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Unit 4 Problems

The document discusses the pay-back period, which is the time required to recover the initial investment in a project, and provides exercises to calculate it for different scenarios. It also explains cost-benefit analysis, comparing the net present value of costs and benefits, and introduces the net present value method for evaluating project proposals, which accounts for the time value of money. Overall, it covers key financial concepts essential for project evaluation.

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4 views6 pages

Unit 4 Problems

The document discusses the pay-back period, which is the time required to recover the initial investment in a project, and provides exercises to calculate it for different scenarios. It also explains cost-benefit analysis, comparing the net present value of costs and benefits, and introduces the net present value method for evaluating project proposals, which accounts for the time value of money. Overall, it covers key financial concepts essential for project evaluation.

Uploaded by

p.subramani
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Unit 2 and 6 Problems

Pay-back Period

Pay-back period is the time required to recover the initial investment in a project.

Exercise 1
Project cost is Rs. 30,000 and the cash inflows are Rs. 10,000, the life of the project is
5 years. Calculate the pay-back period.

Exercise 2
A project costs Rs. 20,00,000 and yields annually a profit of Rs. 3,00,000 after depreciation @ 12½% but
before tax at 50%. Calculate the pay-back period.
Uneven Cash Inflows
Normally the projects are not having uniform cash inflows. In those cases the pay-back period is
calculated, cumulative cash inflows will be calculated and then interpreted.
Exercise 3
Certain projects require an initial cash outflow of Rs. 25,000. The cash inflows for 6 years are
Rs. 5,000, Rs. 8,000, Rs. 10,000, Rs. 12,000, Rs. 7,000 and Rs. 3,000.
Solution

What is Cost-Benefit Analysis?


Cost-benefit analysis is an economic exercise which compares the net present value of
investment expenditures (in this case the costs of an abatement option) with the net
present value of the benefits generated by the investment (in this case the pollution
damages that are avoided).

Net Present Value

Net present value method is one of the modern methods for evaluating the project proposals. In
this method cash inflows are considered with the time value of the money. Net present value
describes as the summation of the present value of cash inflow and present value of cash
outflow. Net present value is the difference between the total present value of future cash inflows
and the total present value of future cash outflows.

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