1. A college student wants to buy a gaming laptop and accessories from a shop in new road.
It costs 500000 on purchase
new accessories with its salvage value 50000 at the end of 5 years. The shop also has hiring facility with Rs.60000 per year
for 5 years. Determine which option is economical to student @MARR 10%. (Using PW method)
2. A man bought a new house 5 years ago at [Link] house needed Rs.50000 to maintain in annual basis. At the end
of 3rd year Rs.100000 was spent on roofing and water proofing, now if a man wants to sell a house for 1100000 (as market
value). He was receiving rent amount of Rs. 100000 per year from the beginning of each year from the house. Evaluate the
man’s investment is economical or not economical by AW method when MARR is 12%. (Using AW method)
3. Evaluate both type of Payback period (Simple and Compounded). MARR= 13% per year.
End of the year Net cash flow
0 -100000
1 40000
2 40000
3 40000
4 40000
5 70000
(Ans: 2.5 and 3.226)
4. Calculate IRR of project, unrecovered investment balance (graphical and tabular) with the given information. Use PW
formulation.
Initial investment=Rs.25000
Net annual revenue=8000
Salvage value=5000
Useful life=5 years
MARR=20%
5. What are the drawbacks of IRR Methods of economic evaluation?
6. What are the differences between financial and economic analysis.
7. What is WACC? Explain with example.
8. What is Capital Budgeting
9. Find ERR (External rate of return) Ɛ=15% Ans :19.315%
End of year Annual Cash flow
0 -60000
1 20000
2 40000
3 -50000
4 +50000
5 70000
10. Equipment costs 250000 and has salvage value of 50000 at the end of its expected life 5 years. Annual expenses will be
40000. It will produce a revenue of 120000 per year. MARR = 20%= Ɛ
a) Evaluate IRR using AW formulation (Ans: IRR=21.577%)
b) Evaluate B/C with formulation (Both conventional and modified) (1.0267 and 1.0406)
c) Evaluate ERR (20.6%)
11. Find B/C (Both conventional and modified) ratio using PW and formulation and AW formulation. (Ans
:1.569)
Initial investment=Rs. 400000,,, Annual benefit=150000
Annual cost=30000,,, Salvage value=50000
Useful life=8 years ,MARR=12% per year
12. Choose the best project assuming repeatability.
Project A B
Annual Investment (Rs) 400000 700000
Annual Revenue (Rs.) 175000 250000
Annual Cost (Rs.) 25000 35000
Salvage Value (Rs.) 40000 70000
Useful life 6 years 8 years
MARR 12% 12%
13. Solve using Capitalized worth method.
Project A B
Investment 50000 120000
Annual Revenue 10000 10000
Annual Cost 9000 6000
Life in years 10 25
MARR 15% 15%
14. Nepal Airlines is planning to purchase a jet plane. The estimate on two types of plane under consideration is:
Project Plane A Plane B
First Investment cost 25,00,00,000 30,00,00,000
Annual O and M cost 1,50,00,000 1,00,00,000
Useful life 4 years 6 years
Salvage value 5,00,00,000 6,00,00,000
MARR 12% 12%
Which plane is the best if it is believed that plane will be used for
a) 4 years
b) Infinite period
15. Compare the following two mutually exclusive projects using (i) Co terminated (study period of 4 years)
(ii) repeatability assumption; MARR 8%
Project A B
Initial cost 150000 200000
Annual revenue 90000 100000
O and M cost annual 20000 20000
Life year 4 6
Salvage Value 80000 120000
16. Compare using repeatability and co-terminated assumption. (study period 4 years) MARR=12%. Use PW formulation.
Items A B
Initial Investments 150000 200000
Annual Revenue 90000 100000
Annual Expenses 20000 22000
Salvage 50000 100000
N 4 8
[Link] Repeatability and co-termination assumption recommend the best project @MARR 10%. Take Study period of 6
years.
Project A B
Investment 350000 500000
Annual Revenue 130000 175000
Annual Cost 15000 25000
Salvage Value 35000 50000
Life in years 5 8
18. Using Repeatability and co-termination assumption recommend the best project @MARR 15%. Take Study period of
8 years.
Project A B
Investment 350000 450000
Annual Revenue 120000 150000
Annual Cost 30000 50000
Salvage Value 60000 80000
Life in years 6 10
19. The cash flows for the two mutually exclusive alternatives are given as follows: MARR =10%
Which project would be selected based on IRR criterion.
20. Consider the following three set of mutually exclusive alternatives. Which project would you select based on IRR, ERR
and BCR methods on incremental investment assuming that MARR = Ɛ=15%?