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FAQ - JNTUK - R16 - MEFA - Unit-6 - Capital Budgeting (Long Answer…
FAQ - JNTUK - R16 - MEFA - Unit-6 - Capital Budgeting
Short Answer Questions (3 Marks)
What is Discounting cash flows?
Explain IRR significance.
What is Accounting Cycle?
What is Current Ratio?
What is Trial Balance?
Explain the Debt-equity ratio
Define functional flow system analysis
What is profitability index
Explain the concept of capital budgeting
Explain time value of money.
What is demand schedule?
What is the NPV?
Explain discounted cash flow method in capital budgeting.
Long Answer Questions (7 Marks)
A project costing Rs.80000/- Annual cash inflows of Rs.40000/- after taxes for a period of six years. How much is the NPV if the firm expects 15% per annum
Explain the nature, significance and objectives of capital budgeting. (4 Times Asked)
Discuss the traditional methods of project apprising.
What is NPV? How it calculates and explains the acceptance rule of NPV?
A project costs Rs.1,44,000. The average annual cash inflows are likely to be Rs.45,000 for a period of 5 years. Calculate the IRR for the project.
The cost of a project is Rs.50,000, the annual cash inflows for the next 4 years are Rs.25,000. What is the payback period for the project?
Discuss different kinds of capital budgeting decisions.
A project costs Rs.25,000 and is expected to generate cash inflows as.
Year Cash Inflows PV Factor
12%
1 10000 0.893
2 8000 0.797
3 9000 0.712
4 6000 0.636
5 7000 0.567
Radhika enterprises ltd is contemplating the purchase of a machine. Two machines A and B are available each at Rs.2,50,000. Net Cash Inflows (Amt. in Rs.)
Year Machine A Machine B
1 75,000 25,000
2 100000 50000
3 125000 100000
4 75000 150000
5 50000 100000
Calculate Net Present Value Method
10%.
What is meant by discounting and time value of money? How is it useful in capital budgeting?
A company has an investment opportunity costing Rs.1,50,000 with the following expected net cash flow. Using 10% as the rate of discount determine the following: i. Pay -back method ; ii. NPV method
Year Cash Flow After Tax
1 16,000
2 34,000
3 44,000
4 54,000
5 54,000
Discuss the traditional methods of capital budgeting.
Explain cost of equity and cost of debt.
Distinguish between traditional and modern methods of Capital Budgeting.
Explain time value of money.
A firm is considering two different investment options A and B . Details of both the options are given below: (Rs. in Lakhs).
Investment cost Inflow1 Inflow2 Inflow3
Option-A
(25) 10 10 12
Option-B
(40) 15 20 24
If discount rate is 10 percent, Suggest the better option based on NPV and IRR.
(i) Your father has promised to give you Rs.2, 00,000 in cash on your 25th birthday. Today is your 18th birthday. He wants to know two things: (a) If he decides to make annual payments into a fund after one year, how much will each have to be if the fund pays 8%. (ii) If he decides to invest a lump sum in the account after one year and let it compound annually, how much will the lump sum be assuming 8% interest in each case.
Explain about Payback period and Profitability Index.
14 Marks Answer Questions
ABC company is considering the purchase of two machines A and B each costing Rs:50,000/-.Earnings after taxes are expected to be as under :
Estimate the two alternatives according to
i.ARR method ii.NPV method a discount rate of 10%.
1 5,000 15,000
2 15000 20000
3 20000 25000
4 30000 15000
5 20000 10000
Year Machine A Machine B
Examine the following proposals and evaluate them based on: i. ARR method(ARR on original investment) ii.NPV method Initial investment is Rs.12,00,000/- each for all the two projects, discount factor is 10 %
**Year Project A Project B**
1 6,00,000 5,00,000
2 500000 300000
3 200000 200000
4 300000 300000
Compare and contrast the NPV and ARR methods of evaluating investment
proposals and illustrate with examples.
Prepared by:
Srinivas Adapa
, Associate Professor, CSE Department, CITM