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Transcript of 22 SsASCO pvt ltd company is a salt trading compan1.docx
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SASCO pvt ltd company is a salt trading company. The company situated in
kollappuram, azad nagar, A.R Nagar- po, malappuram-dt, erala-st, !ndia. The
Company distri"utes its products primarily in domestic markets. Sasco salt trade
premium #uality $ree $lo% iodized salt. The company not compromise #uality o$
the product.
The company have &' employee & manager & accountant ( marketers, )
production, they are producing *+'''kg per month they selling price is Rs , and
the material cost is .+kg direct la"or cost is /0+ and marketers ('' $or manager
&/''' and accountant &'''' electricity "ill +'''.
PROFIT AND LOSS ACOUNT OF 2014
12ro$it and 3oss Statement - 2431A $inancial statement that summarizes therevenues, costs and e5penses incurred during a speci$ic period o$ time - usually a
$iscal #uarter or year. These records provide in$ormation that sho%s the a"ility o$ a
company to generate pro$it "y increasing revenue and reducing costs. The 243
statement is also kno%n as a 6statement o$ pro$it and loss6, an 6income statement6
or an 6income and e5pense statement6.
Sale 95000*12=*7 7890000
Cost of sale
Direct material 2.5*1140000 2850000Direct labor .6*1140000 684000Electricity .05*1140000 57000Ret .1*1140000 114000!ac"a#i#
co$er
1*1140000 1140000 %4845000&
GP 3045000
'ess a(mi
cost)ar"eti# 499200maa#er 156000accotat 120000!+oe bill 12000 %787200&
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Proft 2257800,terest o
loa 12-
200000
24000
,terest o(ebetre 10-
of 400000
40000 64000
Proft beore
t!
21"3800
a/ 20 - 48760Proft ter
t!
1755040
referece
12- of 400000 48000Eity 160860Ret#$e%
er$#$&'
"8680
7alance Sheet1 A $inancial statement that summarizes a company1s assets, lia"ilitiesand shareholders1 e#uity at a speci$ic point in time. These three "alance sheet
segments give investors an idea as to %hat the company o%ns and o%es, as %ell as
the amount invested "y the shareholders.
(ALANC) S*))T OF 2014
RS RS RSF#!e% A''et+
'a( 298680
3il(i# a( Eimet 200000
4"8680
C,rre$t ''et+
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Cas+ a( ba" 100000
0 1000000
Tot- A''et 14"8680
).UIT/+000 RD,R SRE rs.100EC 00000
RE,ED ER,:S 98680!REERCE SRE12- 400000
TOTAL ).UIT/ 7"8680
NON CURR)NTLIA(ILT/+
DE3E;RE 10- 400000 400000
' 12- 200000 200000 600000
CURR)NT LIA(ILT/+
CRED,RS 100000
100000
TOTAL ).UIT/ AND LIA(ILIT/ 14"8680
(,%&ete% Rt#o A$-'#'
is a $orm o$ 8inancial Statement Analysis that is used to o"tain a #uick indication
o$ a $irm1s $inancial per$ormance in several key areas. 8inancial ratios are
mathematical comparisons o$ $inancial statement accounts or categories. These
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relationships "et%een the $inancial statement accounts help investors, creditors,
and internal company management understand ho% %ell a "usiness is per$orming
and areas o$ needing improvement.
LI.UIDIT/ RATIOSA class o$ $inancial metrics that is used to determine a company1s a"ility to pay o$$
its short-terms de"ts o"ligations. 9enerally, the higher the value o$ the ratio, the
larger the margin o$ sa$ety that the company possesses to cover short-term de"ts.
3i#uidity ratios are the ratios that measure the a"ility o$ a company to meet its
short term de"t o"ligations. These ratios measure the a"ility o$ a company to pay
o$$ its short-term lia"ilities %hen they $all due.
The li#uidity ratios are a result o$ dividing cash and other li#uid assets "y the shortterm "orro%ings and current lia"ilities. They sho% the num"er o$ times the short
term de"t o"ligations are covered "y the cash and li#uid assets. !$ the value is
greater than &, it means the short term o"ligations are $ully covered.
