MGT201 - Financial Management Assignment No. 1 Fall 2014 Deadline Nov 26,2014

[Entboy]

MGT201 - Financial Management Assignment No. 1 Solution and Discussion Fall 2014 Due Date: 26TH NOVEMBER, 2014

Suppose; the top management of a famous hotel chain is planning to construct a new hotel
on Murree Express Way adjoining Muree. This project requires an initial investment of Rs.
30,125,700; while the proposed income from this project is Rs. 8,400,000, Rs. 8,400,500,
Rs. 8,500,000 and Rs. 8,65,4000 annually for next four years. The required rate of return for
this project is 19%. The company hires you as its financial analyst and requires you to do
the following:
1. Evaluate the project feasibility through using Net Present Value technique. (4 marks)
2. Evaluate the project feasibility through applying Profitability Index (PI) technique. (4
marks)
3. Based on both calculations, interpret and suggest whether the XYZ Construction
Company should invest in this project? (2 marks)

[Vuhelper]

I worked out for the questions given in the assignment, sharing here the idea and solution... please point out the mistakes (if any)...
My NPV is -Rs. 7775225.115
My profitability index is 0.742
The suggestion to the company is not to invest in the project as npv is negative and profitability index is less than 0.
Please share your ideas too....

[Vuhelper]

MGT201 - Financial Management Assignment No. 1

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[viki]

NPV = -Io + CF1/(1+i) + CF2/(1+i)power2 + CF3/(1+i)power3..........
or
NPV = PV - cost
will invest if npv value +ve.
PI = PV/ cost
will invest if pi value >1