Financial Principles and Applications

The assignment content provides a comprehensive overview of various financial principles and concepts, including NPV (Net Present Value), IRR (Internal Rate of Return), MIRR (Modified Internal Rate of Return), Payback period, and Time value of money. The content also discusses the importance of understanding these principles in making effective investment decisions. Additionally, it highlights key financial principles such as the principle of risk and return, cash flow principle, profitability and liquidity, and the principle of diversity. These concepts are crucial for any business or individual looking to make informed financial decisions.

FINANCIAL MANAGEMENT

Table of Contents
ASSIGNMENT 1.................................................................................................................................................3
ASSIGNMENT 2.................................................................................................................................................6
Task 1............................................................................................................................................................6
Task 2............................................................................................................................................................7
Task 3............................................................................................................................................................8
Task 4..........................................................................................................................................................11
Task 5..........................................................................................................................................................12
Task 6..........................................................................................................................................................13
Task 7..........................................................................................................................................................13
Task 8..........................................................................................................................................................13
Task 9..........................................................................................................................................................14
Task 10........................................................................................................................................................14

ASSIGNMENT 1
1. A. -$879,000
Calculation of NPV
Year Outflow
Discounting
Factor @10%
Present
Value
0 -10 1 -10
1 4 0.909 3.64
2 3 0.826 2.48
3 4 0.751 3.00
Total -0.88
2. C
3. A. The Discount rate that gives an NPV of Zero Is the IRR Investment.
4. B. A project with an IRR equal to the cost of capital will have an NPV of Zero.
5. C. A required rate of return or the opportunity cost of consumption.
6. C. 19.56%
7. C. 965.55
8. B. 5628
9. C. 3642
10. A. 5835
11. B. 57527
12. A. 4779
13. A. 81.82

14. B. 5.2
15. C. 6Years

ASSIGNMENT 2
Task 1
Ratios Geely Automobile BMW motors
Current ratio
Current Asstes / Current liability 530,08,183 715,82,000
499,01,947 690,47,000
1.06 1.04
Acid Test Ratio
Current assets- inventory/ current
liabilty 530,08,183-60,27,312 715,82,000-127,07,000
499,01,947 690,47,000
0.94 0.85
Cash Ratio
Cash+Marketale security/Current
liability 134,14,638 71,83,000
499,01,947 690,47,000
0.269 0.104
Inventory Turnover Ratio
Cost of goods sold / Average
inventory 747,79,337 803,10,000
63,33,892 245,48,000
11.81 3.27
Average inventory 60,27,312+30,65,807 127,07,000+118,41,000
63,33,892 245,48,000
Capital Turnove ratio
Net sales/ Capital employed 927,60,718 986,78,000
242,59,061 500,96,000
3.824 1.970
Capital Employed 849,80,752-607,21,691 1934,83,000-1433,87,000
242,59,061 500,96,000
Asset Turnover Ratio
Turnover/ Net tangible assets 927,60,718 986,78,000
140,52,943 179,56,000
6.601 5.496

Working capital Turnover Ratio
Net sales / Net working capital 927,60,718 986,78,000
31,06,236 25,35,000
29.863 38.926
Net working capital 530,08,183-499,01,947 715,82,000-690,47,000
31,06,236 25,35,000
Fixed Assets Ratio
Fixed Assets / Capital employed 140,52,943 179,56,000
242,59,061 500,96,000
0.579 0.358
Explanation:
If we look at Liquidity ration, Geelly automobile has good performance than BMW motors but if we look at
other ratio BMW has good performance than Geely automobile.
Task 2
NPV of the project: -13140
Year
Cash
flow
Discounting
factor @15%
Discounted
Cash flow
0 -104250 1 -104250
1 24000 0.87 20880
2 24000 0.756 18144
3 24000 0.658 15792
4 24000 0.572 13728
5 24000 0.497 11928
6 24000 0.432 10368
Total NPV -13410
IRR of the project: 10%
Year
Cash
flow
0 -104250
1 24000
2 24000
3 24000
4 24000
5 24000
6 24000
Total 10%

