You are a financial analyst for the Hittle Company The director-00096
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vu bio201 Cell Biology.
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vu bio201 Mid Term Solved Past Paper No. 1.
Question 1: You are a financial analyst for the Hittle Company. The director of capital budgeting has asked you to analyze two proposed capital investments Project X and Project Y. Each project has a cost of Rs. 10,000 and the cost of capital for both projects is 12%. The projects' expected cash flows are as follows:
Payback period is the time required by the project to recover its costs.
Year 1 the project will recover Rs. 6,500
Year 2 the project will recover Rs 3000
Year 3 project will recover the remaining Rs. 500 in 1st month of 3rd yr. So payback period for Project X is 2 yrs and 1 month.
PROJECT Y: Cost of project= Rs 10,000
Year 1 project will recover Rs 3,500
| Year Expected net cash flows | Project X | Project Y |
| 0 | (10,000) | (10,000) |
| 1 | 6,500 | 3,500 |
| 2 | 3,000 | 3,500 |
| 3 | 3,000 | 3,500 |
| 4 | 1,000 | 3,500 |
- i. Calculate each project's payback, net present value (NPV), internal rate of return (IRR), and profitability index (PI).
- ii. Which project or projects should be accepted if they are independent?
- iii. Which project should be accepted if they are mutually exclusive?
Answer:
PROJECT X: Cost of project = Rs. 10,000Payback period is the time required by the project to recover its costs.
Year 1 the project will recover Rs. 6,500
Year 2 the project will recover Rs 3000
Year 3 project will recover the remaining Rs. 500 in 1st month of 3rd yr. So payback period for Project X is 2 yrs and 1 month.
PROJECT Y: Cost of project= Rs 10,000
Year 1 project will recover Rs 3,500
