Fin622 Assignment No. 1 Fall 2011 solution

ABC corporation stock is selling for Rs. 150 per share according to Karachi stock exchange market summary. A rumor about the company has been heard that the firm will make an exciting new product announcement next week. By studying the industry, it is being concluded that this new product will support a growth rate of 20% in dividend for two years. After that it is expected that the growth rate in dividend will decline to 6% and remains same onwards. The firm currently pays an annual dividend of Rs. 4.

The rate of return on stocks like ABC Corporation is 10%.

Required:

I. Find out the values for D1, D2 and D3 (8 Marks)

II. What will be the price of stock (P2) at the end of year 2? (4 Marks)

III. What will be the present value (P0) of stock? (6 Marks)

IV. Should we buy stocks of ABC Corporation at Rs. 150? (2 Marks)

Solution

Find out the values for D1, D2 and D3

D1= 4 (1+0.2) =4.8

D2= 4.8 (1+0.2) =5.76

D3=5.76 (1+0.05) =6.11

What will be the price of stock (P2) at the end of year 2?

P2= 5.76 (1+0.2)/ .1-0.05

P2=138.24

What will be the present value (P0) of stock?

PO= 4.8/(1+.1)1 + 5.76/(1+.1)2 + 6.11/(1+.1)3 + 128.31/(1.1)3

= 110

Should we buy stocks of ABC Corporation at Rs. 150

As the present value of the stock is less then the current selling price so the stock should not be purchased.

FIN623 2nd GDB IDEA SOLUTION

Samsung has a branch office in Pakistan. Mr. Kim, who is the employee of head office, is dedicated to perform services for the Pakistan branch office. What will be the tax treatment of salary received by Mr. Kim according to Income Tax Ordinance

2001?

Answer:

Treatment of Salary through employment Exercised in Pakistan:

Salary received by Mr. Kim will be Taxable under (Section 101) "Pakistan

Source Income" of the Income Tax Ordinance 2001.

Additional Explanation:

As Samsung which is a foreign company but has a branch office in

Pakistan its means that Samsung is working in Pakistan through Permanent

Establishment in Pakistan so it will be a resident company here and any salary paid by a resident company is Pakistan Source income and also any salary which can be earn through employment exercised in Pakistan will be chargeable to tax under Pakistan Source Income

Fin621 Assignment No. 1 Announced

Semester “Spring 2011”

“Finanacial Statement Analysis (FIN621)”

Assignment No. 01 Marks: 15

“Adjusting entries and its effect”

Question:

Eagle Security Service (PVT) Ltd. provides security solutions to various offices and shopping centers in the city. The books of accounts of the company are closed at the end of the calendar year. The following transactions occurred during the financial year 2009.

1. On August 01, the company received Rs. 40,000 as advance payment from ABC Shopping Mall for security services that are to be performed for the period of four months starting from August 01. The accountant of the Eagle Security Service recorded the same amount by crediting the “services revenue account” on August 01, 2009.

2. XYZ Company Limited filed a lawsuit against the Eagle Security Service (PVT) Ltd. For claims of worth Rs. 30,000 but the suit has not yet been settled.

3. On December 01, 2009, the company received Rs. 36,000 from the “Stylish Jewelers” located on the Main Boulevard for security services to be performed for the period of six months starting from December 01,2009. The entire amount was credited to the “unearned services revenue account”

4. The company uses a rental building as head office for which rent is accrued of Rs. 80,000 for twelve months up to the end of December but the company usually records rent expense when the rent is actually paid. Rent is normally paid in the first month of next year.

5. Entries are recorded for salaries expenses when employees are actually paid. Salaries are still to be paid amounting to Rs. 50,000 of one month till December 31, 2009.

6. On December 01, 2009 the company borrowed Rs. 300,000 from National Bank of Pakistan by issuing a 15% note payable due after six months. No entry is passed by the accountant yet.

7. On October 31, 2009 the company made a payment of worth Rs. 18,000 for insurance policy of one year starting from the beginning of November 01 2009. The whole amount was recorded as “prepaid insurance account”.

8. No depreciation expense for year has been recognized of the fixed asset having the cost of Rs. 80,000 and the book value of Rs. 51,200. Previously assets were depreciated (written down value method) @ 20% per annum.

Instructions:

1. For each above transaction pass the adjusting entry, if required; at December 31,2009. (Simply state “NO” with one line reason where adjusting entry is not required).

