ACC 501 Assignment No 1 Solution Fall 2019
SEMESTER FALL 2019
BUSINESS FINANCE (ACC501)
ASSIGNMENT NO. 01
DUE DATE: JANUARY 27, 2020
After attempting this assignment, the students will be able to:
Evaluate any proposed project by using different capital budgeting techniques.
Understand the difference between NPV and IRR.
Derive inferences regarding the acceptance/rejections of the project.
Alfa Corporation has identified the following two mutually exclusive projects. The CFO of
the company wants to evaluate the identified projects. For this purpose he asked Mr. Naveed
to evaluate those projects and establish their feasibility with the help of different capital
budgeting techniques. Following are the details of the two mutually exclusive projects.
Period Project A
0 -42,000 -42,000
1 25,000 15,000
2 21,000 17,000
3 15,000 23,000
4 11,000 27,000
As per the company policy, Mr. Naveed decided to evaluate both projects with the help of
IRR and NPV techniques of capital budgeting.
I. What is the IRR for each of these projects? Which project company should accept
according to IRR rule? (13 Marks)
II. What is the NPV for each of these projects? If the required rate of return is 12
percent. Which project company should accept according to NPV rule? (5 Marks)
III. If the decision on the basis of NPV is different than that of IRR, which particular
criteria company should prefer and why? (2 Marks)
Complete calculations are required for every part of the problem. Incomplete
calculations will result in loss of marks.
Discount factors and resulting figures should not be rounded up more than four
24 hours extra / grace period after the due date is usually available to overcome uploading
difficulties. This extra time should only be used to meet the emergencies and above
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RULES FOR MARKING
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As you know that Post Mid-Term semester activities have started and load shedding
problem is also prevailing in our country. Keeping in view the fact, you all are advised to
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convenience; activity schedule has already been uploaded on VULMS for the current
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