Answer of First Tutorial in Corporate Finance

Problem No. 1:
PBP = 5,000,000 – 1,800,000 – 1,900,000 – 700,000 = 600,000
𝟔𝟎𝟎,𝟎𝟎𝟎
3 + 𝟏,𝟖𝟎𝟎,𝟎𝟎𝟎 = 3.33 Years

Problem No.2:
Reject

Problem No.3:

Project (A):
𝟏𝟎,𝟎𝟎𝟎
PBP = = 2.5 Years
𝟒,𝟎𝟎𝟎

Accept Project (A)

Project (B):
10,000 – 4,000 – 3,000 – 2,000 = 1,000
𝟏,𝟎𝟎𝟎
PBP = 3 + 𝟏,𝟎𝟎𝟎,𝟎𝟎𝟎 = 3.001

Reject Project (B)

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Problem No.4:
R = 12%

Year CF 𝑭𝑽
PV = (𝟏− 𝒓)𝒏

0 5,000,000 5,000,000

1 2,500,000 2,232,142

2 2,300,000 1,833,545

3 2,200,000 1,565,916

4 (1,300,000) (826,173)

TOTAL 4,805,430

𝑪𝑭
A) NPV = – Initial Investment
(𝟏+ 𝒓)𝒏

= 4,805,430 – 5,000,000 = (194,570)

Problem No.5:

A) Project (A):

R= 13%

PBP = 80,000 – 15,000 – 20,000 – 25,000 = 20,000

𝟐𝟎,𝟎𝟎𝟎
PBP = 3 + = 3.67 Years
𝟑𝟎,𝟎𝟎𝟎

Project (B):
𝟓𝟎,𝟎𝟎𝟎
PBP = = 3.33 Years
𝟏𝟓,𝟎𝟎𝟎

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 B) R = 13%

Project (A):

Year CF 𝑭𝑽
PV = (𝟏− 𝒓)𝒏

0 80,000 80,000

1 15,000 13,274

2 20,000 15,662

3 25,000 17,326

4 30,000 18,399

5 35,000 18,996

TOTAL 83,657

𝑭𝑽
NPV = (𝟏− 𝒓)𝒏 – Initial Investment

= 83,657 – 80,000 = 3,657

Project (B):
𝑪𝑭 𝟏
PV = × (𝟏 − (𝟏+ 𝒓)𝒏)
𝒓

𝟏𝟓,𝟎𝟎𝟎 𝟏
= × (𝟏 − (𝟏+ 𝟏𝟑%)𝟓)
𝟏𝟑%

= 52,758

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 C) Preference:

A B

PBP × √

NPV √ ×

I Recommend Project (A) because the NPV is grater that project (B).

Problem No.6:
R= 0% when r is 0% all numbers still the same.

NPV = (1,800,000 + 1,900,000 + 1,700,000 + 1,300,000) – 5,000,000

= 1,700,000

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