2. Explain the effect after adjustments on the “Expenses, Assets and Owners’ equity”of the company. Use the below format where “I” = increase , “D” = Decrease and “NE” = No Effect

Sr. No

Expense

Asset

Owners’ equity

1

2

3

4

5

6

7

8

Important Tips

1. This Assignment can be best attempted from the knowledge acquired after watching video lecture no. 1 to lecture no 13 and reading handouts as well as recommended text book).

Schedule

Opening Date and Time

April 22, 2011 At 12:01 A.M. (Mid-Night)

Due Date and Time

April 27 , 2011 At 11:59 P.M. (Mid-Night)

Note: Only in the case of Assignment, 24 Hrs extra / grace periodafter the above mentioned due date is usually available to overcome uploading difficulties which may be faced by the students on last date. 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.

Important Instructions:

Please read the following instructions carefully before attempting the assignment solution.

Deadline:

• Make sure that you upload the solution file before the due date. Noassignment will be accepted through e-mail after the due date.

Formatting guidelines:

• Use the font style “Times New Roman” and font size “12”.

• It is advised to compose your document in MS-Word 2003.

• Use black and blue font colors only.

Solution guidelines:

• Every student will work individually and has to write in the form of ananalytical assignment.

• Give the answer according to question, there will be negative marking

for irrelevant material.

• For acquiring the relevant knowledge don’t rely only on handouts butwatch the video lectures and use other reference books also.

Rules for Marking

Please note that your assignment will not be graded or graded as Zero (0) if:

• It has been submitted after due date.

• The file you uploaded does not open or is corrupt.

• It is in any format other than .doc (MS. Word)

• It is cheated or copied from other students, internet, books, journals etc…

Fin622 GDB No. 1 Announcement

Semester “Spring 2011”

“Corporate Finance (Fin622)”

This is to inform that Graded Discussion Board (GDB) will be opened according to the following schedule

Schedule

Opening Date and Time

April 19 , 2011 At 12:01 A.M. (Mid-Night)

Closing Date and Time

April 22 , 2011 At 11:59 P.M. (Mid-Night)

Topic/Area for Discussion

“ Capital budgeting”

Note: The discussion question will be from the area/topic mentioned above. So start learning about the topic now.

Discussion Question
Usually NPV and IRR techniques of project evaluation leads to the same ranking for given projects and make the decision to undertake project relatively simple. But sometimes it does happen that a ranking conflict arises by using both techniques i.e. both techniques provide contradictory ranking of given projects.

You are required to discuss the circumstances when NPV and IRR lead to a ranking conflict for two projects?

Your answer should be relevant and should not exceed 4 to 5 lines.
:::::::::::::::::::::::::
Solution:

NPV and IRR Conflict
Conflicts between NPV and IRR can arise in numerous circumstances: different lives, different sizes, different risk factors, or different timing of cash flows. The underlying cause of the conflict resides in the assumption of cash flow reinvestment. The process of discounting and time value of money is predicated on interest compounding and discounting is predicated on what discount rate is chosen. In IRR calculation, the implied interest rate of reinvestment of cash flows is IRR itself. In NPV calculation, it is the discount rate. Which of the two methods is correct depends on the choice of what is a more realistic rate of reinvestment of cash flows: IRR or discount rate. Most often the reinvestment opportunities that a company has are those that can earn its weighted average cost of capital, because it is what its projects earn on average. Relying on an assumption of weight average cost of capital as the reinvestment opportunity is also more conservative. Thus, NPV is most often the safest basis for decision.
But that may not be always the case. For instance, choosing projects that have positive NPV implies that they earn a higher return than risk adjusted cost of capital. This implies that we expect opportunities for reinvestment of cash flows at higher rates. Higher rates of return can also be required when future inflation is anticipated. To investigate the impact of cash flow reinvestment opportunity, advanced textbooks in financial management recommend calculating an adjusted NPV and an adjusted IRR. These are obtained by first calculating a terminal value which is the future value of cash flows compounded at the opportunity rate of reinvestment calculation of future value). Then the terminal value is discounted to the present using the weighted average cost of capital. Thus the adjusted NPV is given by
(Ct(1+k0)t ) * ((1 + kc )n – 1) / kcSAdjusted NPV = - I0 +
where I0 = initial outlay
Ct = cash flows
k0 = opportunity rate of reinvestment
kc = weighted average cost of capital
t = time period
n = length of project
Likewise, the adjusted IRR is given by
(Ct(1+k0)t ) * ((1 + x )n – 1) / xSAdjusted IRR = x where I0 =
By using the same rate of reinvestment of cash flows for NPV and IRR removes the conflict between NPV and IRR. The additional steps required in the calculation of adjusted NPV and IRR are not intuitively appealing. The complexity of the procedure makes it rather unpopular, and as long as conservative rates of reinvestment are used the results merely confirm the conclusion reached with the unadjusted NPV. This gives even more reason to rely on ordinary NPV. Also keep in mind the rough estimates often used in cash flow projections: the theoretical complexity seems somewhat remote from reality.
:::::::::::::::::::::::::::::::::::
Assuming these projects are mutually exclusive, the circumstances that lead to conflict include this: project a generating less cash flow in the first couple of years and then generating most of total cash flow in the last years of the project. project b is the opposite; it is generating most of its cash flow in the first couple of years and then generating the least in the last years of the project.

