Ex-3 Rs. 200 is invested at the end of each month in an account paying interest of 6% p.a
compounded monthly. What is the future value of this annuity after 10th payment?
Ex-4 Rs. 10,000 is paid every year to pay off a loan. What is the loan amount if interest rate is
14% compounded annually?
Sol: (343308)
Ex-5 Find present value of an annuity of Rs. 3000 for 15 years at 4.5% compounded annually.
Sol: (32218.63)

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Ex-6 What is the present value of Rs. 15000 received at the end of the current year and next four
years? If rate of interest is 7%.
Sol: (61502.96)
Ex-7 Tipu Sultan borrows Rs. 500,000 to buy a house. If he pays equal installments for 20 years
and 10% interest on outstanding balance, what will be equal annual installment?
Sol: (R=58729.81)
Ex-8 Mr. Shakeel bought a T.V costing Rs. 30,000 by making a down payment of Rs. 3000 and
agreeing to make equal annual payments for four years. How much would be each payment
if interest on unpaid amount is 14% compounded annually.
Sol: (R=9266.50)
Ex-9 How much amount is required to invest every year so as to accumulate Rs. 30,000 at the
end of 10 years? Rate of interest is 10% compounded annually.
Sol: (R = 1882.36)
Ex-10 Rs. 680,000 loan calls for payment to be made in 10 annual installments. If interest is 14%
compounded annually, find annual payment that must be made.
Sol: (Using PV, R=130365.20)
Ex-11 A firm has set up a Contingency fund yielding 16% interest per year compounded quarterly.
The firm will be able to deposit Rs. 10,000 into the fund at the end of each quarter. Find
value of the fund at the end of three years.
Sol: (S=150258.05)
Ex-12 Ahmad Purchased a new car a made a down payment of Rs. 50,000. He is further required
to pay Rs. 30,000 at the end of each quarter for 5 five years. Find the cash purchase price
of the car if quarterly payments include 12% interest compounded quarterly.
Sol: (Cash price= Down payment +PV= 496324.25)
Ex-13 A man agrees to pay 4500 per month for 30 months to pay off a loan. If interest rate of
18% p.a is charged monthly. Find amount of loan taken.
Sol: (PV=108071.27)
Ex-14 Zain has purchased a motorcycle with Rs. 40,000 from his friend, who has given him the
following options at 10% costs of funds compounded annually.
(i) Pay 52000 at the end of 4 years
(ii) Pay 12000 annually for the next 4 years.
(iii) Pay 16000 annually for the next 3 years.
(iv) Purchase on Net Cash
Which option Zain should prefer?
Sol: (Option (i) should prefer as its PV is less than that of others)

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Multiple Choice Questions Related to Above Topic

Q.1 If the discount rate is 12%, The present value of Rs. X received at the end of each year for the next
five years is equal to:
(a) 6x (b) 5x
(c) 3.6x (d) 4.03x
Q.2 Punjab Government has issued a five years bond of Rs. 200,000. On maturity the buyer will get Rs
300,000. If the current interest rate is 8% per annum, is purchasing the bond worth?
(a) Yes, as present value of Rs 300,000 is more than Rs 200,000
(b) No, as present value of Rs 300,000 is more than Rs 200,000
(c) Yes, as present value of Rs 300,000 is less than Rs 200,000
(d) No, as future value of Rs 200,000 is more than Rs 300,000
Q.3 kyali has invested Rs. 700,000 in an investment scheme. In return, she would receive Rs. 74,587
semi-annually in arrears, for the six years. She would not receive any amount afterwards. Find the
nominal and effective rate of return of the scheme.
(a) 8% and 8.16% (b) 8% and 9.16%
(c) 8% and 10.16% (d) 7% and 7.16%
Q.4 If discount rate is 10% then the present value of Rs Z payable annually for 4 years is?
(a) 4.17z (b) 3.17z
(c) 6.25z (d) 5.25z
Q.5 If R = 170,000 r = 8% compounding annually, find the P.V at the end of 5th year=?
(a) Rs 5,635,373 (b) Rs 678,761
(c) Rs 363,537 (d) None
Q.6 If R=3,000 for 3 years, r =8% compounding monthly find present value
(a) Rs 83,537 (b) Rs 95,735
(c) Rs 72,537 (d) Rs 65,537
Q.7 If rate is 12%, find the present value of x at the end of each year for 4 years.
(a) 2.027x (b) 3.037x
(c) 1.027x (d) None
Q.8 A person invest 500,000 now and 20,000 every year at 10% per annum. Find the total amount after
10 years.
(a) Rs 1,406,115 (b) Rs. 1,615,619
(c) Rs 1,507,000 (d) Rs. 1,406, 500
Q.9 If the discount rate is 11% the present value of Rs X received at the end of each year for the next
five years is equal to:
(a) 3.17x (b) 4.10x
(c) 3.7x (d) 5x
Q.10 Sikandar Raza wants to save money over a period of 10 years in order to the expenses to be incurred
on higher education of his son. He has recently invested a sum of Rs 200,000 and plans to further
invest Rs. 20,000 at the end of each quarter, which of the following amount will be available to
him at the end of 10th year if he earns a profit of 6% per annum compounded quarterly.
(a) Rs 1,448,161.56 (b) Rs 1,321,027.61
(c) Rs 992,497.74 (d) Rs 718,018.61

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Q.11 Government has issued a five years bond of Rs. 200,000. On maturity the buyer will get Rs 300,000.
If the current interest rate is 8% per annum, is purchasing the bond worth?
(a) Yes, as present value of Rs 300,00 is more than Rs 200,000
(b) No, as present value of Rs 300,000 is more than Rs 200,000
(c) Yes, as present value of Rs 300,000 is less than Rs 200,000
(d) No, as future value of Rs 200,000 is more than Rs 300,000
Q.12 Mr. Bajaj Borrowed Rs 100,000 and promised to pay Rs 1,000 each month to settle the obligation.
If interest rate is 1.8% compounded monthly find the time (approx.) required to settle the obligation.
(a) 3 years (b) 4 years
(c) 5 years (d) 9 years
Q.13 A loan was repaid in 7 annual installments of Rs.168 each. If the rate of interest be 10% per annum,
compounded annually, the sum borrowed was:
(a) Rs 850.1 (b) Rs 817.9
(c) Rs 1593.8 (d) Rs 936.3
Q.14 If the discount rate is 9% then find the present value of “X” which is paid in equal annual
Installments for next five years?
(a) 4.641X (b) 0.3158X
(c) 3.89X (d) 0.2155X
Q.15 Mr. Shayan invested Rs.500,000 and Rs.25000 every quarter at the rate of 8% compounded
quarterly. What will be the future value after 10 years?
(a) Rs.2614069 (b) Rs.2589512
(c) Rs.1787907 (d) None of these
Q.16 Mr. Qasim Suri invested Rs. 37500 at the start. Mr. Suri also invested Rs.1200 every month for 3
years. Calculate the future value of the investments at the rate of 12% compounded monthly?
(a) Rs. 105346 (b) Rs.56734
(c) Rs.80700 (d) None of these
Q.17 Find the future value of an annuity of Rs.500 for 7 years at interest rate of 14% compounded
annually.
(a) Rs.5,465.25 (b) Rs.5,565.35
(c) Rs.5,365.25 (d) Rs.5,665.35
Q.18 Rs.200 is invested at the end of each month in an account paying interest 6% per year compounded
monthly. What is the future value of this annuity after 10th payment?
(a) Rs.2,400 (b) Rs.2,045
(c) Rs.2,404 (d) Rs.2,004
Q.19 An amount of Rs.5,000 is paid every year for ten years to settle a loan. What is the loan amount if
interest rate is 14% per annum compounded annually?
(a) Rs.27,080.55 (b) Rs.25,080.55
(c) Rs.26,080.55 (d) Rs.24,080.55

