8/2/2019 FMT - Quiz 2 Syllabus
1/41
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
8/2/2019 FMT - Quiz 2 Syllabus
2/41
8/2/2019 FMT - Quiz 2 Syllabus
3/41
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
8/2/2019 FMT - Quiz 2 Syllabus
4/41
8/2/2019 FMT - Quiz 2 Syllabus
5/41
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
8/2/2019 FMT - Quiz 2 Syllabus
6/41
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
8/2/2019 FMT - Quiz 2 Syllabus
7/41
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
8/2/2019 FMT - Quiz 2 Syllabus
8/41
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
8/2/2019 FMT - Quiz 2 Syllabus
9/41
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
8/2/2019 FMT - Quiz 2 Syllabus
10/41
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
8/2/2019 FMT - Quiz 2 Syllabus
11/41
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
8/2/2019 FMT - Quiz 2 Syllabus
12/41
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
8/2/2019 FMT - Quiz 2 Syllabus
13/41
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
8/2/2019 FMT - Quiz 2 Syllabus
14/41
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
8/2/2019 FMT - Quiz 2 Syllabus
15/41
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
8/2/2019 FMT - Quiz 2 Syllabus
16/41
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
8/2/2019 FMT - Quiz 2 Syllabus
17/41
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
8/2/2019 FMT - Quiz 2 Syllabus
18/41
8/2/2019 FMT - Quiz 2 Syllabus
19/41
roject
8/2/2019 FMT - Quiz 2 Syllabus
20/41
8/2/2019 FMT - Quiz 2 Syllabus
21/41
8/2/2019 FMT - Quiz 2 Syllabus
22/41
8/2/2019 FMT - Quiz 2 Syllabus
23/41
ING IN QUIZ
8/2/2019 FMT - Quiz 2 Syllabus
24/41
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
pmt Rs. 17,078.40post tax lease rental Rs. 19,254.86
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
8/2/2019 FMT - Quiz 2 Syllabus
25/41
pmt Rs. 18,227.46post tax lease rental Rs. 20,379.11
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
8/2/2019 FMT - Quiz 2 Syllabus
26/41
8/2/2019 FMT - Quiz 2 Syllabus
27/41
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
8/2/2019 FMT - Quiz 2 Syllabus
28/41
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
8/2/2019 FMT - Quiz 2 Syllabus
29/41
8/2/2019 FMT - Quiz 2 Syllabus
30/41
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
8/2/2019 FMT - Quiz 2 Syllabus
31/41
8/2/2019 FMT - Quiz 2 Syllabus
32/41
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
8/2/2019 FMT - Quiz 2 Syllabus
33/41
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)]%
8/2/2019 FMT - Quiz 2 Syllabus
34/41
32000
pv company
Rs. 8,966.34DEPRECIATION TAX SHIELD NET CASH OUTFLOW
4500 Rs. 4,500.00 Rs. 4,466.344500 Rs. 4,367.02 Rs. 4,599.324500 Rs. 4,214.09 Rs. 4,752.254500 Rs. 4,038.22 Rs. 4,928.124500 Rs. 3,835.98 Rs. 5,130.36
4500 Rs. 3,603.39 Rs. 5,362.954500 Rs. 3,335.92 Rs. 5,630.424500 Rs. 3,028.33 Rs. 5,938.014500 Rs. 2,674.60 Rs. 6,291.744500 Rs. 2,267.81 Rs. 6,698.53
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.
8/2/2019 FMT - Quiz 2 Syllabus
35/41
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
8/2/2019 FMT - Quiz 2 Syllabus
36/41
52000
of 52000 and 70% of x)
8/2/2019 FMT - Quiz 2 Syllabus
37/41
Rs. 18,744.40INTEREST
Rs. 10,000.00Rs. 9,125.56Rs. 8,163.68Rs. 7,105.60Rs. 5,941.72
HEDULE
8/2/2019 FMT - Quiz 2 Syllabus
38/41
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. 19,185.27INTEREST
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
8/2/2019 FMT - Quiz 2 Syllabus
39/41
Rs. 10,670.13Rs. -10,497.46Rs. 55,922.10
Rs. 221,927.79INTEREST
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
8/2/2019 FMT - Quiz 2 Syllabus
40/41
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
8/2/2019 FMT - Quiz 2 Syllabus
41/41
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
Top Related