Q1(a)

Po = D/(r – g)
Dividend = D = Rs.5
Required Rate of Return = 12%
Growth Rate = g = 0%
Po = 5/(12% – 0)
Po = 5/0.12
Po = Rs. 41.64
Q1(b)
Po = D/(r – g)
Dividend = D = Rs.5
Required Rate of Return = 12%
Growth Rate = g = 6%
Po = 5/(12% – 6%)
Po = 5/0.06
Po = Rs. 83.33
Q1(c)
Po = [D1/(1+R)] + [D2/(1 + R)^2] + [D3/(1 + R)^3] +[D4/(1 + R)^4] + [P5/(1 + R)^5]
Do = 5
D1 = 5(1.08) = 5.4
D2 = 5.4(1.08) = 5.83
D3 = 5.83(1.08) = 6.30
D4 = 6.30(1.08) = 6.8
D5 = 6.8(1.08) = 7.34
P5 = D5(1 + G)/(R – G)
P5= 7.34(1+0.06)/(12% - 6%)
P5 = 7.34(1.06)/(0.06)
P5 = 7.78/0.06
P5 = 129.67
Po = [5.4/(1+0.12)] + [5.83/(1+0.12)^2] + [6.30/(1+0.12)^3] + [6.80/(1+0.12)^4] +
[7.34/(1+0.12)^5] + P5/(1+0.12)^5
Po = [5.4/1.12] + [5.83/1.2544] + [6.30/1.4049] + [6.80/1.5734]+ [7.34/1.7623] +
[129.67/1.7623]
Po = 4.82 + 4.65 + 4.48 + 4.32 + 4.17 + 73.58
Po = 96.02
Q2
NPV = CF1/(1 + i) + CF2/(1 + i)^2 + CF3/(1 + i)^3 + CF4/(1 + i)^4 - Initial Investment
NPV for Project A:
NPV = 60000/(1+0.15) + 35000/(1+0.15)^2 + 38000/(1+0.15)^3 + 17000/(1+0.15)^4 –
100000
NPV = 60000/1.15 + 35000/1.3225 + 38000/1.5208 + 17000/1.7490 – 100000
NPV = 52173.91 + 26465.03 + 24986.85 + 9719.84 – 100000
NPV = 113345.63 – 100000
NPV = 13345.63
NPV for Project B:
NPV = 50000/(1+0.15) + 40000/(1+0.15)^2 + 35000/(1+0.15)^3 + 25000/(1+0.15)^4 –
100000
NPV = 50000/1.15 + 40000/1.3225 + 35000/1.5208 + 25000/1.7490 – 100000
NPV = 43478.26 + 30245.75 + 23014.20 + 14293.88 – 100000
NPV = 111032.09 – 100000
NPV = 11032.09
Project A is more appropriate as its NPV is higher than Project B.