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CHAPTER 06 DISCOUNTED CASH FLOWS

Q.20 Asad Manufacturing limited wants to lease out an asset costing Rs.360,000 for a five years period.
It has fixed a rental of Rs.105,000 per annum payable annually starting from the end of first year.
This agreement would be favorable to the company if the interest rate, which the company earns
on its investments is:
(a) 16% (b) 15%
(c) 17% (d) 14%
Q.21 Mr. Nadeem has borrowed Rs.19,000 for a small business. The loan is for five years at an annual
interest rate of 8 percent compounded quarterly. What is the amount of quarterly payments to pay
back the loan?
(a) Rs.1,361.97 (b) Rs.1,261.97
(c) Rs.1,461.97 (d) Rs.1,161.97
Q.22 Rs.680,000 loan calls for payment to be made in 10 annual installments. If the interest rate is 14%
compounded annually. Annual payment to be made is:
(a) Rs.125,365.20 (b) Rs.130,365.20
(c) Rs.133,365.20 (d) Rs.135,365.20
Q.23 Monthly payment necessary to pay off a loan of Rs.8,000 at 18% per annum compounded monthly
in two years is:
(a) Rs.419.40 (b) Rs.409.40
(c) Rs.399.40 (d) Rs.389.40
Q.24 Rahat Indoori agrees to pay Rs.4,500 per month for 30 months to pay off a Car loan. If the interest
of 18% per annum is charged monthly, the present value of Car is:
(a) Rs.108,271.27 (b) Rs.108,171.27
(c) Rs.108,671.27 (d) Rs.108,071.27
Q.25 A Russian company is considering proposal of purchasing a machine either by making full payment
of Rs.4,000 or by leasing it for four years requiring annual payment of Rs.1,250 or by paying Rs.
4,800 at the end of 2nd year. Which course of action is preferable if the company can borrow money
at 14% compounded annually?
(a) Leasing (b) Full payment
(c) Rs. 4,800 after 2 years (d) Either (a) or (c)
Q.26 Zaid bin Hanan borrows Rs.10,000 on condition to repay it with compound interest at 5% per
annum. by annual installments of Rs.1,000 each. The number of years by which the debt will be
clear is:
(a) 14.2 years (b) 10 years
(c) 12 years (d) 11 years
Q.27 Mr. Shoaib borrows Rs.20,000 on condition to repay it with C.I. at 5% p.a. in annual installments
of Rs.2,000 each. The number of years for the debt to be paid off is:
(a) 10 years (b) 12 years
(c) 11 years (d) 14.20 years
Q.28 Artghul invests Rs.500 at the end of each year with a bank which pays interest at 10% p.a. C.I. The
amount standing to his credit one year after he has made his yearly investment for the 12th time
would be:
(a) Rs.11,761 (b) Rs.10,000
(c) Rs.12,000 (d) None of these

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Q.29 Hamoon acquired a new car worth Rs.850,000 through a leasing company. He made a down
payment of Rs.200,000 and has agreed to pay the remaining amount in 10 equal semi-annual
installments. The leasing company will charge interest at 19% per annum, over the lease term.
Amount of semi-annual installment and total amount of interest is:
(a) Rs.103,623 and Rs.386,230 (b) Rs.103,533 and Rs. 386,000
(c) Rs.103,523 and Rs.385,230 (d) Rs.103,554 and Rs. 385,830
Q.30 Ashraf purchased a new car and made a down payment of Rs.50,000. He is further required to pay
Rs.30,000 at the end of each quarter for five years. The cash purchase price of the car, if the
quarterly payments include 12% interest compounded quarterly, is:
(a) Rs.498,324.25 (b) Rs.496,324.25
(c) Rs.499,324.25 (d) Rs.497,324.25
Q.31 Shadab Khan has an opportunity to invest in a fund which earns 6% profit compounded annually.
How much should he invest now if he wants to receive Rs.6,000 (including principal) from the
fund, at the end of each year for the next 10 years? How much interest he would earn over the
period of 10 year?
(a) Rs.44,560.52 and Rs.15,939.48 (b) Rs.44,260.52 and Rs.15,739.48
(c) Rs.44,760.52 and Rs.15,239.48 (d) Rs.44,160.52 and Rs.15,839.48
Q.32 An Officer wants to deposit enough in an account to provide for insurance payments over the next
5 years. Payment of Rs.27,500 must be made each quarter. The account yields an 8% annual rate
compounded quarterly. How much be deposited to pay all the insurance payments?
(a) Rs.448,664.41 (b) Rs.447,664.41
(c) Rs.449,664.41 (d) Rs.446,664.41
Q.33 How much money must be invested in an account at the end of each quarter if the objective is to
have Rs.225,000 after 10 years. The account can earn an interest rate of 9 percent per year
compounded quarterly. How much interest will be earned over the period?
(a) Rs.3,547.87 and Rs.83,903.03 (b) Rs.3,527.87 and Rs.83,885.03
(c) Rs.3,557.87 and Rs.83,875.03 (d) Rs.3,537.87 and Rs.83,845.03
Q.34 Shahbaz plans to borrow Rs.400,000 to buy a new car. The loan will be for 3 years at a 12 percent
annual rate compounded monthly. He can pay Rs.12,500 per month during the first year. What
amount would he be required to pay during the next two years in order to repay the loan?
(a) Rs. 13,755 (b) Rs. 13,705
(c) Rs. 13,655 (d) Rs. 13,605
Q.35 A Stitching machine costs a company Rs.1,000,000 & its effective life is estimated to be 20 years.
If the scrap is expected to worth of Rs.50,000 only. The sum to be invested every year at 13.25%
compounded annually for 20 years to replace the machine which would cost 30% more than its
present value is:
(a) Rs.14,797.07 (b) Rs.14,897.07
(c) Rs.14,697.07 (d) Rs.14,997.07
Q.36 To clear a debt Mustafa agrees to pay Rs.1,000 now, another Rs.1,000 a year from now and another
Rs.1,000 in two years. If the future payments are discounted at 8% compounded quarterly, what is
the present value of these payments?
(a) Rs.2,777.4139 (b) Rs.2,760.4139
(c) Rs.2,767.41 (d) Rs.2,762.41

