NMIMS Global Access

School for Continuing Education (NGA-SCE)

Course: Corporate Finance

Internal Assignment Applicable for June 2023 Examination

1.Ans

To compute the NPV (Net Present Value) and IRR (Internal Rate of Return) for the given
project, we need to discount the cash inflows using the discount rate. Here's the calculation:
Initial Cost: -30,000
Cash Inflows:
Year 1: 14,000
Year 2: 8,200
Year 3: 12,000
Year 4: 15,000
Year 5: 22,000
Discount Rate: 10%
Step 1: Calculate the present value of each cash inflow:
PV1 = 14,000 / (1 + 0.10)^1 = 12,727.27
PV2 = 8,200 / (1 + 0.10)^2 = 6,446.28
PV3 = 12,000 / (1 + 0.10)^3 = 8,779.50
PV4 = 15,000 / (1 + 0.10)^4 = 10,826.45
PV5 = 22,000 / (1 + 0.10)^5 = 15,186.64
Step 2: Calculate the NPV by summing the present values of the cash inflows and subtracting
the initial cost:
NPV = PV1 + PV2 + PV3 + PV4 + PV5 - Initial Cost
= 12,727.27 + 6,446.28 + 8,779.50 + 10,826.45 + 15,186.64 - 30,000
= 24,965.14 - 30,000
= -5,034.86
Step 3: Calculate the IRR using trial and error or a financial calculator. The IRR is the discount
rate that makes the NPV equal to zero. In this case, the IRR is approximately 15.94%.
To determine the value of NPV at IRR as the discount factor, we calculate the NPV using the
IRR as the discount rate:
NPV at IRR = PV1 + PV2 + PV3 + PV4 + PV5 - Initial Cost
= 12,727.27 + 6,446.28 + 8,779.50 + 10,826.45 + 15,186.64 - 30,000
= 24,965.14 - 30,000
= -5,034.86
Based on the calculations, the NPV is negative (-5,034.86), indicating that the project is not
expected to generate positive value after considering the initial cost and discounting the cash
inflows. Therefore, the project should not be considered.

2. ans

To calculate the Cash Cycle, we need to determine the time it takes for cash to cycle through the
various stages of the business's operating cycle. The formula for calculating the Cash Cycle is:

Cash Cycle = Inventory Conversion Period + Receivables Collection Period - Payables Deferral
Period

1. Inventory Conversion Period:

Inventory Conversion Period = (Average Inventory / Cost of Goods Sold) * 360

Average Inventory = (Opening Inventory + Closing Inventory) / 2

Cost of Goods Sold = Manufacturing Costs + Excise Duty

Opening Inventory = Raw Material + WIP + Finished Goods

Closing Inventory = Raw Material + WIP + Finished Goods

2. Receivables Collection Period:

Receivables Collection Period = (Average Debtors / Total Sales) * 360

Average Debtors = (Opening Debtors + Closing Debtors) / 2

Opening Debtors = Debtors

Closing Debtors = Debtors

3. Payables Deferral Period:

Payables Deferral Period = (Average Creditors / Total Purchases) * 360
Average Creditors = (Opening Creditors + Closing Creditors) / 2

Opening Creditors = Creditors

Closing Creditors = Creditors

Let's calculate each component and then the Cash Cycle:

Opening Inventory = 4,00,000 + 80,000 + 6,00,000 = 10,80,000

Closing Inventory = 5,00,000 + 70,000 + 7,25,000 = 13,95,000

Average Inventory = (10,80,000 + 13,95,000) / 2 = 12,37,500

Cost of Goods Sold = 10,45,000 + 8,50,000 = 18,95,000

Inventory Conversion Period = (12,37,500 / 18,95,000) * 360 = 235.79 days (approx.)

Opening Debtors = 2,50,000

Closing Debtors = 3,15,000

Average Debtors = (2,50,000 + 3,15,000) / 2 = 2,82,500

Receivables Collection Period = (2,82,500 / 4,20,00,500) * 360 = 24.07 days (approx.)

Opening Creditors = 5,60,000

Closing Creditors = 6,25,000

Average Creditors = (5,60,000 + 6,25,000) / 2 = 5,92,500

Payables Deferral Period = (5,92,500 / 3,23,00,000) * 360 = 66.34 days (approx.)

Cash Cycle = 235.79 + 24.07 - 66.34 = 193.52 days (approx.)

Therefore, the Cash Cycle for the given information is approximately 193.52 days.