When everything is summed up for the two projects, project a has generated more cash flow than project b. However, the IRR is greater for project b. how is this so? remember that we are discounting the cash flows. So, project a having most of its cash flow in the last years meant it had to be discounted back more years, resulting in less present value. project b having most of its cash flow in the first years led to a greater return when NPV is zero.

What you see is that when the discount rate is zero, the NPV is greater for project a since it generated more total cash flow. As you increase the required return, you then see that at some point, there will be a crossover, and the NPV of project b will be greater than project a. This is how NPV and IRR leads to ranking conflict.

To sum up, if you have two projects in which project x has greater cash flows and most of those cash flows happen at the end of the project's cycle, it is more attractive if the discount rate is lower since the NPV will be higher than project y. for project y which has lower cash flows and most of those cash flows happen at the start of the project, it is more attractive if the discount rate is high since the NPV will be higher than project x.

Thus, in a situation where you could only choose one project and not both, you first would calculate the crossover point, the point in which both projects have the same NPV and required return. You would then check where the investors' expectations are concerning their required rate of return. If it is lower than the crossover discount rate, then project x is a better choice than project y.

Fin630 Assignment No. 1 solution

Spring Semester 2011

“Financial Analysis & Portfolio Management (Fin 630)”

Assignment No. 01 Total Marks: 20

Question #01
Ellite Corporation has total assets of Rs. 6,000,000 of which Rs. 1,000,000 is inventory, Rs. 500, 000 is cash, Rs. 1,000, 000 is account receivable, Rs. 500, 000 is marketable securities and the balance is fixed assets. Ellite Corporation has total liabilities of Rs. 2,500, 000 of which current liabilities are Rs. 15, 00,000.


1. Calculate the current and quick ratio for Ellite Corporation.
2. If Ellite Corporation takes 250,000 from cash and pays off Rs. 250,000 of current liabilities, what happens to its current ratio and quick ratio?
3. If Ellite Corporation sells the inventory of Rs. 10, 00, 000 and places the proceeds from the sale of inventory in marketable securities, what happens to its current ratio and quick ratio?


Question #02
Currently Alpha Corporation’s shares are selling at $60 per share and company is paying dividend of $5 per share. Dividends are expected to grow at an annual rate of 3% for foreseeable future. Required rate of return for investors is 12% At the same time, Heller Corporation’s shares are selling at $58 per share and company is paying dividend of $4 per share. Dividends are expected to grow at an annual rate of 5% for foreseeable future. Required rate of return for investors is 12%


a) Calculate the current value of each stock on the basis of Dividend Discount Model.
b) On the basis of above calculation, determine either each stock is overvalued or undervalued.