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Q.37 A sinking fund is defined as

(a) saving of a constant amount for future
(b) saving of a continuously changing amount for benefit in the future
(c) lending of a constant amount for specific benefit in future
(d) continuous cash flow for a long time in future
Q.38 ECS is deciding for an endowment fund which is likely to generate Rs. 20,000 per year. How much
can be invested today when the rate of interest is 9%?
(a) Rs. 18,348 (b) Rs. 222,222
(c) Rs. 180,00 (d) Rs. 21,8000
Q.39 In order to purchase an equipment, five annual instalments of Rs. 30,000 are required. Given the
interest rate of 10%, what is the price that you will be paying for that equipment today?
(a) Rs. 27,273 (b) Rs. 33,000
(c) Rs. 28,500 (d) Rs.113,723
Q.40 Abhijeet needs Rs. 400,000 at the end of fifth year. In order to have this amount he will invest
certain amount at the end of each year for three years. If the interest rate is 8% compute the amount
to be invested at the end of each year.
(a) Rs.105,635 (b) Rs. 214,086
(c) Rs. 14,086 (d) Rs. 314,086
Q.41 Muhammad Siddique Nasir invests Rs. 40,000 at the end of each month for the first year and Rs.
50,000 at the end of each month for the second year. Compute the total value of funds with him at
the end of second year if interest rate is 12% per annum compounded monthly
(a) Rs. 1,205,763 (b) Rs. 1,305,763
(c) Rs. 1,405,763 (d) Rs. 2,105,763
Q.42 Mehdi Hassan has following investment options:
(i) Invest Rs. 500,000 today and get Rs. 200,000 at the end of each year for four years.
(ii) Invest Rs. 500,000 today and get Rs. 900,000 at the end of third year.
(iii) Invest Rs. 500,000 today and get Rs. 200,000 each at the end of third and fourth year
respectively.
If cost of capital is 15%. Which of the above option(s) must be selected based on net present value
technique?
(a) None (b) All
(c) i and ii (d) ii and iii
Q.43 Ramzan Sugar Mills has following investment options:
(i) Invest Rs. 500,000 today and get Rs. 300,000 at the end of each year for two years.
(ii) Invest Rs. 500,000 today and get Rs. 900,000 at the end of third year.
Compute internal rate of return for each of the above options
(a) 18% and 21.64% (b) 13.07% and 18.05%
(c) 14.63% and 16.35% (d) 13.07% and 21.64%
Q.44 A Sports project has a net present value of Rs. 524,564 when its cash flows are discounted at 13%
per year. Cash inflows from the project are Rs. 500,000 at the end of each year for three years
starting from the end of third year. Compute the investment made today for the project.
(a) 350,000 (b) 375,000
(c) 400,000 (d) 425,000

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Q.45 Present value of Rs. 200,000 at the end of each year for five years is Rs. 820,039.5.
What rate of discounting leads to above results?
(a) 6% (b) 5%
(c) 7% (d) 8%
Q.46 Qasim wants to invest certain equal amount at the end of each year for two years in order to have
sufficient funds for following expenses:
(i) Rs. 300,000 at the end of third year
(ii) Rs. 400,000 at the end of fourth year
If discounting rate is 10% per annum compute the required investment at the end of each of the two
years.
(a) Rs. 287,288 (b) Rs. 294,289
(c) Rs. 277,288 (d) Rs. 267,289
Q.47 If the current discount rate is 10%, Then the present value of a certain amount X received at the
end of each year will become for 4 years:
(a) 4x (b) 3.16x
(c) Both (d) None
Q.48 Find the value invested now, if Shafique received 8000 at the end of each year from year 4 to year
12 at the rate of 11% compounded annually? (Annuity)
(a) 51939 (b) 373977.23
(c) 27119 (d) 57652
Q.49 If the current discount rate is 9%, Then the present value of a certain amount X received at the end
of each year will become for 4 years: (Annuity)
(a) 3.6x (b) 3.24x
(c) Both (d) None
Q.50 If discount rate is 10% then the present value of Rs X payable annually for 4 years is? (Annuity)
(a) 4.17x (b) 3.17x
(c) 6.25x (d) 5.25x
Q.51 Calculate the present value of X at the rate of 8% compounded annually received at end of every
year for 4 years? (Annuity)
(a) 2.2x (b) 3.31x
(c) 1.2x (d) None
Q.52 Mr. Abbas invested Rs. 2500 annually and expected to receive 8% return from the investment.
Calculate the present value of the investment?(Annuity)
(a) Rs.25000 (b) Rs.31250
(c) Cannot be calculated (d) None of these
Q.53 Present value of a perpetual stream of payments of Rs 7,500 at the end of each year starting three
years from now using 12% discounting rate is _________.
(a) Rs. 29,825 (b) Rs. 39,825
(c) Rs. 49,825 (d) Rs. 59,825
Q.54 ____________ is a series of regular periodic payments of equal amount for limited time.
(a) Net present value (b) perpetuity
(c) Discounting (d) Annuity

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Q.55 Difference between future values of:

(1) Rs. 500 invested at the end of each year for five years.
(2) Rs. 100 invested at the end of each year for five years.
At the end of fifth year if interest rate is 15% is:
(a) Rs. 3,697 (b) Rs. 2,697
(c) Rs. 2,597 (d) Rs. 2,497
Q.56 A person bought a laptop worth Rs. 300,000 on instalments. He made down payment of 30% and
the remaining amount was paid in 2 equal annual instalments at the end of each year (applicable
interest rate of 14%). The amount of each instalment will be ___________.
(a) Rs. 117,531 (b) Rs. 147,531
(c) Rs. 127,531 (d) Rs. 137,531
Q.57 Which of the following present value will be highest? (present value of ordinary annuity)
(a) Rs. 50,000 at the end of each year for four years at 12% per annum interest rate
(b) Rs. 70,000 at the end of each year for three years at 10% per annum interest rate
(c) Rs. 90,000 at the end of each year for five years at 15% per annum interest rate
(d) All present values are equal.
Q.58 The present value of an ordinary annuity is Rs 400,000. Other things being constant what will be
the impact of increase in interest rate on present value of Rs. 400,000
(a) It will decrease
(b) It will increase
(c) Nothing will happen
(d) Cannot be determined with available data

LO.3 ANNUITY DUE:

3.1 Future Value:
(1 + r)n − 1
S = R( ) (1 + r)
r
r nm
(1 + m) − 1 r
S = R( r ) (1 + )
m
m
Note: If Examiner is Silent then by Default use ordinary annuity

