FMT - Quiz 2 Syllabus

8/2/2019 FMT - Quiz 2 Syllabus

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1 cost 52125

-521251 12000 Rs. 10,714.292 12000 Rs. 9,566.33

3 12000 Rs. 8,541.364 12000 Rs. 7,626.225 12000 Rs. 6,809.126 12000 Rs. 6,079.57

10.09% Rs. 49,336.89Net Present Value (outflow - inflow)

2 Initial Outflow 200-200

1 235 Rs. 210.762 -65 Rs. -52.283 300 Rs. 216.42

Rs. 374.90NPV Rs. 174.90

3gas powered

intial outflow 17500

1 50002 50003 50004 50005 50006 5000

Rs. 20,557.04

NPV Rs. 3,057.04

4 SINITIAL OUTFLOW 10000

-10000 outflow1 30002 30003 3000


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33 200034 200035 200036 200037 200038 2000

39 200040 200041 200042 200043 200044 200045 200046 200047 200048 200049 200050 200051 200052 200053 200054 200055 200056 200057 200058 200059 2000

60 2000

A6 cost 10000000

1 12000000 Rs. 10,714,285.71


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2 750000 187500 4430003 562500 140625 5040004 421875 105468.75 4420005 316406.25 79101.5625 367000

237304.6875 59326.17188

20 Present Values1 Rs. -2,071.162 Rs. 2,229.22 Rs. 2,229.22 0.063 Rs. 7,715.36 Rs. 7,715.36 0.084 Rs. 5,486.15 Rs. 5,486.15 0.025 Rs. -12,142.326 Rs. -7,541.567 Rs. -569.27

8 Rs. 6,972.29 Rs. 6,972.29 0.049 Rs. -17,624.53

10 Rs. -17,098.8711 Rs. -14,498.1112 Rs. 2,600.75 Rs. 2,600.75 0.03513 Rs. -6,517.7914 Rs. -8,442.7015 Rs. -10,071.1616 Rs. -1,628.46

Rs. -73,202.16 25003.77259 0.235

18 Income at the end of Cash Out flow Present Value104910.7143 100000 4307.64411

inflow at present valu outflow inflow - outflow - at present valueat 12% at 14%

19 Present Values for 2nd yearNode A 0.3 63636.36364Node B 0.1 123636.3636

Node C 0.6 45454.54545

Initial Outlay 100000NPV 11115.70248

Post AbandonmentPresent Values for 2nd year

Node A 0.3 63636.36364Node B 0.1 123636.3636


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Node C 0.6 50000

Initial Outlay 100000NPV 13595.04132

Value of option to ab 2479.338843

10 Depreciation

Value Depreciation

10000001 750000 2500002 562500 1875003 421875 1406254 316406 1054695 237305 791026 177979 593267 133484 44495

8 100113 33371

Capital Gain / Loss At the end of 3rd year for old mach - pBook Value 421875Salvage 600000Cap gain 178125Tax Paid 62343.75

Operating Income Increased revenue

4 100000 1500005 100000 1500006 100000 1500007 100000 1500008 100000 150000

we will abandone the project in 2nd year after node B is compless than Abandonment value of rs 50000, thus it sh

the value a firm derives by having a

Old Machinery


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13 ManufacturingMach Salvage - 5 yr

Book Value at the end Dep1000000

1 750000 2500002 562500 1875003 421875 1406254 316406 1054695 237305 79102

Fixed Costs Depreciation

1 100000 2500002 200000 1875003 300000 1406254 400000 1054695 500000 79102

Buying Post Tax Cost Paid1 937,500.00 609,375.00 2 937,500.00 609,375.00 3 937,500.00 609,375.00 4 937,500.00 609,375.00

5 937,500.00 609,375.00

9& 11 Machine Value 500000same question Slavage Value 75000

500000 Depreciation1 400000 1000002 300000 1000003 200000 1000004 100000 100000

5 0 100000

Saving Depreciation1 200000 1000002 200000 1000003 200000 1000004 200000 1000005 200000 100000


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NPV

12 Value of Machinery 300000 480000Years Old Machine New Machine

-3000001 200002 200003 20000 -4800004 20000 400005 20000 400006 20000 400007 20000 400008 20000 400009 20000 40000

