Wednesday, June 29 # (Capital Budgeting ) M.D. HASIN. SIR

### (Capital Budgeting ) M.D. HASIN. SIR

(Capital Budgeting ) M.D. HASIN. SIR
( 2010-2019 ) ( B,B,A & M,B,A ) Hon’s

M.N:- 01785911142 / 01750279313

(2010) Part-(C) = ( Q. No . ()

### (Capital Budgeting ) M.D. HASIN. SIR

A company is considering an investment proposal that requires an initial cash outlay of Tk 50,000. The investment will have a life of 5 years. The project will have no salvage value at the end of its life. The company uses the straight-line method of depreciation. The company’s tax rate is 40%. The estimated cash flows before tax are as flows:-
Year Cash flows (Tk)
1 12,000
2 14,000
3 16,000
4 18,000
5 20,000
The PV factors are : 0.9091; 0.8264; 0.7513; 0.6830 and 0.6209.
Required:-
(1) Pay Back Period (PBP)
(2) Net Present Value (NPV)
(3) Profitability Index (PI)
(4) Net Profitability Index (NPI)
(5) Surplus Life (S.L)

### (Capital Budgeting ) M.D. HASIN. SIR

(2011) Patr-(C) = (Q. ()
Tahsin Company expects to save Tk 56,000 a year in cash operating expenses for the next ten years if it buys a new machine at a cost of Tk 2,20,000. No salvage value is expected at the end of the ten years. The company is satisfied with a 14% rate of return. Ignore taxes. The present value of Tk 1.00 as required for this example is given below :
Year 14% 20% 22%
1st 0.577 0.833 0.820
5th 3.433 2.991 2.864
10th 5.216 4.192 2.923
You are required to compute :
(1) Pay Back Period.
(2) Average Rate of Return.
(3) Net Present Value.
(4) Internal Rate of Return.

### (Capital Budgeting ) M.D. HASIN. SIR

(2012) Part-(B) = ( Q. No 6.
Hasan Manufacturing Ltd. is examining the profitability of investing in a new project. The following information is available in respect of the project:-
Investment Tk 12,60,000
Residual value at the end of life Tk 60,000
Life of the project 20 year
The annual profit of the project (before tax) Tk 1,80,000
Tax rate 50%
Required :
(1) Annual cash inflow.
(2) Pay Back Period (PBP).
(3) Rate of Return on Arrange Investment (IRR).
[ Ans : (1) Annual cash in flow = 1,20,000 (2) PBP = 10.50 years, (3) ARR = .454545% ]

### (2012) Part-(C) = ( Q. No 14.

Jamuna Ltd. is considering a proposal to install a new machine. The project will cost Tk 1,00,000 and its expected life is five years. The estimated cash inflow before tax is as follows :
Year CFBT
1 25,000
2 25,000
3 20,000
4 20,000
5 25,000
The tax rate of that company is 50% and charges depreciation on a straight-line basis.
Required :
(1) Pay Back Period.
(2) Average Rate of Return.
(3) Net Present Value at 10% discount rate.
[Ans: (1) PBP = 4.67 years, (2) ARR = 3%, (3) NPV at 10% = (18,309).

### (Capital Budgeting ) M.D. HASIN. SIR

(2013) Accounting / Finance/ Margeting-Patr-(C) = (Q. No 12.
Sun Moon Company is considering an investment proposal to install a new equipment facility. The project will cost Tk 55,00 having a life expectancy of 5 years. The project has no salvage value. The firm uses the straight-line method of depreciation. The company’s tax rate is 40%. The estimated cash-flow before tax (CFBT) from the proposed investment proposal are as follows :
Year CFBT (Tk) PV(Factor)
1 12,000 .9091
2 14,000 .8264
3 16,000 .7513
4 18,000 .6830
5 20,000 .6209

### (Capital Budgeting ) M.D. HASIN. SIR

Calculate the net present value of the company at a 10% discount rate and suggest whether the investment is acceptable or not.
[ Ans: NPV = (2,793). Comment : NPB is negative thus the investment proposal is not acceptable ]
(2014 Accounting – Part-(B) = Q. No-4.
Diya enterprise is considering a new product line. The details of the investment proposal are as follows :
Initial cash outlay Tk 1,00,000
Expected life 5 years
Scrap value 10,000
Working capital 20,000
Year Cash inflow (Tk)
1 25,000
2 30,000
3 32,000
4 15,000
5 40,000

### (Capital Budgeting ) M.D. HASIN. SIR

The project cost of capital is 10% and the tax rate is 45%. Depreciation will be on a straight-line basis. You are required to calculate:-
(1) Pay Back Period.
(2) Average Rate of Return.
[Ans : (1) PBP = 5.05 years, (2) ARR = 7.63% ]
(2014 Accounting – Part-(C) = Q. No-14.
SP Ltd. is considering a proposal to install a new machine. The project will cost Tk 1,00,000 and its expected life is five years. The estimated cash inflows before tax (CFBT) of the project are as flows:-
Year CFBT (Tk)
1 25,000
2 30,000
3 35,000
4 40,000
5 45,000
The tax rate is 50% and charges depreciation on a straight-line basis.
Required:–

### (Capital Budgeting ) M.D. HASIN. SIR

(a) Return on Investment.
(b) Discounted Pay Back Period at 10% discount rate.
(c) Net Present Value at 10% discount rare.
(d) Profitability index at 10% discount rate.
[ Ans: (a)ROI = 7.50%, (b) Discount PBP = 4.88 years, (c) NPV = 2,429 , (c) PI = 102.43% ]

(2015 -Accounting Part- (B ) = Q. No- 8.
A machine is purchased for Tk 1,00,000 having an economic life of 5 years. The cash inflows from this machine for five years are Tk 10,000, Tk 15,000 Tk 50,000 Tk 40,000, and Tk 60,000. If the tax is 30%. What is cash flow after taxes (CFAT)?[ Ans: CFAT = 1,42,500 ]

(2016 Accounting Part-(B) = Q No-5.
An initial investment of a project is Tk 5,00,000. The expected annual equal cash inflows over the next 5 years of life are Tk 1,50,000. Corporate tax rate 40%. Calculate PBP and NPV assuming the discounting factor is 12%. [ Ans :- NPV = (31,350) ]

### (Capital Budgeting ) M.D. HASIN. SIR

(2016 Accounting Part-(C) = Q No-11.
Two projects have projects cash flows as follows:-
Period A B
0 10,000 10,000
1 5,000 0
2 5,000 0
3 5,000 0
4 5,000 28,000
(1) Determine the IRR of each project.
(2) Assuming a required rate of return of 10% determines the NPV of each project.
(3) Which project should be selected?
[ Ans : Project- (A) IRR = 34.94%. Project- (B) IRR = 29.58% ]

(2019 Part-(B) = Q No- 6 )

(2019 Accounting Part- (C) = Q No – 12.