PROBLEM 3 PROBLEM 2
YEAR CASH INFLOW FUTURE VALUE RATE
Column1 Column2 0 0 0
PV 0 1 10000 ₹ 13,310.00
YEAR 3 2 5000 ₹ 6,050.00
NPER 3 3 2000 ₹ 2,200.00
RATE 10% FV ₹ 21,560.00
PMT 10000
FV ₹ 33,100.00
PROBLEM 4 (More than once in a year)
Semi-annually Quarterly Monthly
ROI 0.1 ROI 0.1 ROI
PV 10000 PV 10000 PV
YEAR 3 YEAR 3 YEAR
NPER 6 NPER 12 NPER
PMT 0 PMT 0 PMT
RATE 0.05 RATE 0.025 RATE
FV ₹ 13,400.96 FV ₹ 13,448.89 FV
PROBLEM 5
PV 10000 ROI 0.12
RATE 0.03
YEAR 3
NPER 12
PMT 0
FV ₹ 14,257.61
DISCOUNTING TECHNIQUE - The Present value
10% Type 1 = Present value of a Future Sum
FV 10000
Years 3
NPER 3
Rate 10%
PV ₹ 7,513.15
Type 2 = Present Value of a series of Unequal Cash Flows
Rate
YEAR Cash Inflow PVCI
0.1 1 10000 ₹ 9,090.91
10000 2 5000 ₹ 4,132.23
3 3 2000 ₹ 1,502.63
36 ₹ 14,725.77
0
0.008333333 Type 3 = Present Value of a series of Equal Cash Flows
₹ 13,481.82 FV 0 Rate 10%
Year 3 PMT 10000
Nper 3 PV ₹ 24,868.52
Type 4 = Present Value of Perpetuity
Annuity 10000
ROI 0.1
PV 100000
Type 5= Future Value of Annuity Due
PV 0
Year 3
Nper 3
Rate 0.1
PMT 10000
FV ₹ 36,410.00
Type 6 = Present Value of Annuity Due
FV 0
Year 3
NPER 3
Rate 0.1
PMT 10000
PV ₹ 27,355.37
PMT FUNCTION
PV 500000
RATE 0.1
YEAR 10
NPER 10
PMT ₹ 81,372.70
PROBLEM 13
0.1 (i) RATE 0.1
PV 0
YEAR 20
NPER 20
FV 2000000
PMT ₹ 34,919.25
(ii) RATE 0.1
PV 0
YEAR 20
NPER 20
FV 2000000
PMT ₹ 31,744.77
(iii) RATE 0.08 0.02
PV 2000000
YEAR 15
NPER 60
PMT ₹ 57,535.93
PROBLEM 14 ROI 0.105
(a) 550000
(b) ₹ 589,518.18
c 595238.09524
(d) ₹ 541,329.55
e ₹ 319,919.79 For 4 years
₹ 212,449.96 For 5th Year
₹ 532,369.75
Capital Budgeting Decisions
Problem 1 Initial Cash Flow = 40000 Payback = Initial Investment/Annual Cash Inflow
Also = P+B/C
Year Cash Inflow Cumulative Cash Inflows
1 10000 10000
2 12000 22000
3 10000 32000
4 7000 39000 4.2
5 5000 44000
Payback 4.2
Problem 2
Cost of Machine 60000 Salvage Value 8000
Year Profits after TAX
1 6000
2 7000
3 5000
4 6000
5 8000
32000
Average Profit 6400
Average Investment 34000 Formula = 0.5*(Cost-SV)+NWC+SV
ARR 0.188235294117647
Problem3
Year CFAT
1 26000
2 29000 Cash Outflow 100000
3 32000 Cost of capital 0.1
4 35000
5 38000
NPV ₹ 19,145.86 PI 1.191459 ACCEPT
Problem 5
Year CFAT
0 -100000
1 40000 Cash outflow 10000
2 40000 Cash of capital 0.2
3 20000
4 40000
5 40000
IRR 23.67% ACCEPT
Problem 6
Year X Y Rate 0.1
0 -60000 -60000
1 50000 5000
2 25000 30000
3 5000 55000
NPV ₹ 9,872.28 ₹ 10,661.16
IRR 23% 17%
ACCEPT
In case of conflict between NPV & IRR, results given by NPV is used