10 20000 4000011 20000 4000012 20000 4000013 20000 4000014 20000 4000015 20000 40000

Years Labor Cost Saving Electicity and Maintenance Cost4 160000 30000

5 160000 300006 160000 300007 160000 300008 160000 300009 160000 30000

10 160000 3000011 160000 3000012 160000 3000013 160000 3000014 160000 3000015 160000 30000

15 Machine A Machine BInitial Expense 10000000 15000000

1 4000000 35000002 4000000 35000003 4000000 3500000


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4 -6000000 35000005 4000000 35000006 4000000 35000007 4000000 35000008 4000000 3500000

Rs. 14,509,570.24 Rs. 18,672,241.69

NPV Rs. 4,509,570.24 Rs. 3,672,241.69


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Rs. -2,788.11

Rs. -2,788.11 Since, your NPV is negative , u do not investsince irr is lower than the cost of capital, you do not invest in the

electric forklift22000

629062906290629062906290

Rs. 25,860.75

Rs. 3,860.75

T25000

-250001 74002 74003 7400


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4 74005 7400

inflow 14.67% Rs. 26,675.34

Rs. 1,675.34

1.067

1 0 Rs. 94,611.452 03 04 05 06 07 08 09 0

10 260011 260012 260013 2600

14 260015 260016 260017 260018 260019 260020 260021 260022 260023 260024 260025 260026 260027 260028 260029 260030 260031 260032 2600

pital. But when we look at both them, there is a problem. Both of them together have positve NPV and haveook at NPV as a better criteria. Our objective is to maximise the value of wealth of the shareholder. HERE AND

, take the lower of the present value . Hence, orignal option of Rs 2000 is better


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33 260034 260035 260036 260037 260038 2600

39 260040 260041 260042 260043 260044 260045 260046 260047 260048 260049 260050 260051 260052 260053 260054 260055 260056 260057 260058 260059 2600

60 2600

B10000000

1 1750000 Rs. 13,071,526.34 option B will be choosen, becase it has a2 17500003 17500004 17500005 17500006 17500007 1750000 Rs. 13,071,526.348 17500009 1750000

10 175000011 175000012 175000013 1750000


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14 175000015 175000016 175000017 175000018 175000019 1750000

20 1750000

Loss on Sale of Mach50000.00 Value at the end of 5 yr 11865.2337500.00 Salvage 500028125.00 Loss on Sale of Mach 6865.23

21093.75tax sheild on loss of mach @ 20% 1373.046875

15820.31

-50000

10875.00

Present Value of Inflows / retainedearnings Rs. 46,707.78

10231.05 NPV Rs. -3,292.2210760.7910596.00 PI Rs. 0.9321007.57

7.64% Payback Period between 4th and 5th year

100,000.00

Revenue523333 Total of Present Rs. 4,735,455.22523333 NPV Rs. -3,764,544.78523333523333523333

5623333

DEFLATION PRESENT VALUE333200 308518.5185 280471.3805


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353575 303133.5734 250523.6144376818.75 299130.8728 224741.4521

324214.0625 238307.0146 162766.8975414292.1875 281960.3015 175075.1634

1093578.508

93578.50791 NOT CO

-7846.177945returns

Present value including first year80578.5124 24173.55372294214.876 29421.4876

95867.7686 57520.66116111115.7025

Present value including first year80578.5124 24173.55372294214.876 29421.4876


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100000 60000113595.0413

New MachineryIncremental CashFlow Tax Sheild on IC

Value Depreciation

15000001 1125000 375000 269531 943362 843750 281250 202148 707523 632813 210938 151611 530644 474609 158203 113708 39798

5 355957 118652 85281 29848

ay in the 4th year At the end of 8th yr for the new mach355957900000544043

190415.0391

Tax Sheild on IC Main Saved900000

94336 19449270752 23325253064 50000 24806439798 50000 23479829848 50000 934433

Rs. 1,296,535.24NPV Rs. 396,535.24

leted. Node C gives a valueould be stopped

n option of abandonment


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200000Capital Gain/ LossBook Value 237305

Salvage 200000Capital Loss 37305Tax Sheild 13056.64063

Variable Tax Sheild Cost

225000 201250 123750225000 214375 210625225000 232969 292031225000 255664 369336225000 494492 230508