Note:
Show complete working (formula and calculations) for each part of question.
2
Important Tips
1. This Assignment can be best attempted from the knowledge acquired after
watching video lecture no. 1 to lecture no 12 and reading handouts as well as
recommended text book).
2. Video lectures can be downloaded for free from www.youtube.com/vu.
Assignment Schedule
Opening Date and Time 19th April , 2011 At 12:01 A.M. (Mid-Night)
Due Date and Time 22nd April , 2011 At 11:59 P.M. (Mid-Night)
Note: Only in the case of Assignment, 24 Hrs extra / grace period after the above mentioned
due date is usually available to overcome uploading difficulties which may be faced by the
students on last date. 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.
Important Instructions:
Please read the following instructions carefully before attempting the assignment solution.
Deadline:
• Make sure that you upload the solution file before the due date. No
assignment will be accepted through e-mail once the solution has been
uploaded by the instructor.
Formatting guidelines:
• Use the font style “Times New Roman” and font size “12”.
• It is advised t compose your document in MS-Word 2003.
• Use black and blue font colors only.
Solution guidelines:
• For acquiring the relevant knowledge don’t rely only on handouts but
watch the video lectures and use other reference books also.
• Show complete working (formula and calculations) for each part of
question.
• Marks will be deducted if complete working is not provided.
Rules for Marking
Please note that your assignment will not be graded or graded as Zero (0) if:
• It has been submitted after due date
• The file you uploaded does not open or is corrupt
• It is in any format other than .doc (MS. Word)
• It is cheated or copied from other students, internet, books, journals etc…
:::::::::::::::::::::::::::


Solution:

Question # 1

(1)
Current Ratio = 3,000,000 / 1,500,000 = 2
Quick ratio = 2,000,000 / 1,500,000 = 1.34

(2)
Current Ratio = 2.2
Quick Ratio = 1.4

(3)
Current Ratio = 2
Quick Ratio = 2

Question # 2

(1)
Dividend Discount Model = P0 = 5 ( 1+ 3% ) / (12% - 3%)
= 57.22

Dividend Discount Model = P0 = 4 ( 1 + 5% ) / (12% - 5%)
= 60

(2)

Stock of Alpha Corps is overstated by 60 - 57.22 = Rs. 2.78
Stock of Heller Corps is understated by 58 - 60 = Rs. 2

_________________


Question #01
Ellite Corporation has total assets of Rs. 6,000,000 of which Rs. 1,000,000 is
inventory, Rs. 500, 000 is cash, Rs. 1,000, 000 is account receivable, Rs. 500, 000 is
marketable securities and the balance is fixed assets. Ellite Corporation has total
liabilities of Rs. 2,500, 000 of which current liabilities are Rs. 15, 00,000.

1. Calculate the current and quick ratio for Ellite Corporation.
Current Ratio: current asset/ current liabilities
Current asset: 1,000,000 + 500, 000 + 1,000, 000 + 500, 000 = 3000000
Current Ratio = 3000000 / 15, 00,000 = 2
Quick ratio: Current assets- Inventories/ Current Liabilities
= 2000000 / 1500000 = 1.33

2. If Ellite Corporation takes 250,000 from cash and pays off Rs. 250,000 of current
liabilities, what happens to its current ratio and quick ratio?
Cash = 250000
Current asset = 1,000,000 + 250, 000 + 1,000, 000 + 500, 000 = 2750000
Current liabilities =1500000-250000 = 1250000
Current Ratio = 2.2
Quick ratio: Current assets- Inventories/ Current Liabilities
Quick ratio: 1750000/1250000 = 1.4
Answer: both increases

3. If Ellite Corporation sells the inventory of Rs. 10, 00, 000 and places the proceeds
from the sale of inventory in marketable securities, what happens to its current ratio
and quick ratio?
Current Ratio: current asset/ current liabilities
Current asset: 500, 000 + 2,000, 000 + 500, 000 = 3000000
Current Ratio = 3000000 / 15, 00,000 = 2
Quick ratio: Current assets- Inventories/ Current Liabilities
= 3000000-0 / 1500000 = 2
Answer : current ratio remain same and quick ration increase

Question #02
Currently Alpha Corporation’s shares are selling at $60 per share and company is
paying dividend of $5 per share. Dividends are expected to grow at an annual rate of
3% for foreseeable future. Required rate of return for investors is 12%
At the same time, Heller Corporation’s shares are selling at $58 per share and
company is paying dividend of $4 per share. Dividends are expected to grow at an
annual rate of 5% for foreseeable future. Required rate of return for investors is
12%
a) Calculate the current value of each stock on the basis of Dividend Discount
Model.

