SEMESTER SPRING 2013 BUSINESS FINANCE (ACC501) ASSIGNMENT NO. 02

SEMESTER SPRING 2013
BUSINESS FINANCE (ACC501) ASSIGNMENT NO. 02
DUE DATE: 24TH JUNE, 2013 MARKS: 30
LEARNING OBJECTIVES:
After attempting this assignment whole-heartedly, the students will be able to:
 Evaluate any proposed project by using different capital budgeting techniques.
 Derive inferences regarding the acceptance/rejections of the project.
ASSIGNMENT:
Mr. Ali has recently retired from his job and got handsome amount from his employer. He wants to invest his money in a profitable project. He got two different projects along with their initial costs and expected cash flows for next 6 years as follows:
Period
Project A
(Rs.)
Project B
(Rs.)
0
-250,000
-250,000
1
30,000
70,000
2
50,000
80,000
3
60,000
90,000
4
90,000
40,000
5
100,000
20,000
6
120,000
10,000
He doesn’t have enough knowledge to check the financial feasibility of projects. So, he approaches to a financial consultancy firm to get these projects evaluated regarding their financial viability. Being an employee of the financial consultancy firm, you have been assigned the task to analyze these projects by using the following capital budgeting techniques:
1. Payback period (Desired period is 4 year) [ 4 + 4 = 08 ]
2. Net Present Value (NPV) [ 7 + 7 = 14 ]
3. Profitability Index (PI) [ 3 + 3 = 06 ]
Considering both projects mutually exclusive, suggest which of the two projects is feasible and why? [ 1 + 1 = 2 ]
Note: Cost of capital for projects are 10%.
IMPORTANT INSTRUCTIONS:
 Complete calculations are required for every part of the problem. Incomplete calculations will result in loss of marks.
 Discount factors and resulting figures should not be rounded up more than four decimal digits.
IMPORTANT:
24 hours extra / grace period after the due date is usually available to overcome uploading difficulties. This extra time should only be used to meet the emergencies and above mentioned due dates should always be treated as final to avoid any inconvenience.
OTHER IMPORTANT INSTRUCTIONS:
DEADLINE:
 Make sure to upload the solution file before the due date on VULMS.
 Any submission made via email after the due date will not be accepted.
FORMATTING GUIDELINES:
 Use the font style “Times New Roman” or “Arial” and font size “12”.
 It is advised to compose your document in MS-Word format.
 You may also compose your assignment in Open Office format.
 Use black and blue font colors only.
RULES FOR MARKING
Please note that your assignment will not be graded or graded as Zero (0), if:
 It is submitted after the due date.
 The file you uploaded does not open or is corrupt.
 It is in any format other than MS-Word or Open Office; e.g. Excel, PowerPoint, PDF etc.
 It is cheated or copied from other students, internet, books, journals etc.
Note related to load shedding: Please be proactive
Dear students!
As you know that Pre Mid-Term semester activities have started and load shedding problem is also prevailing in our country. Keeping in view the fact, you all are advised to post your activities as early as possible without waiting for the due date. For your convenience; activity schedule has already been uploaded on VULMS for the current semester, therefore no excuse will be entertained after due date of assignments, quizzes or GDBs.