Rs. 784,658.89Rs. 1,784,658.89

PVRs. 529,891.30Rs. 460,775.05Rs. 400,673.95Rs. 348,412.13

Rs. 302,967.07Rs. 2,042,719.51

Capital Gain/ LossBook Value 0Salvage 75000Capital gain 75000Tax Shield 30000

Tax Shield165000165000165000165000210000

Rs. 689,423.40

Total Cost Incurred


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Rs. 189,423.40

Incremental Cash Flow

200002000020000200002000020000200002000020000200002000020000

Incremental Cash Flows Revenue20000 91500

20000 9150020000 9150020000 9150020000 9150020000 9150020000 9150020000 9150020000 9150020000 9150020000 9150020000 91500

Rs. 726,755.80NPV Rs. 246,755.80


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roject


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ING IN QUIZ


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1 a) cost of asset 260000tax rate 30%int rate 13%time 5 yrssalvage value 0

pv of tax sheilds on depreciation + pv of post tax sheild rentals = 260000

pmt Rs. 73,921.78post tax lease rental Rs. 83,316.83

b) cost of asset 128000tax rate 30%int rate 6%time 9salvage value 20000pv of tax sheilds on depreciation + pv of post tax sheild rentals = 128000


2 a) purchase price 46000int rate 11%time 6 yrsresidual value 3000dep amount 7167

annual value Rs. 9,454.23

b) IRR (rate) 8.26%

c) cost of asset Rs. 95,800.98

4 asset value 50000life 3 yrssalvage 5000depreciation 15000post tax returns 9%tax rate 40%

by using pmt - we getto get post tax lease r


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3 payment is made at the start of the year13.52%

3.38% Dep-75600 120001 44002 44003 44004 24405 44006 44007 44008 24409 4400

10 440011 440012 244013 440014 440015 440016 244017 440018 440019 4400

20 18040quaterly rate 1.89%annual rate 7.55%

5

BUYCOST 100000LIFE (YRS) 8SCRAP VALUE 20000Depreciation rate (WDV) 18.25%

YEARS Asset value DEPRECIATION1 100000.00 18250.002 81750.00 14919.383 66830.63 12196.594 54634.04 9970.715 44663.32 8151.06

DEPRECIATION SCHEDULE


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4 Rs. 17,441 Rs. 1,7445

YEARS LEASE RENTAL TAX SHEILD0 19000

1 19000 57002 19000 57003 19000 57004 19000 57005 5700

7

YEARS PRINCIPAL DEPRECIATION1 1000000.00 180000.002 820000.00 180000.003 640000.00 180000.004 460000.00 180000.005 280000.00 180000.00

5 260000 104000

part 2 remaining

9 a) 0 -2000001 500002 50000

3 500004 500005 50000

7.93% 7.93%b) Rs. 66,875.94

c) Depreciation per year 40000Depreciation on tax sheild 14000Maintenance post tax 13000

DEPRECIATION SCHEDULE

200000 = PV [(Lease r1-5 ear 20


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D) Rs. 61,500.75 depreciation

7 a) depreciation 4500cost of capital 9%tax rate 40%

pmt Rs. 7,011.90equilbrium elase rental 8686.506743

b) Loan 45000 pmtYEARS PRINCIPAL INTEREST

1 Rs. 2,216.34 Rs. 6,750.002 Rs. 2,548.79 Rs. 6,417.553 Rs. 2,931.11 Rs. 6,035.234 Rs. 3,370.78 Rs. 5,595.565 Rs. 3,876.40 Rs. 5,089.95

6 Rs. 4,457.86 Rs. 4,508.497 Rs. 5,126.54 Rs. 3,839.818 Rs. 5,895.52 Rs. 3,070.839 Rs. 6,779.84 Rs. 2,186.50

10 Rs. 7,796.82 Rs. 1,169.52

LEASINGYEARS LEASE TAX SHIELD

1 Rs. 8,686.50 Rs. 3,474.602 Rs. 8,686.50 Rs. 3,474.60

3 Rs. 8,686.50 Rs. 3,474.604 Rs. 8,686.50 Rs. 3,474.605 Rs. 8,686.50 Rs. 3,474.606 Rs. 8,686.50 Rs. 3,474.607 Rs. 8,686.50 Rs. 3,474.608 Rs. 8,686.50 Rs. 3,474.609 Rs. 8,686.50 Rs. 3,474.60

