Ask Question, Ask an Expert

+61-413 786 465

info@mywordsolution.com

Ask Basic Finance Expert

Mr. Ali wants to start “Rent-A-Car” business. He wants to start this business with at least 20 cars. He estimates that the needed investment for the business is Rs. 30 Million. He projects that revenue (before depreciation and tax) from the business will be Rs. 6 Million for the first year and it will keep on growing at a rate of 5% annually until the 10th year.

Some other information regarding the project is as follows:  

i) Annual depreciation will be Rs. 3 Million under the straight line method. 
ii) Cost of capital is 10% while the rate of tax is 35%. 

Assume you are running a financial consultancy firm; Mr. Ali wants to get his project evaluated through your firm. You have to recommend Mr. Ali about the feasibility of the project after applying different capital budgeting techniques.

Requirement:

Keeping your task in consideration, give answers to the subsequent: 

1.  find out net cash flows for 10 years.                      
2.  Evaluate the project by using the following capital budgeting methods: 

a. Payback Period (The desired payback period is 5 years)              
b. Net Present Value             
c. Profitability Index             

3.  Is there any contradiction between the results of above used methods? What would be your final suggestion about the acceptance or rejection of the project? Support your suggestion with financial rationale.         

SOLUTION GUIDELINES:

Please read the subsequent instructions carefully before making the assignment solution:

i) Do prepare the solution after completely reading and understanding the problems. 
ii) Put your authentic efforts in order to understand the concepts thoroughly. 
iii) Give whole calculations first two parts of the problem.

FORMATTING GUIDELINES:

i) Use the font style “Arial” or “Times New Roman” and font size “12”. 
ii) It is advised to prepare your document in MS-Word format. 
iii) You might also compose your assignment in Open Office format. 
iv) Use black and blue font colors only.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M9483

Have any Question? 


Related Questions in Basic Finance

Consider a 4-year annuity bond with annual cash payment of

Consider a 4-year annuity bond with annual cash payment of $100. It does NOT have a face value. Currently it sells for $316.98. What is the yield to maturity? Then assuming that periodic cash flows are reinvested at 10% ...

Stock x has a beta coefficient of 20 and stock y has a beta

Stock X has a beta coefficient of 2.0 and stock Y has a beta coefficient of 1.5. The expected rate of return on an average stock is 11% and the risk-free rate is 5%. By how much does the required rate of return on the ri ...

For the year just concluded free cash flow to equity fcfe

For the year just concluded, Free Cash Flow to Equity (FCFE) is 100 million. FCFE grows at 10% annually for the next three years, and then is constant (grows at 0%) per year thereafter. The required rate of return on equ ...

Find the present value if 7000 to be received one year from

Find the present value if $7000 to be received one year from now, assuming a 3 percent annual discount interest rate. Also calculate the present value if the $7,00 is received after two years.

Initial outlay is 16853year 1 5625year 2 5504year 3

Initial outlay is $16,853 Year 1 $5,625 Year 2 $5,504 Year 3 $5,892 Year 4 $8,851 What is the discounted payback period? The discount rate is 10%...Round answer to two decimal points

Assume that your brother wants to buy shares of either

Assume that your brother wants to buy shares of either Company A or B and is looking for your advice on how to use the financial statements of the companies to make his investment decisions. Which information in the fina ...

What is the effective annual rate of a savings account that

What is the effective annual rate of a savings account that pays an APR of 3% and compounds quarterly? Answer in percent and round to two decimal places.

1 serenas skincare sells sunscreen in orlando florida the

1.) Serena's Skincare sells Sunscreen in Orlando, Florida. The annual return for the company is affected by the average temperature of the year. When the weather is cold (25% of the year), normal (40% of the year) and ho ...

Roll tide inc has 10000 shares of common stock outstanding

Roll Tide, Inc. has 10,000 shares of common stock outstanding at a price of $18 a share. The firm's beta is 1.3 and the market risk premium is 6.5%. The Treasury bill rate is 3.5%. There are 9,000 shares of preferred sto ...

A couple thinking about retirement decide to put aside 3700

A couple thinking about retirement decide to put aside $3,700 each year in a savings plan that earns 7% interest. In 10 years they will receive a gift of $17,000 that also can be invested. a. How much money will they hav ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As