3.2 Present value:

1 − (1 + r)−n
P = R( ) (1 + r)
r
r −nm
1 − (1 + m) r
P = R( r ) (1 + )
m
m

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EXAMPLES:
Ex-1 Hamza Invests Rs. 10,000 every year starting from today for next 10 years. If rate of
interest is 10% p.a. Find future value of the annuity.
Sol: (175311.67)
Ex-2 Mr. Ali plans to borrow Rs. 400,000 to buy a new car. The loan will be for 3 years at 12%
annual rate compounded monthly. He can pay Rs. 12500 per month during the first year.
What monthly amount would he be required to pay during the next two years in order to
repay the loan amount?
(Case 1) Amount paid in year 1 by Ali
Sol: (S = 158531.28)
(Case 2) What amount to pay in year 1?
Sol: (S = 450730.012)
Remaining amount to be paid after 1 year time period:
Sol: (292198.71)
(Case 3) Required monthly installment for last two years’ time period.
Sol: (R = 13754.80)

Multiple Choice Questions Related to Above Topic

Q.59 Naseem Shah plans to invest Rs. 8,000 every year for 3 years starting from today. Interest rate is
10% per annum compounded annually. At the end of year 3 he will receive:
(a) Rs 26,480 (b) Rs 26,328
(c) Rs 29,128 (d) Rs 31,944
Q.60 Adeel Aqeel makes investment of Rs. 8,000 now and in next two years at 10% compounded
annually find his total investment at end of three years.
(a) Rs. 29,000 (b) Rs. 29,128
(c) Rs. 27,000 (d) Rs. 27,000
Q.61 Jalal ud Deen makes investment of Rs. 8,000 now and in next two years at 10% compounded
annually find his total investment at end of three years.
(a) Rs. 29,000 (b) Rs. 29,128
(c) Rs. 27,000 (d) Rs. 27,000
Q.62 Mr. Anwar Ali invested 200,000 in an account today. He also deposit 20,000 Quarterly in this
account and made first payment today. If the interest is 8% compounded quarterly. What will be
value after 5 years.
(a) Rs. 992,855 (b) Rs. 222,855
(c) Rs. 792,855 (d) Rs. 692.855
Q.63 You are given sum of annuity due of Rs. 200,000 find the Sum of ordinary annuity of r = 12%
compounded quarterly
(a) 183,174.76 (b) 214,174.76
(c) 194,174.76 (d) 172,174.76
Q.64 Asif Ali plans to invest Rs 5000 every year starting from today for next 3 years. Interest rate is 10%
per annum compounded annually. Future value of the annuity is:
(a) Rs 16,500 (b) Rs 17,050
(c) Rs 17,600 (d) Rs 18,205

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Q.65 Find annuity due, if R = 9,000 for 4 years, r=10% compounding yearly.
(a) Rs. 31,381.67 (b) Rs. 33,543.27
(c) Rs 223,537 (d) Rs. 123,544
Q.66 If R = x, I = 10% n = 5. Find the present value of Annuity Due.
(a) 0.215x (b) 2.169x
(c) 1.027x (d) 4.1698X
Q.67 Ashfaq is planning to invest in a scheme whereby he would be required to invest Rs 130,000
annually (at the start of the year) for 5 years. If the interest rate is 13% compounded annually, what
amount would he receive at the end of the 5th year?
(a) Rs 842,435 (b) Rs 951,952
(c) Rs 964,952 (d) Rs 1,075,706
Q.68 Bholo plans to invest Rs 9,000 every year for 3 years starting from today. Interest rate is 10% per
annum compounded annually. At the end of year 3 Bholo will receive:
(a) Rs 29,790 (b) Rs 31,869
(c) Rs 35,937 (d) Rs 32,769
Q.69 An annuity is a (n):
(a) Level stream of perpetual cash flows.
(b) Level stream of cash flows occurring for a fixed period of time.
(c) Increasing stream of perpetual cash flows.
(d) Increasing stream of cash flows occurring for a fixed period of time.
(e) Decreasing stream of cash flows occurring for a fixed period of time.
Q.70 Starting today, Mr. Qudratullah is going to contribute Rs.200 on the first of each month to his
retirement account. His employer will contribute an additional 50 percent of the amount
Qudratullah contributes. If both Qudratullah and his employer continue to do this and he can earn
a monthly rate of 0.75 percent, how much will Qudratullah have in his retirement account 40 years
from now? If the per annum rate is compounded monthly.
(a) Rs.936264 (b) Rs.1414929
(c) Rs.1404396 (d) cannot be solved
Q.71 Zain Iftikhar invests Rs.10,000 every year starting from today for next 10 years. Suppose interest
rate is 8% per annum compounded annually. Future value of the annuity is:
(a) Rs.156,654.87 (b) Rs.157,454.87
(c) Rs.156,555.87 (d) Rs.156,454.87
Q.72 A machine with useful life of seven years costs Rs.10,000 while another machine with useful life
of five years costs Rs.8,[Link] first machine saves labour expenses of Rs.1,900 annually and the
second one saves labour expenses of Rs.2,200 annually. Determine the preferred course of action.
Assume cost of borrowing as 10% compounded per annum.
(a) First Machine (b) Second Machine
(c) Both are same (d) Cannot be determined
Q.73 A Property Dealer made a down payment of Rs.200,000 and will make payments of Rs.75,000 each 6
months, for 15 years. The cost of fund is 10% compounded semi-annually. What would have been
equivalent cash price for the house? How much will the buyer actually pay for the house?
(a) Rs.1,360,933.8 and Rs.2,440,000
(b) Rs.1,362,933.8 and Rs.2,455,000
(c) Rs.1,352,933.8 and Rs.2,450,000
(d) Rs.1,372,933.8 and Rs.2,456,000

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Q.74 Asif is thirty years old today, he wishes to set aside a certain amount every year starting from today
till he turns 40. He intends to have Rs. 5,000,000 at the age of 40 to buy his own house. If interest
rate is 11% per annum, compute the annual deposits he must make.
(a) Rs 255,605 (b) Rs. 299,007
(c) Rs. 269,375 (d) Rs. 300,000
Q.75 Shayan Ali will invest Rs. 35,000 at the start of each year for three years starting one year from
today. Compute the total amount he will have at the end of third year if interest rate is 10% per
annum
(a) Rs. 115,850 (b) Rs. 125,850
(c) Rs. 110,850 (d) Rs. 112,850
Q.76 How is an annuity due defined?
(a) a stream of cash flows occurring for less than one year
(b) an annuity stream of payments that are disbursed rather than received
(c) an annuity stream of payments that are received rather than disbursed
(d) a set of equal cash flows occurring at the beginning of each period
Q.77 Imran deposited Rs. 3,000 per month (at the start of the month) into a saving account for 10 months.
If the bank offers 6% interest compounded monthly, the total amount Imran would have receive at
the end of three years would be(annuity due)
(a) Rs. 118598 (b) Rs. 30837
(c) Rs. 35107 (d) None of these
Q.78 A company wants to purchase equipment. The seller has offered two options:
(1) Payment of full amount today
(2) Pay Rs. 125,000 at the end of each year for four years
If interest rate is 10% per annum compute the cash price to be paid today under option # 1 to
make both options equally viable
(a) Rs. 296,233 (b) Rs. 396,233
(c) Rs. 496,233 (d) Rs. 596,233
Q.79 Which of the following present value will be highest? (present value of annuity due)
(a) Rs. 25,000 at the start of each year for four years at 15% per annum interest rate
(b) Rs. 30,000 at the start of each year for five years at 10% per annum interest rate
(c) Rs. 40,000 at the start of each year for two years at 12% per annum interest rate
(d) All present values are equal
Q.80 Identify incorrect statement/statements:
(1) Ordinary annuity are payments / receipts in arrears
(2) Annuity due are payments /receipts in arrears
(3) Annuity due are payments / receipts is advance
(4) Ordinary annuity are payments / receipts in advance
(a) 2 and 4 (b) 1 and 2
(c) 2 and 3 (d) 3 and 1