CURR)NT RATIO
An indication o$ a company1s a"ility to meet short-term de"t o"ligations the higher
the ratio, the more li#uid the company is. Current ratio is e#ual to current
assets divided "y current lia"ilities. !$ the current assets o$ a company are morethan t%ice the current lia"ilities, then that company is generally considered to have
good short-term $inancial strength. !$ current lia"ilities e5ceed current assets, then
the company may have pro"lems meeting its short-term o"ligation.
Current Ratio:
Current Assets
Current 3ia"ilities
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2189800/495200 = 4.42
Analysis.
A#%te't rt#o
The term ;Acid-test ratio< is also kno%n as #uick ratio. The most "asic de$inition
o$ acid-test ratio is that, ;it measures current =short term> li#uidity and position o$
the company. !n order
to clear the short term de"ts they pro"a"ly %ould need to sell some o$ their assets.
7ut such an option a$$ects the overall position o$ the company "ecause i$ the
company o%ns very little assets.
Acid ratio : =Current Assets ? !nventory> Current lia"ilities
= (218900 84000) / 495200
= 4.25
Sto T,r$oer Rt#o
The inventory turnover $ormula or stock turnover ratio is the rate at %hichinventory is used over a measurement period. !nventory turnover is typically
measured on a trend line or in comparison to the industry average to @udge ho%
%ell a company is per$orming in this area. !t is o$ use to those organizations that
have a large investment in inventory, to @udge %hether this investment is changing
in comparison to sales.
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This ratio should "e compared against industry averages. A lo% turnover implies
poor sales and, there$ore, e5cess inventory. A high ratio implies either strong sales
or ine$$ective "uying.
igh inventory levels are unhealthy "ecause they represent an investment %ith arate o$ return o$ zero. !t also opens the company up to trou"le should prices "egin
to $all.
Average Stock Cost o$ Sale 5 /)+
: =84000/5668800) x 365
= 5.41 days
Proftb#-#t Rt#o Def$#t#o$
A pro$ita"ility ratio is a measure o$ pro$ita"ility, %hich is a %ay to measure a
company1s per$ormance. 2ro$ita"ility is simply the capacity to make a pro$it, and a
pro$it is %hat is le$t over $rom income earned a$ter you have deducted all costs and
e5penses related to earning the income. The $ormulas you are a"out to learn can "e
used to @udge a company1s per$ormance and to compare its per$ormance againstother similarly-situated companies.
Common pro$ita"ility ratios used in analyzing a company1s per$ormance
include gross pro$it margin =92B>, operating margin =OB>, return on assets
=ROA>, return on e#uity =RO>, return on sales =ROS> and return on investment
=RO!>. 3et1s take a look at these in some detail.
Gro'' Proft r$
The gross pro$it margin looks at cost o$ goods sold as a percentage o$ sales. This
ratio looks at ho% %ell a company controls the cost o$ its inventory and the
manu$acturing o$ its products and su"se#uently pass on the costs to its customers.
The larger the gross pro$it margin, the "etter $or the company.
9ross 2ro$it Net Sales 5 &''
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: (2815200/8484000) x 100
= 33.18
Oert#$& Proft r$
Operating pro$it is also kno%n as 7!T and is $ound on the company1s income
statement. 7!T is earnings "e$ore interest and ta5es. The operating pro$it marginlooks at 7!T as a percentage o$ sales. The operating pro$it margin ratio is a
measure o$ overall operating e$$iciency, incorporating all o$ the e5penses o$
ordinary, daily "usiness activity.
Operating 2ro$it Net Sales 5 &''
= (2028000/8484000) x 100
= 23.90
So-e$ Rt#o'
Solvency ratios, also called leverage ratios, measure a company1s a"ility to sustain
operations inde$initely "y comparing de"t levels %ith e#uity, assets, and earnings.
!n other %ords, solvency ratios identi$y going concern issues and a $irm1s a"ility to
pay its "ills in the long term. Bany people con$use solvency ratios %ith li#uidity
ratios. Although they "oth measure the a"ility o$ a company to pay o$$ its
o"ligations, solvency ratios $ocus more on the long-term sustaina"ility o$ a
company instead o$ the current lia"ility payments.
