Page 451 - Corporate Finance PDF Final new link

NPP

BRILLIANT’S Capital Budgeting 451

4,525

Interpolation: IRR = 11 +  (12 11) = 12.19%
4,525 715
Comment: Co. should prefer project x due to its higher IRR, provided it has sufficient funds.


REVIEW QUESTIONS

Q.1. Explain the types of Capital Investment Decisions.
H¡${nQ>b BÝdoñQ>‘|Q> {ZU©¶ Ho$ àH$ma g‘PmB¶o& [See Q.45]

Q.2. Which method is to be used for decision making when there are two or more mutually
exclusive projects? Also explain its merits and demerits.
{ZU©¶ H$aZo Ho$ {bE {H$g ‘oWS> H$m Cn¶moJ H$aZm hmoVm h¡ O~ Xmo ¶m A{YH$ nañna g§~§{YV àmoOo³Q²>g hmoVo h¢?
BgHo$ JwU VWm Xmof H$m ^r dU©Z H$s{OE& [See Q.47]
Q.3. The best method for evaluation of investment proposal is the NPV method or discounted
cash flow technique. Elaborate. [See Q.49]
{Zdoe àñVmd Ho$ ‘yë¶m§H$Z Ho$ {bE loð> ‘oWS> NPV ‘oWS> ¶m {S>ñH$mC§Q>oS> H¡$e âbmo VH$ZrH$ h¡& dU©Z H$s{OE&
Q.4. Write a short note on IRR. / IRR na g§{jßV {Q>ßnUr {b{IE& [See Q.50]
Q.5. Why is there a need for capital rationing? Explain.
H¡${nQ>b ameqZJ H$s Amdí¶H$Vm ³¶m| hmoVr h¢? g‘PmB¶o& [See Q.51]


PRACTICAL QUESTIONS

PAY-BACK PERIOD AND DISCOUNTED
PAY-BACK PERIOD METHOD

 When Cash Inflow is Constant Every Year
5.1.1 A company is considering to purchase a machine costing ` 1,20,000. Its estimated life is 5
years and annual cash inflow is 30,000. Calculate pay-back period and post pay-back
period. [Ans. Pay-back Period 4 years. Post PBP 1 year]

 When Cash Inflows are not Constant Every Year
5.1.2 A company has to choose one of the following two mutually exclusive projects.
Year Cash Inflows
Project A (`) Project B (`)
0 (15,000) (15,000)
1 4,200 4,200
2 4,800 4,200
3 7,000 4,000