ARUMBAFM003. Financial Management. Question 1. Particul

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ARUMBAFM003Financial Management
Question 1ParticularProject AProject BMachine New100000120000Resale Value20000Market Research Incurred10000Sales Each Year121500Good Whether 50% Probability125000Bad Whether 50% Probability75000Variable Cost60%55%Fixed Cost Maintenance P.A6000(a)Calculation of Weighted Average Cost ofCapitalFund TypeAmount (a)Weight (b)Cost of Fund ©Cost of Fund d =*b*c)
Equity80000000.875.6Debt20000000.2122.4Total1000000018The weighting average cost of capital is 8%(b)Payback Period for each ProjectCalculation of Annual Cash flow for each ProjectparticularProject AProject BSales100000121500LessVariable Cost6000066825Annual Maintainance Cost6000Annual Cash Inflow for 5 Year4000048675Paybck Period =( Zero Year Outflow/ Annual Cash Flow)Cost of Machinery100000121500Payback Period In year2.5002.496© Calculation for Net Present Value for Each ProjectParticularProject AProject B
Annual Cash Inflow40,000.048,675.0Present Value factor For 5 years@ 8%WACC4.04.0Discounted Annual Cash Flow (A)159,708.0194,344.7Scare for Sale of Machine year 520,000.0-Present Value Factor of 5th year (B)0.40.4Discounted Scrape Proceed7,610.0-Total Present value Cash Flow © =(A+B)167,318.0194,344.7Total Cash Outflow on Zero YearPucrhase of Machinery (D)100,000.0121,500.0Net Present Value E =(C-D)67,318.072,844.7D)Calculation of NPV for best and Worst for Project AParticularBestWorstSales125,00075,000Variable Cost75,00045,000Annual Cash Flow50,00030,000Present Value factor For 5 years@ 8% WACC44Annual Cash Flow (A)
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