Ret,r$ o$ A''et' Rt#o ROA
The return on assets ratio, o$ten called the return on total assets, is a pro$ita"ility
ratio that measures the net income produced "y total assets during a period "y
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comparing net income to the average total assets. !n other %ords, the return on
assets ratio or ROA measures ho% e$$iciently a company can manage its assets to
produce pro$its during a period.
= (1568800/2688480) x 100
= 58.35
),#t Rt#o
The e#uity ratio re$ers to a $inancial ratio indicative o$ the relative proportion o$
e#uity applied to $inance the assets o$ a company. This ratio e#uity ratio is a varianto$ the de"t-to-e#uity-ratio and is also, sometimes, re$erred as net %orth to total
assets ratio. The e#uity ratio communicates the shareholderDs $unds to total assets
in addition to indicating the long-term or prospective solvency position o$ the
"usiness.
#uity Ratio : Shareholders $unds Total assets
= 1593280/2688480
= 0.59
ROA :Annual Net !ncome
Average Total Assets
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COST DATA
A9 Co't Per U$#t
Baterial .+
3a"or .)
lectricity .'+
Rent .&
2ackage &.'
2roduction cost per unit (.+
3ess Administration overhead per unitE
Barketing ='.(&>
Banager ='.&(>
Accountant ='.&&>
2hone 7ill ='.'&>
Cost 2er Fnit 3.58
=7> Selling 2rice : per unit
ARGINAL COSTING
ere t+e comay is ee( to icrease t+e ro(ctio caacity
becase of to e/ort to Dbai< so t+e comay ee( ro(ce
more 84000 e/tra
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Sale 84000*7 588000Cost of saleDirect material 2.5*84000 210000Direct labor .6*84000 50400
Electricity .05*84000 4200!ac"a#i#
co$er
1*84000 84000 %48600&
!rot 23"400
=)> COST RE!CT"O# A# COST CO#TRO$
;Cost reduction is to "e understood as the achievement o$ real and permanent
reductions in the unit cost o$ the goods manu$actured or services rendered %ithout
!mpassing their suita"ility $or the use that is intended
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leaves the task o$ purchasing slightly sidetracked. ven seemingly insigni$icant
e5pendituresH$or items like o$$ice supplies, telephone "ills, or overnight delivery
servicesHcan add up $or small "usinesses. On the plus side, these minor
e5penditures can o$ten provide sources o$ cost savings.
As%&'s * Cs Cn+l,
Cost control involves the $ollo%ing steps and covers various aspects o$
management. !t has to "e "rought in the $ollo%ing mannerE
=i> 2lanningE
!nitially a plan or set o$ targets is esta"lished in the $orm o$ "udgets, standards orestimates.
=ii> CommunicationE
The ne5t step is to communicate the plan to those %hose responsi"ility is to
implement the plan.
=iii> BotivationE
A$ter the plan is put into action, evaluation o$ the per$ormance starts. Costs areascertained and in$ormation a"out achievements is collected and reputed. The $act
that the costs are "eing reported $or evaluating per$ormance acts as a prompting
$orce.
=iv> AppraisalE
Comparison has to "e made %ith the predetermined targets and actual per$ormance.
Ie$iciencies are noted and discussion is started to overcome de$iciencies.
=v> Iecision-makingE
8inally, the reported variances are received. Corrective actions and remedial
measures are taken or the set o$ targets is revised, depending upon the
administrationDs understanding o$ the pro"lem.
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The management and control o$ the resources used in most commercial
organizations leaves a great deal to "e desired. Gaste is gro%ing at such an
enormous rate that it has spa%ned a ne% industry $or recycling and e5tracting
use$ul materials.
Baterials are %asted in a num"er o$ %ays such as e$$luents, "reakage,
contamination, ine$$icient storage, poor %orkmanship, lo% #uality, pil$ering and
o"solescence. All these contri"ute to signi$icantly increased material costs and all
can "e controlled "y e$$icient %orking methods and e$$ective control.