10 Rs. 8,686.50 Rs. 3,474.60

FOR A PROBLEM LIKE THIS, FIST CALCULATE THEPMT FUNCTION. THAT GIVESVALUE OF LEASE RENTALS AS "X" WE SOL


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depreciation amount

depreciation amount 12000

PV of tax sheid on Dep Rs. 24,486.09Salvage Value PV 11837.96927Pv of 70% for 8 yrs 4.35Pv of 70% for 8 yrs + 1 yr 5.35Pv of 30% for 9 yrs 0.177569539Diff 5.17

by using pmt - we get a value which is per year payment (which is 30%to get post tax lease rental = [73921 - (30% of 52000)]/.70

a value which is per year payment (which is 30% of 52000 and 70% of x)ntal = [17078 - (30% of (128000-20000)]/.70


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Rs. 18,744.40 Rs. 14,082.95Rs. 18,744.40 Rs. 15,491.24Rs. 18,744.40 Rs. 17,040.37

DEPRECIATION TAX SHIELD NET CASH OUTFLOW

Rs. 18,250 Rs. 5,650 Rs. 13,094Rs. 14,919 Rs. 4,809 Rs. 13,935Rs. 12,197 Rs. 4,072 Rs. 14,672

Rs. 9,971 Rs. 3,415 Rs. 15,329Rs. 8,151 Rs. 2,819 Rs. 15,926Rs. 6,663 Rs. 2,265 Rs. 16,479Rs. 5,447 Rs. 1,740 Rs. 17,004Rs. 4,453 Rs. 1,231 Rs. -2,487

CASH OUT FLOW PRESENT VALUE11200 Rs. 10,370.3711200 Rs. 9,602.1911200 Rs. 8,890.9211200 Rs. 8,232.3311200 Rs. 7,622.5311200 Rs. 7,057.9011200 Rs. 6,535.0911200 Rs. 6,051.01

Rs. 64,362.36

TOTAL AMOUNT PRINCIPALRs. 19,185.27 Rs. 19,185.27Rs. 19,185.27 Rs. 13,103.80Rs. 19,185.27 Rs. 14,414.18

Rs. 19,185.27 Rs. 15,855.60Rs. 19,185.27 Rs. 17,441.16

DEPRECIATION TAX SHIELD NET CASH OUTFLOWRs. 19,185

Rs. 14,000 Rs. 4,200 Rs. 14,985Rs. 14,000 Rs. 6,024 Rs. 13,161Rs. 14,000 Rs. 5,631 Rs. 13,554

AMORTISATION SC

OPTION 1

OPTION 2

WE SHOULD CHOOSE OPTI


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Rs. 14,000 Rs. 5,199 Rs. 13,986Rs. 14,000 Rs. 4,723 Rs. -14,723

Rs. 60,148

OPTION 2CASH OUT FLOW PRESENT VALUE

19000 Rs. 19,000.00

13300 Rs. 12,429.9113300 Rs. 11,616.7413300 Rs. 10,856.7613300 Rs. 10,146.51-5700 Rs. -4,064.0266500 Rs. 59,985.89

TOTAL AMOUNT PRINCIPALRs. 221,927.79 Rs. 125,927.79Rs. 221,927.79 Rs. 141,039.12Rs. 221,927.79 Rs. 157,963.81Rs. 221,927.79 Rs. 176,919.47Rs. 221,927.79 Rs. 198,149.81

156000 100000 Rs. 48,100.02

Rs. 574,127.95

OPTION 1

AMORTISATION SC

ental - Maintenance)(1- tax rate)+ (Depreciation x tax rate)]%


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32000

pv company

Rs. 8,966.34DEPRECIATION TAX SHIELD NET CASH OUTFLOW



NET CASH OUTFLOW PRESENT VALUE 9.00%Rs. 5,211.90 Rs. 4,781.56Rs. 5,211.90 Rs. 4,386.75

Rs. 5,211.90 Rs. 4,024.54Rs. 5,211.90 Rs. 3,692.24Rs. 5,211.90 Rs. 3,387.38Rs. 5,211.90 Rs. 3,107.69Rs. 5,211.90 Rs. 2,851.09Rs. 5,211.90 Rs. 2,615.68Rs. 5,211.90 Rs. 2,399.70Rs. 5,211.90 Rs. 2,201.56

Rs. 33,448.19

YOU THE OPTIMUM VALUE FOR THE GIVEN DETAILS. THEN KEEPING THEE THE EQUATION TO GET THE VALUE.


