Question 2b: A company is considering the following investment projects:
ProjectsCash Flows (Rs.)CoC1C2C3A−10,000+ 10,000------B−10,000+ 7,500+ 7,500---C− 10,000+ 2,000+ 4,000+ 12,000D−10,000+ 10,000+ 3,000+ 3,000
I. according to each of the following methods: (1.) Payback, (2.) ARR, (3.) IRR, (4.) NPVassuming discount rates of 10 and 30 percent.II. Assuming the project is independent, which one should be accepted? If theprojects are mutually exclusive, which project is the best?Question 3a: “Firm should follow a policy of very high dividend pay-out"Takingexample of two organization comment on this statement"Question 3b: An investor gains nothing from bonus share “Critically analyse thestatement through some real life situation of recent past.
Brown Metals Ltd.
Brown Metals Ltd. is considering the replacement of its existing machine which isobsolete and unable to meet the rapidly rising demand for its product. The company isfaced with two alternatives:a) to buy machine A which is similar to the existing machine orb) To go in for machine B which is more expensiv e and has much greater capacity.The cash flows at the present level of operations under the two alternatives are asfollows:
Cash flow (Rs in lakhs) at the end of year Yrs.012345MachineA-25-5201414MachineB-401014161715
The Company's cost of capital is 10%. The Finance Manager tries to evaluate themachines by calculating the follow-ings for both the machines:1. Net Present Value2. Profitability Index3. Pay Back Period4. Discounted Payback Period.At the end of his calculations, howev er, the finance manager is unable to make up hismind as to which machine to recommend.