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NMIMS Global Access
School for Continuing Education (NGA-SCE)
Course: Corporate Finance
Internal Assignment Applicable for December 2015 Examination
Assignment Marks: 30
1. Suppose, a prospective client
who wants to invest certain amount of money comes to you but does not know
anything about ‘Time Value of Money’. So, please explain to the person the
concept of ‘Time Value of Money’ in detail.
Answer
: The time value of money is one of
the basic theories of financial management. The theory of states that the value
of money you have now is greater than a reliable promise to receive the same amount
of money at a future date. This may sound simple, but it underpins the concept
of interest, and can be used to compare investments, such as loans, bonds,
mortgages, leases and savings.
Definition
2. A limited company is
considering investing a project requiring a capital outlay of Rs. 2, 00,000.
Forecast for annual income after depreciation but before tax is as follows :
|
Year
|
Rs.
|
|
1
|
1,00,000
|
|
2
|
1,00,000
|
|
3
|
80,000
|
|
4
|
80,000
|
|
5
|
40,000
|
Depreciation may be taken as 20% on original cost taxation at 50% of net
income.
You are required to evaluate the project according to each of the
following methods:
Answer : Profitability Statement
|
Year Profit
after
Depreciation
$
1
1,00,000
2
1,00,000
3
80,000
|
Less
Tax
$
50,000
50,000
|
PAT
$
50,00
|
Add
Profit
before
Depreciation
Depreciation
$.
but after tax $
40,000 90,000
40,000
90,000
40,0
|
a) Pay back method
Answer
: I
year
90,000
II
year
90,000
1,80,000
Balance
20,000
b) Rate of return on original investment method
Answer
: Year
Net Profit
after
Tax and depreciation ($)
1
50,000
2
50,000
Return represents the Average Return
c) Rate of return on average investment method
Answer
: Return = Average
Investment x 100
Return = $ 40,000
d) Discounted cash flow method taking cost of capital as 10%
Answer
:
Year
Cash Inflows
Discount Factor
Present Value
At 10% p.a.
$
1
90,000
0.909
81,810
2
90,000
0.826
74,340
Dear
students get fully solved assignments
Send
your semester & Specialization name to our mail id :
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