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DEFERRED OR DELAYED ANNUITY:

First payment is delayed for a specific time period.
Ordinary Annuity:
1 − (1 + r)−n
P = R( ) (1 + r)−d
r
r −nm
1 − (1 + m) r −dm
P = R( r ) (1 + )
m
m
d  Delay period in years d

Annuity Due:
1 − (1 + r)−n
P = R( ) (1 + r)(1 + r)−d
r
r −nm
1 − (1 + ) r r −dm
P = R( m ) (1 + ) (1 + )
r m m
m

EXAMPLES:
Ex-1 Mr. Babar deposited a certain amount of money today and is supposed to receive 30 annual
payments 5000 each. However the annuity will start after 4 years from today and rate of interest is 5%
compounded annually. Calculate amount of money deposited.
Sol: (d=4, P=63234)
Ex-2 Mr. Malik borrows from bank Rs. 12, 00,000 at the rate of 9% p.a. to be repaid in six equal
installments with interest, the first installment falling due at the end of 4th year. Find the amount of each
installment.
Sol. (R = 346425.10)

LO.4 PERPETUITIES:
• Perpetuity in the financial system is a situation where a stream of cash flow payments continues
indefinitely or is an annuity that has no end.
• No future value
• Un-define time period.
R
• P= r
R
• P= r
m
R
 P= (1 + r)  Annuity due
r
R
P= (1 + r) (1 + r)−d
r
EXAMPLES:
Ex-1 Mr. Smith is expected to pay Rs. 18 every year on share of its stock, what is the present value of
this share if money is worth 9% compounded annually.
Sol: (200)

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Ex-2 A firm wants to establish a library fund for a university. The firm would provide Rs. 25000 every
six months. Fund yield a 10% annual rate of interest compounded semi-annually. What is the initial
deposit required to establish a stream of payments from the interest every six months after making
the first payment from the principal.
Sol. (525,000)
Ex-3 How much is needed to ensure a monthly pension of Rs. 60,000 at the beginning of each month
indefinitely, if the money is worth 9% compounded monthly?
Sol. (Rs. 8,060,000)
Multiple Choice Questions Related to Above Topic
Q.81 The rate of interest is 8% per annum compounded monthly, the value of perpetuity of Rs 2,500 per
month would be:
(a) Rs 375,000 (b) Rs 187,500
(c) Rs 37,500 (d) Rs 31,250
Q.82 If the rate of interest is 8% per annum compounded quarterly, the value of perpetuity of
Rs 3,500 per quarter would be:
(a) Rs 131,250 (b) Rs 175,000
(c) Rs 262,500 (d) Rs 525,000
Q.83 What are the qualities of perpetuity?
(a) Used to find purchase price of share
(b) Used to find value of maintenance fund
(c) Used to find initial deposit required for pension scheme
(d) All of these
Q.84 Mr. Akbar Mughal intends to create an endowment fund to provide for a yearly pension of Rs.
4,000 every year. If the fund is invested in high yielding securities at 7.5% compound interest, the
amount of endowment will be?
(a) 43,333 (b) 35,333
(c) 53,333 (d) 33,333
Q.85 Faisal bank is planning to offer a unique product to its customers whereby it would pay Rs. 250,000
per annum for an indefinite period commencing from the end of year 6. How much amount should
the bank ask its customers to pay now, if the rate of interest that the bank can pay, is 5%
compounded annually?
(a) Rs. 3,191,221 (b) Rs 3,547,829
(c) Rs 3,917,631 (d) Rs 3,960,498
Q.86 Which of the following statement is CORRECT?
(a) Perpetuity is a special kind of annuity that never ends
(b) It is impossible to find the future value of perpetuity
(c) It is impossible to find the present value of perpetuity
(d) Both a and b
Q.87 If interest rate = 8%, R = 2,500 find present value of perpetuity
(a) Rs. 312,50 (b) Rs. 442,500
(c) Rs.500,500 (d) Rs. 222,500
Q.88 Find perpetuity, P = 2500, r = 8% compounding quarterly.
(a) Rs 123, 537 (b) Rs 563,537
(c) Rs. 125,000 (d) Rs.433, 537

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Q.89 If interest rate is 9% compounding monthly, regular payment R = 3,000 find perpetuity.
(a) Rs. 300,000 (b) R. 400,000
(c) Rs. 250,500 (d) Rs. 550,000
Q.90 From perpetuity we cannot find
(a) Present value (b) Future value
(c) Both (d) None of these
Q.91 If the rate of interest is 9% per annum compounded monthly the value of perpetuity of Rs 3,000
per month would be:
(a) Rs. 400,000 (b) Rs. 300,000
(c) Rs. 270,000 (d) Rs. 360,000
Q.92 If the rate of interest is 8% per annum compounded monthly the value of perpetuity of Rs. 2,500
per mount would be:
(a) Rs. 375,000 (b) Rs. 187,500
(c) Rs.37,500 (d) Rs. 31,250
Q.93 Meezan bank launched a new scheme where it offers 40,0000 per year for indefinite time after 8
years. How much amount should bank require to collect from customer today if it offers 5% interest
compounded annually?
(a) 8 million (b) 5.69 million
(c) 5.41 million (d) 5.6 million
Q.94 Which of the following is true about perpetuity?
(a) It has unlimited time series (b) It has no future value
(c) Used to find purchase price of a share (d) All of these
Q.95 An annuity stream where the payments occur forever is called a(n):
(a) annuity due (b) indemnity
(c) perpetuity (d) ordinary annuity.
Q.96 [Link] receives a perpetual stream of Rs.3500 per quarter at the rate of 8% compounded
quarterly. Calculate the present value of the stream?
(a) Rs.43750 (b) Rs.17500
(c) Rs.175000 (d) None of these
Q.97 If the rate of interest is 8% per annum compounded monthly, then the value of perpetuity of Rs.
2,500 per mount would be:
(a) Rs. 375,000 (b) Rs. 187,500
(c) Rs.37,500 (d) Rs. 31,250
Q.98 A ____________ is a constant cash flow for a given number of periods. Fill in the blank.
(a) Perpetuity (b) discounting factor
(c) annuity (d) Net present value
Q.99 Compute present value of a perpetual stream of cash flow of Rs. 200 each starting from the end of
fifth year if discount rate is 10%.
(a) Rs. 1,366 (b) Rs. 2,000
(c) Rs. 1,242 (d) Rs. 2,400

