Re: (Attock VU Group) fin622 SOL

Assignment # 01
Corporate Finance (Fin 622)
Assignment Solution
Payback Period of each Project
Project X = 2.235 years (W -1)
Project Y = 1.3636 years (W-2)
•Net Present Value of each Project
Net Present Value of Project (X)(W -3)= 31.217
Net Present Value of Project (Y) (W -4)= 44.478
Recommendation of Project on the basis of Payback Period & Net Present
Value
On the basis of Payback Period and Net Present Value I will recommend
Project B, because in this project Payback Period is shorter, which is better
for any project and Net Present Value of Project B is higher which is
favorable factor for any project.
WORKING
(W-1)
Payback = year before full recovery +
uncovered cost at start of year
cash flow during year
 
= 2 + 20/85
= 2.235 years
Project A: 0 1 2 3
Net cash flow -100 15 65 85
Cumulative
NCF
-100 15 80 165
(W-2)
Payback =
uncovered cost at start of year
cash flow during year
 
= 1+ 20/55
=1.3636 years
Project A: 0 1 2 3
Net cash flow -100 80 55 35
Cumulative
NCF
-100 80 135 170
(W-3)
NPV= CF0 + CF1 + CF2 + …………. + CFn
(1+r)
1
 (1+r)
2
(1+r)
n
 
NPVx = -100 + 15/(1.1)^1 + 65/(1.1)^2 + 85/(1.1)^3
 
= -100+ 13.636 + 53.719+ 63.862
 
= RS. 31.217
(W-4)
NPV= CF0 + CF1 + CF2 + …………. + CFn
 
(1+r)
1
 (1+r)
2
 (1+r)
n
 
NPVx = -100 + 80/(1.1)^1 + 55/(1.1)^2 + 35/(1.1)^3
= -100+ 72.727+ 45.455+ 26.296
= RS. 44.478

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