PI of the project:
PI = Present value of future cash flow/Initial investment required.
Hence, = 90840/104250
= 0.87
Year
Cash
flow
Discounting
factor @15%
Discounted
Cash flow
0 -104250 1 -104250
1 24000 0.87 20880
2 24000 0.756 18144
3 24000 0.658 15792
4 24000 0.572 13728
5 24000 0.497 11928
6 24000 0.432 10368
Total Pv of Inflow 90840
Payback Period of the Project
Payback Period = Initial investment/ Cash inflows
= 104250/144000
= 0.724 or 4.34 years.
Discounted payback
Discounted Payback = Initial investment/ Discounted cash inflows
= 104250/90840
= 1.15 or 6.89 years.
Task 3
NPV of the projects @8% cost of capital
Year
Cash flow
Project A
Cash flow Project
B
Discountin
g factor
@8%
Discounted
Cash flow
Project A
Discounted
Cash flow
Project B
0
-
300,00,000 -300,00,000 1
-
300,00,000
-
300,00,000
1 100,00,000 400,00,000 0.926 92,60,000 370,40,000
2 200,00,000 200,00,000 0.857 171,40,000 171,40,000
3 400,00,000 120,00,000 0.794

317,60,000 95,28,000
NPV 28160000 33708000
NPV of the projects @12% cost of capital
Year
Cash flow
Project A
Cash flow
Project B
Discounting
factor @12%
Discounted
Cash flow
Project A
Discounted
Cash flow
Project B
0
-
300,00,000 -300,00,000 1
-
300,00,000
-
300,00,000
1 100,00,000 400,00,000 0.893 89,30,000 357,20,000
2 200,00,000 200,00,000 0.797 159,40,000 159,40,000
3 400,00,000 120,00,000 0.712 284,80,000 85,44,000
NPV 23350000 30204000
NPV of the projects @14% cost of capital
Year
Cash flow
Project A
Cash flow
Project B
Discounting
factor @14%
Discounted
Cash flow
Project A
Discounted
Cash flow
Project B
0
-
300,00,000 -300,00,000 1
-
300,00,000
-
300,00,000
1 100,00,000 400,00,000 0.877 87,70,000 350,80,000
2 200,00,000 200,00,000 0.769 153,80,000 153,80,000
3 400,00,000 120,00,000 0.675 270,00,000 81,00,000
NPV 21150000 28560000
IRR of the projects

Year
Cash flow
Project A
Cash flow
Project B
0
-
300,00,000
-
300,00,000
1 100,00,000 400,00,000
2 200,00,000 200,00,000
3 400,00,000 120,00,000
IRR 44% 82%
MIRR of the projects @8% cost of capital
Year
Cash flow
Project A
Cash flow
Project B 0.08
0
-
300,00,000
-
300,00,000
1 100,00,000 400,00,000
2 200,00,000 200,00,000
3 400,00,000 120,00,000
MIRR 35% 34%
MIRR of the projects @12% cost of capital
Year
Cash flow
Project A
Cash flow
Project B 0.12
0
-
300,00,000
-
300,00,000
1 100,00,000 400,00,000
2 200,00,000 200,00,000
3 400,00,000 120,00,000
MIRR 36% 34%
MIRR of the projects @14% cost of capital
Year
Cash flow
Project A
Cash flow
Project B 0.14
0
-
300,00,000
-
300,00,000
1 100,00,000 400,00,000
2 200,00,000 200,00,000
3 400,00,000 120,00,000
MIRR 36% 34%

Task 4
NPV of the projects
Year
Cash flow from
Truck
Cash flow from
Van
Discounting
factor @10%
Discounted
Cash flow Truck
Discounted
Cash flow
Van
0 -34200 -44860 1 -34200 -44860
1 10200 15000 0.909 9271.8 13635
2 10200 15000 0.826 8425.2 12390
3 10200 15000 0.751 7660.2 11265
4 10200 15000 0.683 6966.6 10245
5 10200 15000 0.621 6334.2 9315
NPV 4458 11990
IRR of the project
Year
Cash flow from
Truck
Cash flow from
Van
0 -34200 -44860
1 10200 15000
2 10200 15000
3 10200 15000
4 10200 15000
5 10200 15000
IRR 15% 20%
MIRR of the projects@10%
Year
Cash flow from
Truck
Cash flow from
Van 0.1
0 -34200 -44860
1 10200 15000
2 10200 15000
3 10200 15000
4 10200 15000
5 10200 15000
MIRR 13% 11%
Payback period of the projects
= Initial investment/ Future inflow
Truck = 34200/51000
= 0.67 or 3.35 Years

