[a] WACC=We x ke+kdt

d1
Ke = ¿ ¿ +g
p0

2.14
= 23 ¿ +0.07
¿

= 0.09304+0.07
=0.16304
=16.30%
Kat = kd (1-t)

= 0.095(1-0.35)

= 0.06175

= 6.175%

WACC=0.4x16.30%+0.6x6.175%

= 6.52+3.705

=10.225%

(B)
Year Project A Cumulative Project B Cumulative

0 (25,00,000) (25,00,000) (25,00,000) (25,00,000)

1 700,000 (18,00,000) 600,000 (1,900,000)

2 700,000 (11,00,000) 800,000 (1,100,000)

3 700,000 (400,000) 900,000 (200,000)

4 700,000 300,000 400,000 200,000

5 700,000 10,00,000 300,000 500,000

¿
PBP=minimum year +amount ¿ recovered next year cf

(project A)
400,000
PBP = 3 + 700,000

PBP = 3+0.5714

PBP = 3.5 year

(project B)
200,000
PBP= 3 + 400,000

PBP = 3 + 0.5

PBP = 3.5 year

©
Average earning after tax
ARR = Average invesment

Project A
7,06,000
ARR = 12,50,000

= 0.56

= 56 %

“wn”
initial invesment +salvage value
Average investment = 2

25,00,000+ 0
= 2
= 12,50,000

Project B
average EAT
ARR = average investment

600,000
= 12,50,000

= 0.48

= 48%

“WN”
600,000+800,000+900,000+ 400,000+300,000
Average EAT = 5

3,000,000
= 5

= 600,000

(d)

YEAR PROJECT A N@10.225% PROJECT B N@10.225%

0 (25,00,000) (25,00,000) (25,00,000) (25,00,000)

1 700,000 635,064.64 600,000 544,341.12

2 700,000 576,153.00 800,000 658,460.57

3 700,000 522,706.28 900,000 672,050.93

4 700,000 474,217.54 400,000 270,981.93

5 700,000 430,226.84 300,000 184,382.93

NPV= 138,368.3 NPV= (169,783)

NPV (project A) =138,368.3

NPV ( project A) = ( 169,783)

(e)

year Project A Project B

0 (25,00,000) (25,00,000)
1 700,000 600,000

2 700,000 800,000

3 700,000 900,000

4 700,000 400,000

5 700,000 300,000

Project A
initial cost outlay
Step 1 fabe factor = avg . annual cf

25,00,000
= 700,000

= 3.5714

Step 2 In PVIFA table 3.5714 lies in between 12% to 14%

Step 3

N Cf(project A) cf@12% cf@14%

0 (25,00,000) (25,00,000) (25,00,000)

1 700,000 625,030 614,040

2 700,000 558,040 538,650

3 700,000 498,260 472,500

4 700,000 444,850 414,470

5 700,000 397,180 363,580

23,360 (96,760)

NPV12% = 23,360

NPV14% = (96,760)

Step 4 By interpretation
NPV ❑lr
¿
IRR = LR NP V lr + NP V HR
¿ (HR –LR)
¿

23,360
IRR = 12 + 23,360+96760 (14-12)

IRR = 12 + 0.3889

IRR = 12.3889
Project B
initial cash outlay
Step 1 fabe factor = avg . annual cf

25,00,000
= 600,000

= 4.1667

Step 2 In PVIFA table 4.1667 lies in between 6% to 8%

STEP 3

N CF(project B) Cf @ 6% Cf @ 8%

0 (25,00,000) (25,00,000) (25,00,000)

1 600,000 566,040 555,540

2 800,000 712,000 685,840

3 900,000 755,640 714,420

4 400,000 316,840 294,000

5 300,000 224,190 204,180

 74,710 (46,020)

NPV6% = 74,710

NPV8% = (46,020)

Step 4 interpulation
NP V LR
¿
IRR = LR + NP V LR + NP V HR
¿ (HR-LR)
¿

74,710
IRR = 6 + 74,710+ 46,020 (8-6)

IRR = 6 + 1.2376

IRR = 7.2376%

Both venture An and venture B have equivalent time of

restitution period where in different cases venture A has
minimal preferable % over undertaking B. In the wake of
finishing both venture I will lean toward venture An on
the grounds that the result of task A will be more
fulfilling than venture B In all the cases of project a and b