Tls * Cs Cn+l
Control has a regulatory e$$ect. 8or "etter per$ormance and "etter results certain
means o$ control have "een evolved. These are called control techni#ues.Bainly t%o types o$ standards are esta"lished to control costsE
=i> 5ternal
=ii> !nternal
5ternal standards are applied $or comparing per$ormance %ith other
organizations. The e5ternal standards are used $or comparing the cost per$ormance
%ith the other $irm take the shape o$ a set o$ cost ratios.
!nternal standards, on the other hand, are used $or the evaluation o$ intra $irm cost
elements like materials, la"or, etc.
The internal standards used $or cost control areE
=i> 7udgetary control
=ii> Standard costing
(i) -d&a+y Cn+l,
7udgetary control is derived $rom the concept and use o$ "udgets. A "udget is an
anticipated $inancial statement o$ revenue and e5penses $or a speci$ied period.
7udgeting re$ers to the $ormulation o$ plan $or given period in numerical terms.
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Thus "udgetary control is a system %hich uses "udgets as a means $or planning
and controlling entire aspects o$ organizational activities or parts thereo$.
According to 8loyd . Ro%land and Gilliam. . 7arr, ;7udgetary control is a tool
o$ management used to plan, carry out and control the operation o$ "usiness. As a$urther e5planation, it esta"lishes predetermined o"@ectives and provides the "asis
$or measuring per$ormance against these o"@ectives.d&
Sales unit &&'''Q
Selling price
Total 0(0('''
?+d'in !ni
&&'''&''' : &('''
?+d'in -d&
Baterial &('''Q .+ /')''''
3a"or &('''Q '.) /((''
lectricity &('''Q '.'+ )&''
Rent &('''Q '.& &(''
2acking cover &('''Q & &('''
Total : +''''
?+'as& >d&
A purchases "udget contains the amount o$ inventory that a company must
purchase during each "udget period.
Baterial $or products closing stock-opening stock
&&'''&''' -': &('''
Baterial price :
Baterial =A> salt : .+ =per unit> material =7> pack : &=per unit>
Baterial =A> &('''Q.+: /')''''
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Baterial =7> &('''Q&:&('''
7udgeted material purchase =rupee> : (0('''
Lbor (,%&et
;its of
ro(ctio
1224000
mber of (irect
labor
6
otal 'abor >a#e
er it
0.6 1224000* 0.6
otal (irect labor
cost
734400
Ex%&ns& >d&
?a+i'la+sBarketing (**''
Banager &+)'''
Accountant &''''
2hone "ill &'''
Rent &(''
Tal &x%&ns&s 909600
Cas -d&
,E) ?1 ?2 ? ?4
3e#ii# cas+ balace 1000000 1272700 1560400 18810010000
00
cas+ sales %01000*7& 2121000 2121000 2121000 212100084840
00
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tot- ': o--ete% 121000 9700 681400 95910094840
00
P;e$t+
Ro> material 1071000 1071000 1071000 1071000!ayroll 77400 77400 77400 77400
!ac"i# Co$er 06000 06000 06000 06000
DIR)CT )
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Cas+ 2105800 218"800
otal sset 2688480
).UIT/+
000 RD,R SRE rs.100EC 00000
RE,ED ER,:S 89280
!REERCE SRE 12- 400000
' E?;,@ 15"3280
C;RRE ',3,'@
DE3E;RE 10- 400000 400000
' 12- 200000 200000 600000
C;RRE ',3,'@
CRED,RS 100000
A !3'E 20- 95200 4"5200
' E?;, D ',3,', 2688480
Cs * Ca%ial
Cs * 'a%ialre$ers to the opportunity cost o$ making a speci$ic investment. !t isthe rate o$ return that could have "een earned "y putting the same money into a
di$$erent investment %ith e#ual risk. Thus, the cost o$ capital is the rate o$ return
re#uired to persuade the investor to make a given investment
Cs * Eiy
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The cost o$ e#uity is the return that stockholders re#uire $or their investment in a
company. A $irm1s cost o$ e#uity represents the compensation that the market
demands in e5change $or o%ning the asset and "earing the risk o$ o%nership.