Alpha Corporation
Dividend Discount Model = P0 = 5 (1+ 3%) / (12% - 3%)
= 57.22
Heller Corporation
Dividend Discount Model = P0 = 4 (1 + 5%) / (12% - 5%)
= 60
b) On the basis of above calculation, determine either each stock is overvalued or
undervalued.
Stock of Alpha Corporation is overstated by 60 - 57.22 = Rs. 2.78
Stock of Heller Corporation is understated by 58 - 60 = Rs. 2

Fin621 Online Quiz No. 4 Annoucement

Quiz # 4

Dated: Jan 28, 11

Announcement For Quiz

There will be an online Quiz # 4. The Quiz will cover from Lecture # 1 to Lecture # 39.

Quiz Schedule

Opening Date and Time: January 31 , 2011 At 12:01 A.M. (Mid-Night)

Closing Date and Time: February 02 , 2011 At 11:59 P.M. (Mid-Night)

24 hours extra time is not available

Fin622 GDB No. 2 Announcement

GDB No.2

Dated:
Jan 28, 11

Semester “Fall 2010”

“Corporate Finance (Fin622)”

This is to inform that Graded Discussion Board (GDB) will be opened according to the following schedule

Schedule

Opening Date and Time: January 31, 2011 at 12:01 A.M. (Mid-Night)

Closing Date and Time: February 02, 2011 at 11:59 P.M. (Mid-Night)

Topic/Area for Discussion

“Working Capital Management”

Note: The discussion question will be from the area/topic mentioned above. So start learning about the topic now.

Fin623 Assignment No. 2 Announced

The income tax assignment No. 2 last date is 12 Jan, 2011..

The assignment attached. please send the answer.

Question:

From the following particulars given by Mr. X, an officer in the Ministry of Trade, calculate the taxable income and tax payable by him in respect of the year ended on June 30, 2010.

1. Basic salary Rs. 120,000

2. He has been provided with the rent-free furnished accommodation with annual value of Rs. 60,000

3. He has been given a car by his employer and Rs. 1,000 per month to meet the running costs, etc. he can take that car home as well.

4. He is provided one free Karachi-London and back air ticket every year. During the year he received Rs. 17,000 in this respect.

5. Leave encashment paid to him Rs. 10,000.

6. He has let out his house at Rs. 3,000 per month. The tenant has left without paying rent for two months, which could not be recovered despite the best efforts.

7. He claims the following payments including Rs. 400 as Zakat deposited in Zakat fund.

Property tax Rs. 6,000 Fire Insurance Rs. 1,000

Corporation tax Rs. 5,000 Income tax deducted Rs. 3,000

Books purchased Rs. 5,000 Life Insurance Premium Rs. 6,000

8. The following amounts were received:

Dividend from NIT units (Zakat Rs. 1,000) 8,000

Dividend from XY (Pvt.) Ltd. (Zakat Rs. 600) 3,000

9. The life policy has Rs. 50,000 sum insured and the employee contributes one month’s basic salary to the Recognized Provident Fund.

Fin630 Assignment No. 2

“Investment Analysis & Portfolio Management” (Fin 630)

Assignment No.02 Marks: 20

In order to analyze the performance of ABC Company, following information has been
extracted from its financial statements.

1. You are required to calculate the following ratios:

• ROA (Return on assets)

• ROE (Return on Equity)

• EPS (Earning per share)

2. Calculate the value of bond A using 15% coupon with 20-year maturity, paying 40 semiannual payments of Rs. 75 each, assuming required rate of return of 10%

3. Calculate the value of bond B using 11% coupon with 10-year maturity, paying 40 quarterly payments of Rs. 27.5 each, assuming required rate of return of 16%

Important Tips

1. This Assignment can be best attempted from the knowledge acquired after
watching video lecture no. 1 to lecture no 28 and reading handouts as well as
recommended text book).

2. Video lectures can be downloaded for free from www.youtube.com/vu.

Particular Rs. (000)

Net profit after tax 500

Total assets 8000

Common stock
100,000@ Rs. 10
1000

Retained earning 90

Current liabilities 25

Account receivables 50

Cost of goods sold 1800

Long term debt

Bond A

300@ Rs.1000

300

Bond B

200@ Rs.1000

200

Schedule

Opening Date and Time January 03, 2011 At 12:01 A.M. (Mid-Night)

Due Date and Time January 06, 2011 At 11:59 P.M. (Mid-Night)

Solution:

ROA = 0.0625 or 6.25%

ROE = 0.5 or 50%

EPS = Rs.5 /share

value of bond A= Rs. 787.05

value of bond B= Rs. 344.42

Fin621 GDB Solution

"Suppose you are working as an accountant and the president of your firm Mr. Ali has a little back ground of accounting. This morning, he approached you and said:

"Last year we purchased a piece of land for Rs. 200,000. During this, the inflation has driven prices up by 12 %, and an expert has also just told me that we can sell this land for Rs. 300,000 whereas our balance sheet still shows the land at Rs. 200,000. It should be valued at Rs. 300,000 or at least at Rs. 224,000 (after the effect of 12% inflation)".

