SEMESTER FALL 2021

BUSINESS FINANCE (ACC501)

ASSIGNMENT
DUE DATE: 21 FEBRUARY, 2022
MARKS: 20
Learning Objectives:

After attempting this assignment you will be able to:

 Understand the different capital budgeting techniques.
 Calculate projected net cash flows by considering the effect of depreciation and
taxes.
 Evaluate any proposed project by using different capital budgeting techniques.
 Derive inferences after critical analysis regarding the acceptance/rejections of the
project.

The Case:
Mr. Ali wants to establish a business of manufacturing plastic PVC pipes. He estimates a
start-up cost of business with machinery of worth Rs. 20 million. He further projects that
the revenue (before tax and depreciation) from the business will be Rs. 5 million for the first
year and it will keep on growing at a rate of 5% annually up to year 6.
Some other information regarding the project is as follows:
 The machinery is fully depreciated under the straight line method till the end of year
6.
 Cost of capital is 10% while the tax rate is 30%.
 As per an estimate, the machinery dismantling and the site restoration would require
an outlay of Rs. 2 million; while the machinery would not be able to fetch any sale
price.
Being a financial consultant of Mr. Ali, you have to conduct a feasibility analysis for his
project. You have to suggest Mr. Ali about the viability of the project after performing
different Capital Budgeting techniques.

Requirement:
Keeping your task into consideration, provide answers to the following:
1. Calculate projected net cash flows for 6 years. (10 Marks)

2. Evaluate the project by using the following capital budgeting techniques:

a. Net Present Value (5 Marks)

b. Profitability Index (3 Marks)

3. Would you recommend Mr. Ali to start his business based upon your analysis?
(02 Marks)

Special Note: Complete calculations are required for Part (1) and Part (2). Incomplete
calculations will result in loss of marks.

IMPORTANT:
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 mentioned due dates should always be treated as final
to avoid any inconvenience.
OTHER IMPORTANT INSTRUCTIONS:
DEADLINE:
 Make sure to upload the solution file before the due date on VULMS.
 Any submission made via email after the due date will not be accepted.

FORMATTING GUIDELINES:
 Use the font style “Times New Roman” or “Arial” and font size “12”.
  It is advised to compose your document in MS-Word format.
 You may also compose your assignment in Open Office format.
 Use black and blue font colors only.

RULES FOR MARKING

Please note that your assignment will not be graded or graded as Zero (0), if:
 It is submitted after the due date.
 The file you uploaded does not open or is corrupt.
 It is in any format other than MS-Word or Open Office; e.g. Excel,
PowerPoint, PDF etc.
 It is cheated or copied from other students, internet, books, journals etc.

Note related to load shedding: Please be proactive

Dear students!
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 post your activities
as early as possible without waiting for the due date. For your
convenience; activity schedule has already been uploaded on
VULMS for the current semester, therefore no excuse will be
entertained after due date of assignments, quizzes or GDBs.