&. arnings per share market price per share
: (627520@893280)/3000
= 2.53
Cs * &>
The e$$ective rate that a company pays on its current de"t. This can "e measured in
either "e$ore- or a$ter-ta5 returnsP ho%ever, "ecause interest e5pense is deducti"le,
the a$ter-ta5 cost is seen most o$ten. This is one part o$ the company1s capital
structure, %hich also includes the cost o$ e#uity.
COST O: E-T
. 3oan interest =&-ta5>capitalQ&''
: 24000 0.8/200000 100
= 9.6
/. Ie"enture !nterest =&- Ta5>capitalQ&''
: 400000.8/400000100
= 8
(. 2re$erence interest- ta5pre$erenceQ&''
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: 480000.8/400000100
= 9.6
I$e't;e$t Ar#'-
C#t-
A;o,
$t
Co't O
C#t-
=e#&
:t =ACC
Eity0000
0 2.5 0.2 0.58
%BD& 'oa20000
0 9.6 0.15 1.48%BD&Debetre
400000 8 0.1 2.46
!refereces+are
400000 9.6 0.1 2.95
otal 100000 29.7 7.48
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The company planning to invest t%o pro@ect in di$$erent place. So a$ter analyzing this thecompony need to $ind out %here is "etter to invest
Company has estimated the e5pected cash $lo%s $or t%o possi"le pro@ects as $ollo%s
?+B&' ear
' & / ( +
& =&+'> (' +' )' ' &''
=&,'''> +'' ('' /'' '' &''
&a+ #& ?+&s&n al&
9D 10D
& '.*& '.*'*
'.0( '.0)
/ '. '.+&
( '.'0 '.)0/
+ '.)+' '.)&
?ay -a' ?&+id
2ay"ack period is the time in %hich the initial cash out$lo% o$ an investment ise5pected to "e recovered $rom the cash in$lo%s generated "y the investment. !t is
one o$ the simplest investment appraisal techni#ues.The pay"ack period $ormula is used to determine the length o$ time it %ill take torecoup the initial amount invested on a pro@ect or investment. The pay"ack period$ormula is used $or #uick calculations and is generally not considered an end-all $orevaluating %hether to invest in a particular situation.
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The $ormula to calculate pay"ack period o$ a pro@ect depends on %hether the cash$lo% per period $rom the pro@ect is even or uneven. !n case they are even, the$ormula to calculate pay"ack period is
2ay"ack 2eriod : !nitial !nvestment Cash
!n$lo% per 2eriod
?ay>a' ?&+id * ?+B&' 1
The &+',''' initial outlay is returned
=(',''' +',''' )','''> : / years
?ay>a' ?&+id * ?+B&' 2
The &,''',''' initial outlay is returned as $ollo%sE
=+'',''' ('',''' &/U/'','''V> : ./ year
So the ranking is
1s, ?+B&' 2
2nd, ?+B&' 1
pro@ect &st
pay"ack period is more than the pro@ect nd
pay"ack period so "ased onthe pay"ack period "etter to select the ndpro@ect
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#& ?+&s&n al&
Ietermining the value o$ a pro@ect is challenging "ecause there are di$$erent %aysto measure the value o$ $uture cash $lo%s. 7ecause o$ the time value o$ money, adollar earned in the $uture %onDt "e %orth as much as one earned today. The
discount rate in the N2K $ormula is a %ay to account $or this. Companies havedi$$erent %ays o$ identi$ying the discount rate, although a common method is usingthe e5pected return o$ other investment choices %ith a similar level o$ risk.
The net present value approach is the most intuitive and accurate valuationapproach to capital "udgeting pro"lems. Iiscounting the a$ter-ta5 cash $lo%s "ythe %eighted average cost o$ capital allo%s managers to determine %hether a
pro@ect %ill "e pro$ita"le or not
#& ?+&s&n al& * ?+B&' 1 (9D)
ear Cash 8lo% 8actor N2K
''' '''
' =&+'> & =&+'.''>
& (' '.*& /).)0
+' '.0( (.&
/ )' '. ()./
( ' '.'0 (*.+)
+ &'' '.)+' )+
0*.))