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Q.100 Which of the following statement is incorrect? (drag down Scenario)

(a) An annuity is a series of regular periodic payments of equal amount for a certain time
interval
(b) A perpetuity is a constant cash flow forever.
(c) A project with a positive net present value must be carried out.
(d) A project with a negative net present value must be carried out.
Q.101 A bank launched a new scheme where it offers 8000 per year for indefinite time after 8 years. How
much amount should bank require to collect from customer today if it offers 8% interest
compounded annually? (Annuity)
(a) 54027 (b) 100000
(c) 63017 (d) 58349
Q.102 Find perpetuity, R = 2500, r = 8% compounding quarterly. (Annuity)
(a) Rs 123, 537 (b) Rs 563,537
(c) Rs. 125,000 (d) Rs.433, 537
Q.103 What is the difference between ordinary perpetuity and perpetuity due?
(a) There is no difference at all
(b) The interest rate for ordinary perpetuity is higher than perpetuity due
(c) There is one additional cash flow at year 0 / today in perpetuity due
(d) There is no difference
Q.104 A bank is planning to offer a unique product to its customers whereby it would pay Rs 250,000
per annum for an indefinite period commencing from the end of year 6. How much amount
should the bank ask its customers to pay now, if the rate of interest that the bank can pay, is 5%
compounded annually?
(a) Rs 3,191,221 (b) Rs 3,547,829
(c) Rs 3,917,631 (d) Rs 3,960,498

LO.5 NET PRESENT VALUE (NPV):

• Net present value (NPV) is the difference between the present value of cash inflows and
the present value of cash outflows over a period of time
• It is a return required by the investor
• Project accepted if NPV is positive
• Project rejected if NPV is negative.
EXAMPLES:
Ex-1: A Company with a cost of capital of 10% is considering investing in a project with the
following cash flow.
Years Rs.(millions)
0 (10,000)
1 6000
2 8000
Should project be undertaken?
Sol:
2066 (Accepted)

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Ex-2: A Company is considering whether to invest in a project in a project costing Rs. 53000.
Project would have a four years life and estimated cash profits over the four years are given.
Calculate NPV using discount rate of 11%
Sol: (2210)
Ex-3: Calculate NPV at 12%
Sol: Negative(50443.5 approx.)
Ex-3(A): A Company is considering whether to invest in a project which would involve in purchase
of machinery with a life of 5 years. Machine would cost Rs. 556,000 and would have a net
disposal value of Rs. 56000 at the end of year 5. Project would earn annual cash flow of
Rs. 200,000. Find NPV at 15%.
Sol. 𝟏𝟒𝟐𝟐𝟕𝟐
EX-4: A construction Company is considering a project costing Rs. 1700,000 now plus Rs.
800,000 at the end of year 1. Net earnings will be Rs. 500,000 per annum from year 2 to
year 8. The Company required a return of 11% per annum. Find NPV.
Sol. - 298109
EX-5: A Project requires Rs. 800,000 to be invested today. In return it will yield two inflows of
certain amount at the end of the first and second year respectively in such a way that the
first amount is twice that of the second amount. If cost of capital and NPV is 10% and
1200,000 respectively, compute the amount to be received at the end of second year.
Sol: (756250 to be received at the end of the second year)

Multiple Choice Questions Related to Above Topic

Q.105 Project MCG would provide annual inflows of Rs. 650,000 Rs. 500,000, Rs 1,000,000 and Rs
2,500,000 at the end of year 1 to 4 respectively, whereas project ACG would yield annual inflows
of Rs 849,650, Rs 1,166,800 and Rs 2,068,000 from year 1 to 3 respectively. The discount rate at
which both projects would have same net present value is:
(a) 16.31% (b) 17.51%
(c) 18.27% (d) None of these
Q.106 Solution Desk Private Limited intends to invest Rs 4 million into a project which would yield 12,14
and 16 percent during three years respectively. The company would also recover the original
investment after 3 years. Company’s cost of capital is 10%, NPV of the project would be:
(a) 385,274 (b) 436,364
(c) 480,841 (d) 1,380,015
Q.107 NCHM invested 5 million. Return rate was 10%, 12% and 14% per year for first, second and third
year respectively. Find NPV if cost of capital is 10%
(a) 0.15 million (b) 0.1656 million
(c) 0.2329 million (d) None of these
Q.108 Asia ghee mills invested 4 million. Interest rate on which return based was 10%, 12% and 13%
per year for first, second and third year respectively. Find NPV if cost of capital is 10%
(a) 0.15 million (b) 0.1563 million
(c) 0.2329 million (d) None of these
Q.109 Solution desk invested 9 million. Interest rate was 8%, 12% and 14% per year for first, second and
third year respectively. Find NPV if cost of capital is 9%
(a) 0.15 million (b) 0.1563 million
(c) 0.4922 million (d) None of these

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Q.110 Pakistan Railway invested 5 million. Interest rate was 12%, 14% and 16% per year for first, second
and third year respectively. Find NPV if cost of capital is 10%
(a) 0.15 million (b) 0.1563 million
(c) 0.2329 million (d) 0.4816 million
Q.111 A Pharmaceutical Company invested 4 million. Interest rate was 10%, 12% and 13% per year for
first, second and third year respectively. Find NPV if cost of capital is 9%
(a) 0.15 million (b) 0.1563 million
(c) 0.2613 million (d) None of these
Q.112 A Cement Industry intends to invest Rs. 3 million into a project which would yield 10, 12 and 14
percent during three years respectively. The industry would also recover the original investment
after 3 years. If the company’s cost of capital is 10% the NPV of the project is:
(a) Rs 139,745 (b) Rs 46,582
(c) Rs 1,046,582 (d) Rs 3,139,745
Q.113 Mr. A invested Rs. 100,000 and received Rs. 50,000 at first, Rs. 40,000 at second year and Rs.
30,000 at third year. Find Net present value in %.
(a) 2.09876% (b) 10.65168%
(c) 4.98486% (d) 5.635487%
Q.114 Two companies made profits from in different project:
Year 1 Year 2 Year 3 Year 4
Company A 900,000 600,000 300,000 900,000
Company B 1,200,000 800,000 400,000 -
Find the rate at which NPV of both companies will be same.
(a) 29.37% (b) 18.58%
(c) 15.37% (d) 16.33%
Q.115 Project A would provide annual inflows of Rs. 525,000 Rs 648,000, Rs 853,000 and Rs 2,844,000
at the end of year 1 to 4 respectively, whereas project B would yield annual inflow of Rs. 947,000
Rs 1,155,000 and Rs 2,068,000 from year 1 to 3 respectively. The discount rate at which both
project would have same net present value is:
(a) 18.27% (b) 18.83%
(c) 19.31% (d) 19.73%
Q.116 Two companies made profits from investments in different projects:
Year 1 2 3 4
Company A 9,800 9,500 1,500 --
Company B 8,500 9,000 700 100
Find the rate at which NPV of both companies will be same
(a) 12.4% (b) 20%
(c) 30% (d) 1.33%