vestment/Annual Cash Inflow Problem 7 ROI 0.1
Cash Outflow 100000
Year CFAT PV of Cumulative CFAT
1 60000 ₹ 54,545.45
2 50000 ₹ 95,867.77
3 40000 ₹ 125,920.36
4 30000 ₹ 146,410.76
5 20000 ₹ 158,829.19
Payback 2.14
st-SV)+NWC+SV
PV of Individual Net CF
₹ 54,545.45
₹ 41,322.31
₹ 30,052.59
₹ 20,490.40
₹ 12,418.43
Problem 1 Payback Period
Initial Cash Flow = 40000
Year Cash Inflow Cumulative Cash Inflows
1 10000 10000
2 12000 22000
3 10000 32000
4 7000 39000
5 5000 44000
Payback period 4.2
Problem 4 IRR
Year CFAT Cost of capital 10%
0 -100,000 (OUTFLOW)
1 40,000
2 40,000
3 20,000
4 40,000
5 40,000
IRR 24% Accept
Problem 2 ARR
Cost of m/c 60,000 S V 8000 Req rate 2%
Year PAT
1 6000
2 7000
3 5000
4 6000
5 8000
32000
Avg Profit 6400
Avg Inv 34000
ARR 18.82%
Problem 4 PI
0.1 Outflow 100,000 Cost of capital 10%
Year CFAT
1 26,000
2 29,000
3 32,000
4 35,000
5 38,000
PI 1.19145861
Problem 3 NPV
rate of ret 10% 0.1
Year CFAT
0 -100,000
1 26,000
2 29,000
3 32,000
4 35,000
5 38,000
NPV 19145.8606279998
UNIT -II Capital Budgeting
Decisions
Problem 1 Problem 2
Initial cash outflow 40,000 Machine cost
Year Cash Inflow Cum CI Year
1 10,000 10,000 1
2 12,000 22,000 2
3 10,000 32,000 3
4 7,000 39,000 4
5 5,000 44,000 5
Payback Period 4.2
Avg annual
Avg Investment
ARR
Problem 7 Problem 8
Disc rate 0.1
Cash OF 100,000
Year CFAT PV of cum CFAT PV of ind net cf
1 60,000 ₹ 54,545 ₹ 54,545
2 50,000 ₹ 95,868 ₹ 41,322
3 40,000 ₹ 125,920 ₹ 30,053
4 30,000 ₹ 146,411 ₹ 20,490
5 20,000 ₹ 158,829 ₹ 12,418
Payback (disc) 2.1375
Prob 3&4 Problem 6
60,000 SV 8,000 Cash OF 100,000 Rate of ret 0.1
PAT Year CFAT Year
6,000 1 26,000 0
7,000 2 29,000 1
5,000 3 32,000 2
6,000 4 35,000 3
8,000 5 38,000
32,000 IRR
6400 NPV 19,146 Accept NPV
34000 PI 1.191459
18.82%
Cash OF 50,000 Tax 0.35
Depn
(50,000/5
Profit before )
depreciation and
tax
Year PBT Tax (0.35) PAT CFAT Cum CFAT
1 11,000 10,000 1,000 350 650 10,650 10,650
2 20,000 10,000 10,000 3500 6,500 16,500 27,150
3 18,000 10,000 8,000 2800 5,200 15,200 42,350
4 15,000 10,000 5,000 1750 3,250 13,250 55,600
5 12,000 10,000 2,000 700 1,300 11,300 66,900
Payback 3.58 CFAT & CUM CFAT
ARR
Annual profit 3380 PAT
Avg Investment 25000
ARR 13.52%
NPV 804.51 CFAT
PI 1.01609012052083 CFAT
IRR 10.63% CFAT
Year CFAT
0 -50,000
1 10,650
2 16,500
3 15,200
4 13,250
5 11,300
Problem 6
Project X Project Y Rate of return 0.1
CFAT CFAT
-60,000 -60,000
50,000 5,000
25,000 30,000
5,000 55,000
23% 17%
9,872 10,661
Accept
UNIT -III Financing Decisions
Problem 1
12% Debentures @Rs 100 1,000,000 Tax 35%
No of deb 10000
Kd Par 8%