#& ?+&s&n al& * ?+B&' 2 (9D) ear Cash 8lo% 8actor N2K
''' '''
' =&'''> & =&'''.''>
& +'' '.*& (+0.+
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('' '.0( //).0
/ /'' '. /&.)
( '' '.'0 &(&.)
+ &'' '.)+' )+
&//.+
Net present value o$ the pro@ect one is greater than the pro@ect t%o so on the "asisio$ npv here the company pre$er to select the pro@ect t%o.
"n&+nal Ra& * R&+n
The !RR can "e de$ined as the discount rate %hich, %hen applied to the cash $lo%so$ a pro@ect, produces a net present value =N2K> o$ nil. This discount rate can then
"e thought o$ as the $orecast return $or the pro@ect. !$ the !RR is greater than apreset percentage target, the pro@ect is accepted. !$ the !RR is less than the target,the pro@ect is re@ected.
Considering the de$inition leads us to the calculation. The !RR uses cash $lo%s =notpro$its> and more speci$ically, relevant cash $lo%s $or a pro@ect. To per$orm thecalculation, %e need to take the cash $lo%s o$ a pro@ect and calculate the discount
$actor that %ould produce a N2K o$ zero
"n&+nal Ra& * R&+n ?ROECT 1
#? 24D
ear Cash 8lo% 8actor N2K
''' '''
' =&+'> & =&+'.''>
& (' '.0 /&.(0
+' '.)' /&
/ )' '.(00 *.0
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( ' './0( ).00
+ &'' './'/ /'./
-&.')
"n&+nal Ra& * R&+n ?ROECT 2
#? 21D.
ear Cash 8lo% 8actor N2K
''' '''
' =&'''> & =&'''.''>
& +'' '.0) (&/
('' '.)0/ /.
/ /'' '.+)( &)*.
( '' '.()) */.
+ &'' './0+ /0.+
-&.*
?ROECT 1#? 18D,
ear Cash 8lo% 8actor N2K
''' '''
' =&+'> & =&+'.''>
& (' '.0( //.00
+' '.&0 /+.*
/ )' '.)'0 /).(0
( ' '.+&+ /).'0
+ &'' '.(/ (/.
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/).'(
?ROECT 2
#? 18D,
ear Cash 8lo% 8actor N2K
''' '''
' =&'''> & =&'''.''>
& +'' '.0( (/.+
('' '.&0 0.
/ /'' '.)'0 &0.(
( '' '.+&+ &'/
+ &'' '.(/ (/.
/*.0
To determine the internal rate o$ return $or each pro@ect %e can apply the $ormula
aa 5=->
: the lo%er rate o$ interest used
: the higher rate o$ interest used
a : the di$$erence "et%een the present values o$ the out$lo% and the
!n$lo%s at W
" : the di$$erence "et%een the present values o$ the out$lo% and the !n$lo%s at W.
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?ROECT 1 "RR,
18D = 36040
6/37100 36040 = 5.82
24D = 1060
?ROECT 2 "RR,
18D = 39800
3/ 5270039800 = 2.26
21D = 12900
Ghile analyzing the !RR pro@ect one is greater than the pro@ect t%o so "ased on the
!RR pro@ect one is accepta"le
?+*ia>iliy ind&x
2ro$ita"ility inde5 is an investment appraisal techni#ue calculated "y dividing the
present value o$ $uture cash $lo%s o$ a pro@ect "y the initial investment re#uired $or
the pro@ect.
3ooking at the situation o$ divisi"le, independent pro@ects %e%ould need to consider the highest pro$ita"ility inde5. ere the highest
pro$ita"ility inde5 is pro@ect one. !t is greater than the pro@ect t%o.
?+B&' 1 2
2K-!n$lo%s /*.)) &//.+
!nitial investment &+' &'''
: 1.59 1.24
R&*&+&n'&s,
accoti#e/laie(.commaa#erialcaitalb(#eti#aybac"erio(
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