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Tutorial 4

The document discusses capital budgeting techniques for evaluating two potential projects for Apex Ltd. and two machines for Olay Ltd. It provides the initial costs and cash flows for each and asks to calculate the payback period, net present value at given discount rates, and profitability index for each to determine which projects/machines should be accepted based on these metrics.

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Mohamed Zamri
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41 views2 pages

Tutorial 4

The document discusses capital budgeting techniques for evaluating two potential projects for Apex Ltd. and two machines for Olay Ltd. It provides the initial costs and cash flows for each and asks to calculate the payback period, net present value at given discount rates, and profitability index for each to determine which projects/machines should be accepted based on these metrics.

Uploaded by

Mohamed Zamri
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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FINANCIAL MANAGEMENT

TUTORIAL 4
CAPITAL BUDGETING
1. Apex Ltd. is considering a project with following cash flows:

Initial Cost Rs. 100,000


Cash flow: Rs.
Year 1 50,000
Year 2 50,000
Year 3 30,000
Year 4 20,000
Year 5 10,000

a. Calculate the Payback Period for the project.


b. Calculate the NPV of the project if the cost of capital is 10%
c. Calculate the Profitability Index.

2. Olay Ltd. is considering two new machines to be purchased with following cash flows:
Machine 'X' Machine 'Y'
Capital Cost Rs. 120,000 Rs. 200,000
Cash flow: Rs. Rs.
Year 1 50,000 50,000
Year 2 50,000 50,000
Year 3 30,000 60,000
Year 4 20,000 60,000
Year 5 10,000 -

a. Calculate the NPV for each project if the cost of capital is 12%
b. Calculate the Profitability Index for each project.
c. Calculate the Payback Period for each machine.
3.

4.

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