VAN = 44860/75000
= 0.60 or 3 Years
Task 5
NPV of the projects
Year
Cash flow from
Project A
Cash flow from
Project B
Discounting
factor @5%
Discounted
Cash flow
Project A
Discounted
Cash flow
Project B
0 -300 -405 1 -300.00 -405.00
1 -387 134 0.952 -368.42 127.57
2 -193 134 0.907 -175.05 121.54
3 -100 134 0.864 -86.40 115.78
4 600 134 0.823 493.80 110.28
5 600 134 0.783 469.80 104.92
6 850 134 0.746 634.10 99.96
7 -180 0 0.711 -127.98 0.00
NPV 539.85 275.05
IRR of the projects
Year
Cash flow from
Project A
Cash flow from
Project B
0 -300 -405
1 -387 134
2 -193 134
3 -100 134
4 600 134
5 600 134
6 850 134
7 -180 0
IRR 18% 24%
MIRR of the projects @5%

Year
Cash flow from
Project A
Cash flow from
Project B 0.05
0 -300 -405
1 -387 134
2 -193 134
3 -100 134
4 600 134
5 600 134
6 850 134
7 -180 0
MIRR 11% 10%
Task 6
Future value = Present investment x (1+r) ^10
= 20,000 x (1+0.08) ^10
= 20,000 x 2.16
= 43,178
Task 7
Future value = Present investment x (1+r) ^10
10,000 = Present Value X (1+0.1) ^20
10,000 = Present value x 6.73
10,000/6.73 = Present value
Present value = 1485.88
Task 8
a. Future value = Present Value x (1+r)^1
2500 = 2000 x (1+r) ^1
2500-2000 = 2000 x (1+r)^1
500/2000 = (1+r)^1
= 25%
b. Future value = Present Value x (1+r)^1
2500 = 2000 x (1+r) ^1
2500-2000 = 2000 x (1+r)^1
500/2000 = (1+r)^1
= 25%
A. Future value = Present Value x [1+(r/2)]^n*2
= 1000 x [1+(0.20/2) ^10
= 1000 x 2.59
= 2593

B. Future value = Present Value x [1+(r/4)]^n*4
= 1000 x [1+(0.20/4)^20
= 2653.30
C. Future value = Present Value x [1+(r/12)]^n*12
= 1000 x [1+(0.20/12)^60
= 2695.57
Task 9
Present value = Periodic payment [1-(1+r) ^-n]/r
= 50,000[1-(1+0.10)^-4]/0.1
= 158,493.27.
Future value = Present Value x (1+r) ^1
50000= Present value x (1+0.10) ^1
= 50000/1.10
= 45455
Hence, the amount after 1 withdrawal would be
= 158,493.27- 45455
= 113,039
Task 10
 For every individual, company it is very important to understand financial principle in order to make
the effective investment decision. It is because by understanding financial decision one can make
wise decision of investing money anywhere.
 Below is the most important financial principle that everyone shall understand.
- Principle of Risk and return: Risk and return both are very important factor of any
investment decision. Everyone will look at return and risk factors before taking any finance
decision. Risk and return both has relationship. When the risk is high, more would be the
return and same way when the return is low, lower would be the return.
- Time value of money: it is the terminology used for the inflation rate. It the calculation of
purchasing power of $1 tomorrow. It shows the value of $1 tomorrow.
- Cash flow principle: it shows the cash inflow and outflow from any activity.
- Profitability and liquidity: it is very important in any financial management. Profitability is
the profit which any one has earned, where as the liquidity consist of cash and cash
equivalent. Profitability consists of Profit, reserve and surplus. Company has profit does not
mean it has liquidity. Someway, company has liquidity does not mean it has profitability.
- Principles of diversity: It is very important in investment decision.
- Hedging principle.
 All the above investment decision is very important for any business. Every company shall consider
the above principle before making any finance decision.