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Q.117 Two companies made profits from investments in different projects:

Year 1 Year 2 Year 3
Company A 600,000 900,000 850,000
Company B 600,000 750,000 1200,000
Find the rate at which NPV of both companies will be same
(a) 1.47% (b) 1.33%
(c) 54.65% (d) 15.2%
Q.118 Which of the following statement is incorrect? (drag down Scenario)
(a) Net present value decreases if discounting rate is increased
(b) Net present value increases if discounting rate is decreased
(c) Net present value is zero if internal rate of return is used to discount project cash flows
(d) There is a direct relationship between net present value and discount rate, that is if one
increases the other increases as well
Q.119 Which of the following statement is correct? (drag down Scenario)
(a) A project must be undertaken if internal rate of return is more than cost of capital.
(b) A project must be undertaken if internal rate of return is less than cost of capital.
(c) A project with a positive net present value must not be undertaken.
(d) A project with a negative net present value must be undertaken
Q.120 A legal project requires Rs. 600,000 today and will result in two annual cash inflows of Rs 300,000
at the end of first year and Rs. 500,000 at the end of second year respectively. Compute net present
value and internal rate of return of the project if cost of capital is 5%
(a) Rs. 239,229 and 7% (b) Rs. 139,229 and 19.64%
(c) Rs. 239,229 and 19.65% (d) Rs. 139,229 and 7%
Q.121 A development project has a net present value of Rs 15,028 when discount rate is 15%. At what
discount rate will the net present value of project be Rs. 11,111.
(a) 13% (b) 14%
(c) 10% (d) 15%
Q.122 If net present value of a project is negative one must invest in the project
(a) True (b) False
Q.123 Net present value can never be negative
(a) True (b) False
Q.124 A project requires investment of Rs. 480,366 today. It will yield Rs. 200,000 at the end of each
year for three years. Compute Internal rate of return for the project
(a) 10% (b) 11%
(c) 12% (d) 13%
Q.125 A company is considering whether to invest in a project which would result in an investment of
Rs. 200,000 today. The project would earn annual cash flows of Rs. 25,000 per year in perpetuity
(at the end of each year). Calculate NPV of the project using a discount rate of 12%
(a) Rs. 7,333 (b) Rs. 8,333
(c) Rs. 9,333 (d) Rs. 10,333

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Q.126 A company has limited funds available for investment and has to pick one of the following projects
for investment:
Project Net Present Value (Rs million)
A (5)
B 3
C 7
D 8
In which of the above projects must the company invest funds in?
(a) A (b) B
(c) C (d) D
Q.127 When company has limited funds available for investment and has multiple investment
opportunities with positive net present value the company must select one with the lowest net
present value
(a) True (b) False
Q.128 Which of the following statement is correct?
(a) If discount rate for a project is increased, then net present value will increase as well
(b) If discount rate for a project is increased, then net present value will decrease.
(c) If discount rate for a project is decreased, then net present value will decrease as well
(d) All of the above
Q.129 Correct formula for calculation of net present value is:
(a) Present value of cash inflows + present value of cash outflows
(b) Present value of cash outflows - present value of cash inflows
(c) Present value of cash inflows - present value of cash outflows
(d) None of the above
Q.130 A project has present value of cash inflows Rs. 800,000 and present value of cash outflows as Rs.
350,000. The net present value of the project is ______________.
(a) Rs. 550,000 (b) Rs. 650,000
(c) Rs. 1,150,000 (d) Rs. 450,000
Q.131 Arrange following steps to calculate net present value in correct order:
(1) Discount cash flows to their present values
(2) List all cash flows expected to arise from the project
(3) Compute difference between present value of cash inflows and present value of cash
outflows
(a) 1, 2 and 3 (b) 1, 3 and 2
(c) 3, 1 and 2 (d) 2, 1 and 3
Q.132 Calculate the net present value of a project which requires an initial investment of Rs. 243,000 and
it is expected to generate a cash inflow of Rs. 50,000 each month for 12 months. Assume that the
salvage value of the project is zero. The target rate of return is 12% per annum.
(a) Rs 319,754 (b) Rs 319,123
(c) Rs 419,754 (d) Rs 219,744

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Q.133 Which of the TWO statements below are correct

(a) Present value of cash inflows and present value of cash outflows can never be equal to
each other.
(b) The discount rate to be used for computing net present value is cost of capital
(c) Cash outflows always occur at the start of a project
(d) Cash outflows may occur at the end of the project
Q.134 A project is such that the sum of cash inflows is equivalent to the amount of cash outflows.
Which of the following statement is TRUE for the project?
(a) Net present value of the project will be zero
(b) Net present value of the project will be negative
(c) Net present value of the project may be zero
(d) Net present value of the project will be positive
LO.6 INTERNAL RATE OF RETURN (IRR):
• The internal rate of return (IRR) is the annual rate of growth that an investment is expected
to generate. IRR is calculated using the same concept as net present value (NPV), except
it sets the NPV equal to zero.
• If IRR ≥ expected rate then project will be accepted
• If IRR < expected rate then project will be rejected
FORMULA:
NPVA
IRR = A% + ( ) (B − A)%
NPVA − NPVB
• NPVA  Positive
• NPVB  Negative
• A < Expected rate
• B > Expected rate
• Higher rate for Negative NPV
• Lower rate for Positive NPV
EXAMPLES
Ex-1 Find IRR of the given data
Years 0 1 2 3 4
Cash Flow (213,000) 65,200 96,000 73,100 55,400
Sol: (14.04%)
Ex-2 Find rate at which NPV of both companies will same
Years 1 2 3
Company A 900 ---- 800
Company B 200 1,000 600
Sol: (18.81%)
Ex-3 A business requires a minimum expected rate of return of 12% on its investment having
following cash flows.
Years 0 1 2 3 4
Cash Flow (80,000) 20,000 36,000 30,000 17,000

