MGT201 Financial Management Assignment No. 1 Semester Fall 2012 Solution & Discussion Fall 2012 Due Date:15-11-2012

Semester Fall 2012
Financial Management (MGT201)
Assignment No. 01
Due Date: 15-11-2012
Marks: 20
Capital Budgeting Techniques for Projects with Unequal Lives
Learning Objectives - The students are expected to understand the application of usual capital budgeting techniques applied particularly to the projects with unequal lives.
Learning Outcomes - After going through this activity, the student would be able to apply capital budgeting techniques especially in the case of projects with unequal lives.
Case:
Fiber Limited (FL) is involved in processing of cotton and sale of fiber to the country’s textile sector. On the basis of a recent market research, Fiber has found two mutually exclusive projects – Theta and Gamma. The cash flows associated with these projects are:
Cash Flows (Rs. ‘000)
Project
FY- 0
FY-1
FY-2
FY-3
FY-4
FY-5
FY-6
Theta
(40,000)
8,000
14,000
13,000
5,000
11,000
10,000
Gamma
(18,000)
9,000
15,100
12,000
---
---
---
Discount rate for both projects is 8.4%. The management of FL wants to undertake only one project.
Required
1.
Determine the viability of both projects by applying Common life approach and Equivalent Annuity Approach method (EAA). (11 + 6)
2.
Which project would be feasible for Fiber Limited and why? (3)
Hint: Formula for calculating EAA is PV ÷ [{1-(1+i)-n} ÷ i]
Show formulas and complete calculations as they carry marks.
Note:
Only in the case of Assignment, 24 hours extra / grace period after the 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”/ “Arial” 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 an analytical assignment.
·
Give the answer according to question.
·
For acquiring the relevant knowledge don’t rely only on handouts but watch 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…
Best Of Luck!!

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