Identify accounting principle(s) (GAAP) applicable to this situation which negates Mr. Ali's Claim. "

Solution:

Prudence principle: when choosing between two solutions, the one that will be least likely to overstate assets and income should be picked

Cost principle requires companies to account and report based on acquisition costs rather than fair market value for most assets and liabilities. This principle provides information that is reliable (removing opportunity to provide subjective and potentially biased market values), but not very relevant. Thus there is a trend to use fair values. Most debts and securities are now reported at market values.

Fin622 GDB No. 1 solution

Semester "Fall 2010"

"Corporate Finance (Fin622)"

This is to inform that Graded Discussion Board (GDB) will be opened according to the following schedule

Schedule

Opening Date and Time

November 22 , 2010 At 12:01 A.M. (Mid-Night)

Closing Date and Time

November 24 , 2010 At 11:59 P.M. (Mid-Night)

Topic/Area for Discussion

“Capital budgeting"

Note: The discussion question will be from the area/topic mentioned above. So start learning about the topic now.

Discussion Question

XYZ Company is one of the biggest manufacturing concerns of the country. Being the finance manager of XYZ Company, you have been assigned a task to evaluate three projects. The future cash flows from the three projects are summarized in given table.

Project A
Project B
Project C

Initial investment
45,000
70,000
50,000

Cash inflows

Year 1
20,000
20,000
30,000

Year 2
20,000
26,000
28,000

Year 3
20,000
30,000
35,000

Consider the discount factor to be 14% and that the company has sufficient funds to take projects.

Required:

I. On the basis of NPV approach, which project(s) you would select if the projects are independent and why?

II. On the basis of NPV approach, which project(s) you would select if the projects are mutually exclusive and why?

.........

FIN622 GDB No. 1 Solution

Project A

Initial Investment = 45000

Years 1 2 3

Cash Flows 20000 20000 20000

Calculation:-

NPV = -Io + CF1/(1+r)t + CF2/(1+r)t + CF3/(1+r)t

NPV = - 45000 + 20000/(1+0.14)1 + 20000/(1+0.14)2 + 20000/(1+0.14)3

NPV = -45000 + 17543.859 + 15389.350 + 13499.430

NPV = - 45000 + 46432.639

NPV = 1432.639

Project B

Initial Investment = 70000

Years 1 2 3

Cash Flows 20000 26000 30000

Calculation:-

NPV = -Io + CF1/(1+r)t + CF2/(1+r)t + CF3/(1+r)t

NPV = - 70000 + 20000/(1+0.14)1 + 26000/(1+0.14)2 + 30000/(1+0.14)3

NPV = - 70000 + 17543.859 + 20006.155 + 20249.145

NPV = - 70000 + 57800

NPV = - 12200

Project C

Initial Investment = 50000

Years 1 2 3

Cash Flows 30000 28000 35000

Calculation:-

NPV = -Io + CF1/(1+r)t + CF2/(1+r)t + CF3/(1+r)t

NPV = - 50000 + 30000/(1+0.14)1 + 28000/(1+0.14)2 + 35000/(1+0.14)3

NPV = - 50000 + 26316 + 21545 + 23624

NPV = - 50000 + 71485

NPV = 21485

1) On the basis of NPV approach, which project(s) you would select if the projects are independent and why?

Reference:

MGT201 (Page 47)

Independent: implies that the cash flows of the two investments are not linked to each other

Solution:-

If the projects are independent then I will select Project C 1st and after that I will select Project A on 2nd because both have Positive NPV.

2) On the basis of NPV approach, which project(s) you would select if the projects are mutually exclusive and why?

Reference:

MGT201 (page 47)

Mutually Exclusive: means that you can invest in ONE of the investment choices and having chosen one you cannot choose another.

Solution:-

I will Select Project C because it has positive NPV and also have greater amount Rs. 21485.