ACC 501

ASSIGNMENT 01
STUDENT ID: BC190406520

Requirement no.01
a) Calculate Payback Period dor each proposal.

Cash Flow ( Proposal A )

Year 1 500,000
Year 2 550,000
Year 3 650,000
Year 4 750,000
Total 245,0000

Remaining = 50,000
Payback period = Years + Remaining / Next Year
Cashflow = Payback period
= 4+ 50,000 / 1,250,000 = 4.04 Years

Cash Flow ( Proposal B )

Year 1 500,000
Year 2 550,000
Year 3 600,000
Total 1,650,000

Remaining = 350,000
Payback Period = Year + Remaining / Next Year
Cash Flow = Payback Period
= 3+350,000/750,000 = 3.47 Years

Requirement no.02
Calculate Net Present Value (NPV) for each proposal.

Net Present value for Proposal A

Initial Investment = 2,500,000
As we know that formula of NPV
Net Present value for Proposal A
Initial Investment = 2,500,000
As we know that formula of NPV
(𝐶𝐹)𝐶𝑎𝑠 𝐹𝑙𝑜𝑤
𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 +
1 + 𝑟 (𝑟𝑎𝑡𝑒 𝑜𝑓 𝑟𝑒𝑡𝑢𝑟𝑛)
𝑌
Calculations Now:
Given data: Rate of return is given 11%
Putting values in formula:
500,000 550,000 650,000 750,000
𝑁𝑃𝑉 = 2,500,000 +
(1 + 0.11)
1
+
(1 + 0.11)
2
+
(1 + 0.11)
3
+
(1 + 0.11)
4
NPV = 2,500,000+450,450 + 446,392 + 475,274+494,048 = 1866165
NPV = Total – Initial Investment
NPV = 1866165 - 2500000
NPV = -633,835
Calculations Now:
Given data: Rate of return is given 11%
Putting values in formula:
500,000 550,000 650,000 750,000
𝑁𝑃𝑉 = 2,500,000 +
(1 + 0.11)
1
+
(1 + 0.11)
2
+
(1 + 0.11)
3
+
(1 + 0.11)
4
NPV = 2,500,000+450,450 + 446,392 + 475,274+494,048 = 1866165
NPV = Total – Initial Investment
NPV = 1866165 - 2500000
NPV = -633,835
NPV for proposal A is negative

Requirement No. 03

Net Present value for Proposal B

Initial Investment = 2,000,000
As we know that formula of NPV
(𝐶𝐹)𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤
𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 +
1 + 𝑟 (𝑟𝑎𝑡𝑒 𝑜𝑓 𝑟𝑒𝑡𝑢𝑟𝑛)
𝑌
Calculations Now:
Given data: Rate of return is given 11%
Putting values in formula:
500,000 550,000 600,000 750,000
𝑁𝑃𝑉 = 2,000,000 +
(1 + 0.11)
1
+
(1 + 0.11)
2
+
(1 + 0.11)
3
+
(1 + 0.11)
4
NPV = 2,000,000+450450 + 446392 + 438715+494048 = 1829606
NPV = Total – Initial Investment
NPV = 1829606 - 2000000
NPV = -170394
NPV for proposal B is negative

Requirement No. 04
Based upon payback period and NPV calculated above, suggest which proposal
is more viable to select?
Payback period of both:
Proposal A = 4.04 years & Proposal B = 3.47 years
As we saw that proposal A is much higher than proposal B and its go above four years which
is not possible as compare to proposal b is less than 4 and will recovering fast before 4 years
and its possible on the basis of payback period.
Net Present value:
Proposal A = -633835 and proposal B is = -170394
In this case we saw that both of NPV is in negative and the investment should be accepted if
NPV result in positive.

5. Briefly discuss the suitability of IRR criteria while evaluating the mutually
exclusive projects.
In the case of mutually exclusive events IRR not help to make best decision the reason is
that it may be positive that if we are consider Proposal A and Proposal B. On the basis of IRR
we choose Proposal A has large NOV means it makes greats return so IRR not good in case
of mutually exclusive event. IRR ignore the size of investment.