Discount 9.71% Net price 90 kd = (I(1-t) + ((RV-NP)/N))/
Premium 6.07% Net Price 110
Brokerage 8.17% Net Price 98
Problem 4 Specific costs
Eq shares 4,000,000 0.17 Tax 0.5
6% Pref share capital 1,000,000 0.06
8% Debentures 3,000,000 0.04
Mkt price (Po) 20 Eq div 2 Growth
Caln of WACC
Sources of capital Book values Weights Specific costs Composite costs
Eq shares 4,000,000 0.5 0.17 0.085
Pref Share capital 1,000,000 0.125 0.06 0.0075
Debentures 3,000,000 0.375 0.04 0.015
8,000,000 10.75%
Problem 6
Particulars
Sales 25,000
Int 30,000
SP 24 Break EVEN 240000
Tax 0.5 EBIT 120,000
Variable cost 16 EPS 4.5
No of eq shares 10,000 Op lev 1.666666666667
Fixed Costs 80,000 Fin lev 1.333333333333
Combined lev 2.222222222222
Sales 600000
Less Variable costs 400000
Contribution 200000
Less Fixed costs 80,000
Op Profit 120,000
Less Interest 30,000
EBT 90,000
Less Tax 45,000
EAT 45,000
Problem 2
12% Pref share 100 10,000,000
disc 0.1
under exp 0.02
kd = (I(1-t) + ((RV-NP)/N))/((RV+NP)/2) (i)
Pref div 12
Net price 88 88
Cost of pref 13.64% PD/NP
(II) Pref div 12 RV
Premium 15%
Cost 14.48%
Problem 5 Specific costs
Eq Shares 400,000 0.1807393 Tax 0.3
18% Pref Shares 300,000 0.2 Eq share 64.25
Retained earnings 100,000 0.1807393 Pref shares 90
12.50% Debentures 800,000 0.092105263 Debentures 95
0.07 12% Term Loan 400,000 8.4
Div (Do) 8 Growth rate 0.05
Div (D1) 8.4
WACC [Link]
Sources of Capital [Link] Weights Specific costs Composite costs
Eq Shares 400,000 0.2 18.07% 0.036147859922
Pref Shares 300,000 0.15 20.00% 0.03
Ret earnings 100,000 0.05 18.07% 0.009036964981
Debentures 800,000 0.4 9.21% 0.036842105263
Term Loan 400,000 0.2 8.40% 0.0168
2,000,000 12.88%
WACC Mkt Values Mkt values Weights Specific costs Composite costs
Eq Shares 2056000 0.514 18.07% 0.0929
Pref Shares 270000 0.0675 20.00% 0.0135
Ret earnings 514000 0.1285 18.07% 0.023225
Debentures 760000 0.19 9.21% 0.0175
Term Loan 400,000 0.1 8.40% 0.0084
4000000 15.55%
115
PARTICULARS OPENING
raw materials 150000
wip 160000
finished goods 300000
debtors 300000
creditors 200000
operating cycle RMHP 48
WIPP 20.16
FGHP 45
DCP 35
OCP 148.16
cash cycle CPP 56.25
CC (OCP-CPP) 91.91
Working capital required
no of operating cycles in an year 3.916875204
amt of working capital requirement 765916.66667
CLOSING ADDITIONAL INFORMATION
250000 purchases 1600000
120000 consumption 1500000
400000 total production cost 2500000
400000 total cogs 2800000
300000 total cost of sales 3000000
sales 3600000
Days
Days
Days
Days
Days
360/CC
cost of sales/no of operating cycle