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Rs. 642,893.74DEPRECIATION MAINTENANCE TAX SHIELD

50000300000 50000 Rs. 245,000.00300000 50000 Rs. 238,665.09300000 50000 Rs. 231,443.30300000 50000 Rs. 223,210.45300000 50000 Rs. 213,825.00300000 Rs. 203,125.59

NET CASH OUTFLOW PRESENT VALUE 9.10%

Rs. 450,000.00 Rs. 450,000.00Rs. 292,500.00 Rs. 268,102.66Rs. 292,500.00 Rs. 245,740.29Rs. 292,500.00 Rs. 225,243.16Rs. 292,500.00 Rs. 206,455.70Rs. 292,500.00 Rs. 189,235.28

Rs. -157,500.00 Rs. -93,396.81Rs. 1,491,380.28 AS THE VALUE IS LOWER, W

IWING IS LESS THAN COST OF CAPITAL OF LESSOR , LESSEE WOULD CHOOS

N AND INTEREST. BENEFIT OF 18000 TO BEIGNORED. FOR LELEASED", BUT TAX BENEFIT ON THE EXPENSE INCURRED i.e. LEASE RENTALSILL BE INDIFFERENT WITH BOTH THE OPTION AS THE VALUES ARE SAME

AL = POST TAX COST OF BORROWING FOR HVP'STHAT IS WHY THE VALUES


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52000

of 52000 and 70% of x)


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Rs. 18,744.40INTEREST

Rs. 10,000.00Rs. 9,125.56Rs. 8,163.68Rs. 7,105.60Rs. 5,941.72

HEDULE


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Rs. 4,661.46Rs. 3,253.16Rs. 1,704.04

PRESENT VALUE

Rs. 12,124.45Rs. 11,947.37Rs. 11,647.38Rs. 11,267.37Rs. 10,838.86Rs. 10,384.83

Rs. 9,921.84Rs. -1,343.68

Rs. 76,788.43


Rs. 0.00Rs. 6,081.47Rs. 4,771.09

Rs. 3,329.68Rs. 1,744.12

PRESENT VALUE 7%Rs. 19,185

Rs. 14,004.93Rs. 11,495.18Rs. 11,064.06

HEDULE

N 2 AS IT IS THE LOWER OF THE TWOVALUES


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Rs. 10,670.13Rs. -10,497.46Rs. 55,922.10


Rs. 96,000.00Rs. 80,888.67Rs. 63,963.97Rs. 45,008.31Rs. 23,777.98

WE SHOULD CHOOSE OPTION 2 AS ITIS THE LOWER OF THE TWO VALUES

IMPORTANT FORMULA

WE SHOULD CHOOSE OPTION 1 AS IT ISTHE LOWER OF THE TWO VALUES

HEDULE


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101347.601

97385.77312

PRESENT VALUE 9.00%Rs. 4,097.56Rs. 3,871.16Rs. 3,669.61Rs. 3,491.20Rs. 3,334.39

Rs. 3,197.75Rs. 3,080.03Rs. 2,980.09Rs. 2,896.89Rs. 2,829.53

Rs. 33,448.22


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IMPORTANTNOTE

NET CASH OUTFLOW PRESENT VALUE 9.10%50000 50000

Rs. 447,893.74 Rs. 410,535.05Rs. 477,134.03 Rs. 400,858.31Rs. 510,467.97 Rs. 393,092.03Rs. 548,468.65 Rs. 387,126.42Rs. 591,789.43 Rs. 382,863.05Rs. 391,175.12 Rs. 231,965.14

Rs. 2,256,440.00

E WILL CHOOSE THIS OPTION

TO GO FOR LEASING OPTION

ASING: NO DEPRECIATION AS THEAID

RE SAME

FMT - Quiz 2 Syllabus

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