Financial Management Solution 2022

Running Head: FINANCE
0
Financial Management
(Student Details: )
1/16/2020

FINANCE
1
Financial Management
Solution 1
As per the given information, the payback period of ABC Ltd. has been calculated as follows:
ABC Ltd.
Calculation Of Payback
period
Years Cash
Outflow Cash flows Added back:
Depreciation
Net cash
flow
Cumulative
cash flow
0 -150000 -150000 -150000
1 25000 13500 38500 -111500
2 25000 13500 38500 -73000
3 25000 13500 38500 -34500
4 25000 13500 38500 4000
5 10000 13500 23500 27500
6 10000 13500 23500 51000
7 10000 13500 23500 74500
8 10000 13500 23500 98000
9 10000 13500 23500 121500
10 10000 13500 23500 145000
15000 0 15000 160000
Payback
period 3.90
Solution 2
In this context, XYZ Construction is considering two projects include Project M and Project
N to develop.
(a) Based on the given data, the NPV and the Profitability Index have been calculated in
order to suggest which project should be recommended based on each individual method.
Total cash flows
Project M
Year
1 Year 2 Year 3 Year 4 Year 5
Initial investment 100,000

FINANCE
2
cash flow -100000 10000 15000 20000 25000 30000
Total cash flow 0
Project N
Year
1 Year 2 Year 3 Year 4 Year 5
Initial investment 100,000
cash flow -100000 25000 25000 25000 25000 25000
Total cash flow 25000
Calculation of Net Present Value (Project M and N)
Year
s
Cash
Outflow
Cash
Inflow
(M)
Cash
Inflow (N) Factors
P.V. of
cash
Inflow (N)
P.V. of
cash
Inflow
(M)
P.V. of
Cash
Outflow
0 -100000 1.00 -100000
1 10000 25000 0.91 22727.27 9090.91
2 15000 25000 0.83 20661.16 12396.69
3 20000 25000 0.75 18782.87 15026.30
4 25000 25000 0.68 17075.34 17075.34
5 30000 25000 0.62 15523.03 18627.64
NPV= Total Cash Inflow-Total cash outflow -5230.33 -27783.12
Profitability index calculation
Formula
Profitability index for Project M PV of future cash
flows 27783.12
Initial investment 100,000
value 0.28
Profitability index for Project N PV of future cash
flows 5230.33
Initial investment 100,000
value 0.05