Capital Budgeting DOC

Title	Capital Budgeting
Author	Juhi Vasanwala
Pages	9
File Size	145.5 KB
File Type	DOC
Total Downloads	211
Total Views	1,030

Summary

Question 1 A project of 20 years life requires an original investment of Rs.1,00,000. The other relevant information is given below: Average annual earning s before depreciation and tax Rs.20,000 Annual tax rate 50% Calculate: 1. Pay back period 2. Pay back profitability 3. Average rate of return 4....

Description

Question 1 A project of 20 years life requires an original investment of Rs.1,00,000. The other relevant informaton is given below: Average annual earning s before depreciaton and tax Rs.20,000 Annual tax rate 50% Calculate: 1. Pay back period 2. Pay back proftability 3. Average rate of return 4. Rate of return on original investment Question 2 An enterprise is having the following two proposals of investment: Proposal A Proposal B Cost of investment (Rs.) 20,000 28,000 Life of the assets (Years) 4 5 Scrap value Nil Nil Net income afer depreciaton and tax: Year Rs. Rs. 2005 500 Nil 2006 2,000 3,400 2007 3,500 3,400 2008 2,500 3,400 2009 - 3,400 It is estmated that each of the project will require an additonal working capital of Rs.2,000 which will be received back in full afer the expiry of each project life. Depreciaton is to be provided under straight line method. The present value of Re.1 to be received at the end of each year at 10% per annum is given below: Year Present value 1 0.91 2 0.83 3 0.75 4 0.68 5 0.62 You are required to assess the proftability of the projects on the basis of the following methods: 1. Return on investment 3. Discounted pay back period 2. Pay back period 4. Proftability index Page 1...