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CORPORATE FINANCE ASSIGNMENT MBA-2 (FINANCE )

LONDON SCHOOL OF COMMERCE
UNIVERSITY OF WALES INSTITUTE CARDIFF STUDENT NAME – MOHAMMAD NOOR STUDENT ID –L0745GGMH0210 LECTURER –DR. Gerald Pollio

Corporate finance MBA 2, Mohammad Noor

L0745GGMH0210 1

Mohammad Noor .-2- Drive 4 Less.000 present value DCF@10% 0.746 Net present value(NEN ) Expected NPV of petrol option Expected NPV = = = = NPV (EN)* 40% + NPV (NEN)* 60% 1063*40% + 1746*60% 425.000 year 0 1 2 3 4 Cash flows( £) 6000 6000 6000 10.909 0.683 present value 5454 4956 4506 6147 21063 1.751 0.000 cash flows 6000 6000 6000 9000 present value Net present value(EN) DCF@10% 0.063 (2) Petrol option without subsidy enacted initial outlay (£) 20.60 1472.20+1047.909 0.80 L0745GGMH0210 2 Corporate finance MBA 2.826 0.751 0.UK (1) PATROL CAR OPTION Petrol option with subsidy Enacted year 0 1 2 3 4 Initial outlay 20.826 0.683 Present value 5454 4956 4506 6830 21746 1.

751 0.826 0.683 present value Net present value 14725 -10.683 Present value(£) 9090 8260 7510 10245 present value Net present value 35105 10.000 7. Mohammad Noor L0745GGMH0210 3 .000 10.000 15.105 (4) hybrid car subsidy not enacted Year 0 1 2 3 4 Present value £ 3636 3304 3004 4781 Initial outlay(£) 25.000 4.275) *60% 4042-6165 Corporate finance MBA 2.000 Cashflows(£) 4.909 0.000 DCF@10% 0.000 4.000 10.826 0.000 Cash flows(£) 10.105*40% +(-10.-3- HYBRID CAR OPTION (3) Hybrid car subsidy enacted Year 0 1 2 3 4 Intitial outlay(£) 25.000 DCF@10% 0.275 Expected NPV of hybrid option Expected NPV = = = NPV (EN)* 40% + NPV (NEN)* 60% 10.751 0.909 0.

Mohammad Noor L0745GGMH0210 4 . if subsidy is enacted the salvage value of the patrol car will go down. In the support of the evidence we can see that hybrid car NPV with subsidy enacted option generate a cash flow way higher than petrol car. In the petrol car option salvage value of the car after four years was not clearly defined for both subsidised and non subsidised option. Patrol car option generating positive NPV whether the subsidy introduced or not by the government. since lower cash flow coupled with low salvage value means the NPV will always be negative for non subsidised Hybrid car investment . But the expected NPV of hybrid car is lower than the expected NPV of petrol because if subsidy is not enacted Hybrid car option is very expensive because the initial outlay is higher for hybrid car at the same time the cash flow generated by is also lower means it gives an unfavourable NPV . Nevertheless. the assumption was made on a basis that. it is clear that petrol car option producing positive expected return of the investment which is £1472. As business will be more inclined to buy a product which is heavily subsidised so the amount £3000 was added to the value of fourth year cash flow of subsidy enacted patrol option and subsequently £4000 for without subsidy option for petrol car.80. It can be concluded that hybrid car investment is only viable drive4less UK if they have assurance that government is certainly introducing subsidy for hybrid cars other wise it would not be a well-judged investment. The company can only commit to Hybrid car option if the are 100% certain of the fact that government is introducing subsidy.-4= -2123 (3) DISCUSSION BASED on the analysis . Corporate finance MBA 2.thus expected NPV of hybrid cars.

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