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Find IRR.
Sol: (11.3%)
Alternative
Sol: (11.23%)
Ex-4 The following information is about a project. Project has an NPV of 2210 at a discount rate
of 11%. Estimate IRR of the project.
0 1 2 3 4
(53,000) 17,000 25,000 16,000 12,000
Sol: (13.13%)
Alternative
Sol: (13.1%)
Ex-5 The following Information is about a project. The project has an NPV of (1515) at a
discount rate of 8%. Estimate IRR of the Project.
0 1 2 3
(53,000) 27,000 31,000 15,000
Sol: (6.6%)
Ex-6 Solution Desk Private Limited intends to invest Rs 4 million into a project which would
yield 12,14 and 16 percent during three years respectively. The company would also
recover the original investment after 3 years. Company’s cost of capital is 10%, Find NPV
of the Project
Sol: (Rs. 385274.2)
Multiple Choice Questions Related to Above Topic
Q.135 A development project costing Rs. 2 million is expected to yield Rs. 300,000, Rs. 400,000, Rs.
1,900,000 at the end of each of the next 3 years respectively. The nearest IRR approximation of the
project is:
(a) 10.18% (b) 10.66%
(c) 11.15% (d) 11.51%
Q.136 Cash outflow = 3.0 million, cash inflow = 1.0m (1st year) 0.25 million (2nd) 2.25 m (3rd). Find
IRR.
(a) 2.876% (b) 5.897%
(c) 8.746% (d) 6.845%
Q.137 An Indoor Sports project costing 4 million is expected to yield Rs. 600000, Rs. 800000 & Rs.
4000000 at the end of each year for next 3 years respectively. The IRR of the project is?
(a) 12.22% (b) 21.22%
(c) 22.12% (d) 22.21%
Q.138 Cash outflow = 3.0 million, cash flow = 1.0m (1st year) 0.25 million (2nd) 2.25 m (3rd). Find IRR.
(a) 2.876% (b) 5.897%
(c) 8.746% (d) 6.845%
Q.139 2.5 million cash outflow: cash inflows of year 1,2 and 3 are 2 million, 2.9 million, 0.5 million
respectively. Find IRR.
(a) 7.38% (b) 9.38%
(c) 6.02% (d) 10.38%

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Q.140 Find the IRR of an investment having initial cash outflow of Rs. 213,000. The cash inflows during
the first, second, third and fourth years are expected to be Rs. 65,200, Rs. 96,000, Rs. 73,100 and
Rs 55,400 respectively
(a) 11% (b) 12%
(c) 13.12% (d) 14.5%
Q.141 The indebtedness at any time in amortization is called
(a) Principal Repayment (b) Opening balance
(c) Closing Balance (d) Outstanding balance
Q.142 When calculating IRR, Net Present Value of the project cash flow must be:
(a) zero (b) neglected
(c) one (d) double
Q.143 A legal project requires certain amount to be invested today. The project will yield a single return
at the end of four years which is four times the original investment. Compute internal rate of return
of the project
(a) 10 % (b) 21.42 %
(c) 31.42 % (d) 41.42 %
Q.144 If an investment of Rupees 100,000 is made on a Digi skill business with a promise of 7% interest
earned each year for the next 10 years. The annual interest would be_______ .
(a) 7,000 (b) 700
(c) 17,000 (d) 7,700
Q.145 Mr. Patras Bukhari invests Rs 500,000 today with the objective of receiving two equal annual
receipts at the end of first year and second year (inclusive of the original invested amount). If the
interest rate is 16%, compute the amount of interest received in the second receipt.
(a) Rs. 268,519 (b) Rs. 42,962
(c) Rs. 86,400 (d) Rs. 268,518
Q.146 If internal rate of return is used to discount project cash flows, the net present value will be equal
to zero
(a) True (b) False
Q.147 Which of the following statement is correct?
(a) IRR is a discount rate that makes the net present value of a project equal to zero
(b) IRR is a discount rate that makes the net present value of a project equal to inflows.
(c) IRR is a discount rate that makes the net present value of a project equal to outflows.
(d) None of the above
Q.148 Which of the following is correct?
(a) Project is considered worthy for investment if the required rate of return is less than
internal rate of return
(b) Project is considered worthy for investment if the required rate of return is greater than
internal rate of return
(c) Project is considered worthy for investment if the required rate of return is same as
internal rate of return
(d) None of the above

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Q.149 Following internal rate of return working is performed by a trainee accountant:

A: 10%, NPVa: 500, B: 15% and NPVb: -500
IRR = 10% + (500/500 - ( - 500)) x (15% - 10%) = 10% + (500/500) x (15% - 10%) = 15%
Identify error in the working if any
(a) There is no error
(b) Format of IRR is not as per applicable law
(c) Correct IRR must be 12.50%. There is an error in the denominator 500-(-500) =
1,000
(d) IRR is not mentioned in %
Q.150 IRR of a project may increase if:
(a) The cost of capital increases (b) The cost of capital decreases
(c) Cash inflows increase (d) Cash outflows increase
Q.151 Mr. Abdullah is keen to purchase a garden of apples which is expected to produce its first crop at
the end of 6 years. It is estimated that the net annual income from the crop will yield Rs. 60,000 for
15 years after which its resale value will be Rs. 100,000 only. If the money is worth 6%
compounded annually, what maximum amount he would pay now for the garden?
(a) Rs 404,273 (b) Rs 466,634
(c) Rs 624,461 (d) Rs 530,545
Q.152 Mr. Ikram has decided to purchase a field of vegetables. The field will yield its first crop after
four years. It is expected that the net cash income from the field will be Rs 700,000 per annum for
four years annually after it starts to yield crop. If market rate of return is 10%, what maximum
price must Mr. Ikram pay to acquire the field today?
(a) Rs. 1,467,097 (b) Rs. 1,567,097
(c) Rs. 1,667,097 (d) Rs. 1,767,097
Q.153 A one year investment with an outflow at year 0 and an inflow at year 1 has an internal rate of
return of 20%. If the cost of capital is 10% which of the following statement is correct?
(a) Present value of cash inflow is 20% more than present value of cash outflow
(b) Present value of cash inflow is 10% more than present value of cash outflow
(c) Present value of cash inflow is 9.09% more than present value of cash outflow
(d) Present value of cash inflow is 8.33% more than present value of cash outflow

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ANSWERS
1 C 2 A 3 A 4 B 5 B
6 B 7 B 8 B 9 C 10 A
11 A 12 D 13 B 14 C 15 A
16 A 17 C 18 B 19 C 20 D
21 D 22 B 23 C 24 D 25 A
26 A 27 D 28 A 29 C 30 B
31 D 32 C 33 B 34 C 35 D
36 A 37 B 38 A 39 D 40 A
41 A 42 C 43 A 44 *** 45 C
46 A 47 B 48 B 49 B 50 B
51 B 52 D 53 C 54 D 55 B
56 C 57 C 58 A 59 C 60 B
61 B 62 C 63 C 64 D 65 A
66 D 67 B 68 D 69 A 70 B
71 D 72 B 73 C 74 C 75 A
76 D 77 C 78 B 79 C 80 A
81 A 82 B 83 D 84 C 85 C
86 D 87 A 88 C 89 B 90 B
91 A 92 A 93 C 94 D 95 C
96 C 97 A 98 C 99 A 100 D
101 B 102 C 103 C 104 C 105 B
106 A 107 C 108 B 109 C 110 D
111 C 112 A 113 B 114 B 115 A
116 D 117 B 118 D 119 A 120 B
121 D 122 B 123 B 124 C 125 B
126 D 127 B 128 B 129 C 130 D
131 D 132 A 133 B&D 134 C 135 B
136 D 137 A 138 D 139 C 140 D
141 D 142 A 143 D 144 A 145 B
146 A 147 A 148 A 149 C 150 C
151 B 152 C 153 C 154 155

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