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ACC501 Assignment Formatting Guidelines:
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ACC501 Assignment Rules for Marking:
Please note that your assignment will not be graded or graded as Zero (0), if:- It is submitted after the due date.
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ACC501 Assignment Learning Objectives:
After attempting this assignment, you will be able to:- Understand the different capital budgeting techniques.
- Calculate projected net cash flows by considering the effect of depreciation and taxes.
- Evaluate any proposed project by using different capital budgeting techniques.
- Derive inferences after critical analysis regarding the acceptance/rejections of the project.
The Case:
Mr. Imran wants to establish a business of manufacturing spare parts of 70cc motorcycle. He estimates a start-up cost of business with heavy machinery of worth Rs. 30 million. He further projects that the revenue (before tax and depreciation) from the business will be Rs. 8 million for the first year and it will keep on growing at a rate of 4% annually up to year 6. Some other information regarding the project is as follows:
The machinery is fully depreciated under the straight-line method till the end of year 6.
Cost of capital is 8% while the tax rate is 40%.
As per an estimate, the machinery dismantling and the site restoration would require an outlay of Rs. 5 million; while the machinery would not be able to fetch any sale price.
Being a financial consultant of Mr. Imran, you have to conduct a feasibility analysis for his project. You have to suggest Mr. Imran about the viability of the project after performing different Capital Budgeting techniques.ACC501 Assignment Requirement:
Keeping your task into consideration, provide answers to the following:- Calculate projected net cash flows for 6 years. (10 Marks)
Evaluate the project by using the following capital budgeting techniques:
- Payback Period (The desired payback period is 4 years) (04 Marks)
- Net Present Value (8 Marks)
- Profitability Index (03 Marks)
- Comments if there is any difference in the results of the above-used techniques? Would you recommend Mr. Imran to start his business based upon your analysis? (05 Marks)
Special Note:
Complete calculations are required for Part (1) and Part (2). Incomplete calculations will result in loss of marks.
ACC501 Assignment No 1 Solution Fall 2017
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