ain o. Te ing The ew lue pty 48 (77 e r t t 2019 (NOV-DEC) NAME of the Paper ;- Fundamentals of Financial me of the Course : ; 5 Duration: 3 hours = Com. (Hons, Maximum marks: Attempt all questions. All questions carry equal marks. c Use of Simple Calculator is Allowed. F +X a) How can you incor isk i ing decisions? b) ‘orporate risk in capital budgeting ar A company is considering computerization offs inventory and billing Pree 3 2 Cost of %2,00,000. Installation charges are 750,000. These outlays will be depreciatet Of ite Tac ehtsline basis to zero book value which will also be its salvage value at the end sans life Of 5 years. The new syatem will require two computer specialists with annual Of Td nee 40,000 per person. It is also estimated that annual maintenance expenses aa 2,000 will have to be incurred. The new system will lead to reduced production er ey hus saving %20,000 annually. It will also help to avoid stock out cost of %25,000 Pie at: Timely billing veil increane inflow by €6,000 per year. Six clerical employees, is 3004 wnat salaries of £20,000 each, will also become redundant. The company’s tax rate Whaand required rate of return is 12%, Evaluate the project. dept Will be your decision if salvage value is taken as £30,000 for purpose of calculating erreclation, even though the machine will be worthless in terme of resale value after § Management years? 11 Ans, (2) See Q. 14, Chapter 2, [Page 25 (6) See Q. 3, Unit II. . [Page 70 or (@) Critically evaluate the payback method for evaluation of long-term projects, 4 (b) Able Electronics is considering a proposal to replace a machine which was bought three years ago for %10,00,000, It has a remaining life of 5 years after which it will have no salvage value. But if it is sold now, it will realize %6,00,000. Its maintenance cost is expected to increase by %50,000 p.a. from the sixth year of its installation. A new, more efficient machine is available for %15,00,000. This machine can be sold for %6,00,000 after completing its life of 5 years. This new machine will lead to increased productivity, thereby increasing the revenue by €1,50,000 p.a. It will also reduce operating expenses by 21,00,000 p.a. The company’s tax rate is 50% and cost of capital is 10%. It uses straight line method of depreciation. Advise the company about the replacement. What will be your decision if the expected salvage value of the new machine is 1 2,00,000? Ans. (a) See Q. 5, Chapter 2. ieee a . age (6) SeeQ. 9, one i understand by Agency problem? How canit be resolved? 4 Q.2. (a) the income statements from the given financial data for Company A Ory B for the year ended 31" March 2019. Also comment on their a and Compa! 1 position. Particulars Company A | Company B artic 67 75 Variable expenses 25% of Sales 2,00,00 2400.00 i 6 Interest (in ®) 5 ree of Operating Leverage 3 4 Degree of Financial Leverage 035 0.35 — TPage 10 ite a eee O 18 Chapter 1 [Page 136 see Q. 10, Unit HE: 2 vas| La shiv Das DELHT UNIVERSITY SERIES . rupee of today is not equal to a rupee of tomorrow.” Explain. 4 Tage the overall cost of capital of Sushant Ltd. from the information given 1s and market value weights: rtf ‘book value weigh! market value YT we@ | __ Market Value @) _ sof #10 each ; rt Va 15 Preference Shares of 2100 each | 100,000 | ore Redeemable at paral 10 years) | ‘yt Debentures of £100 each | 250,000 vasoo0 foecne atpar after 10 years) nas 7 year the company paid 2 Givided of €2.20 per share. It is expected to declare 2 divide of 02.42 per share. the company has been maintaining the growth rate in aiideads over the years and is expected to do so in future. Tax rate is 40%. “ans, (a) See Q: 17, Chapter 1 a (Page 123 4 (0) See Q. 17, Unit IL Q.3.(a) Discus (b) From the othe different approaches of financing of fallowing information estimated by Swas working capital. tik Ltd, for the next year, calenlate the working capital required on cash cost basis: — Particulars [ Amount (2) Sales (at gross profit of 20%) 27,0,000 Raw Materials 6,75,000 Wages 5,40,000 Manufacturing Expenses outstanding atthe end of the year | 60,000 Total Administrative Expenses 4,80,000 Total Seng Expenses 90,000 Desired cash Balance 1,00,000 Finished goods and raw material are kept in stocl company gives a credit of 2 months to its customers an suppliers. Wages are paid with a time lag of 15 days. All ot time lag of 1 month. There is no work in progress. The col its cost of production, Finished goods are valued at manu! of 15% is to be maintained. Ans, (a) See Q. 1, Chapter 5. (1) See Q. 15, Unit V. Or, (a) What are the different motives of holding cash? . a ‘A company manufactures 1,00,000 units of a product which is purchased at %60 per kg, It incurs a handling cost ‘Kto meet 1 month's requirement, The d gets a credit of 2 months from its cher expenses are paid with a mpany includes depreciation in facturing cost. A safety margin 11 [Page 50 [Page 196 4 annually from a raw material t of £200 and freight of %550 per order, The inventory carrying cost of the raw material is 80.75 per kg per month. In id diiti e pee =a of working capital finance on the investment in inventory is %6 per kg per - . One kg of the material can produce 2.5 units of the product, Calculate: (i) Economie Order Quantity (ii) Frequency of Ordering (iii) If the e ) If the company wants to place orders on quartely basis, disco scount on the price of raw material should be negotiated? Ans. (a) See Q. 9, Chay 1, Chapter 5, ) SeeQ.31, Univ. Q4.(@) Wi is wa “M bee are the different approaches to calculation of cost o! pany needs to raise %10,00,000 for a new project which what percentage of 1 [Page 54 [Page 209 f equity? 4 is expected to yieldFINANCIAL win eoree ss consideri ibility of issuing equi It is considering a possi B Equity shares 71,60,000. Iti ‘as an option of raising a debt of %1,00,000, ¥4,09, ie "8 | 000 of of an annual EBIT of my h f debt. It os. with some amount O° Or the company at the rates indicated below: 26,00,000. Debt is avai venee Upto %1,00,000 > 8% Over 21,00,000 and Upto %5,00,000 12% Over 85,00,000 2 18% fits equity share is £25 which is expected to drop to 220 if fung, f 25,00,000. Tax rate for the company is 50%. Suggest the begp financial break even point for all the three options n [Page 27 Current market price o! borrowed in excess 0 financing alternative. Also calculat ‘Ans. (a) See Q. 2, Chapter 3. i See Q 16, Unit III: 2. age 141 Ge (a) What behavioral justification is given by the MM approach to prove their hypothesis about the capital structure decision? ‘ (b) Company X and Company Y are in the same risk class and identical in all respects except that Y uses debt of €2,00,000 carrying an interest of 12%, whereas X is an all equity firm. Both companies earn a return of 20% on their assets of %4,50,000. (i) Calculate the value of both the companies and their overall cost of capital under the net income approach taking cost of equity as 15%. (ii) Calculate value of both the companies and equity capitalization rate using NOI, approach taking overall cost of capitals as 15%. (ii) Compare the results and comment on the differences. n Ans. (a) See Q. 31, Chapter 3. [Page 42 (&) See Q. 28, Unit III: 2. [Page 152 4 Q.5. (a) ‘What do you mean by informational content of dividend? (b) The following information for the current year about XYZ Ltd. is available to you: Famings of the Firm 18,00,000 No.of equity shares 3,00,000 Amount of dividend paid 9,00,000 Return on Investment — 225% Cost of Equity Ee {}) Calculate the present price of the share and value of the firm using Walter's Model- (id) Is this ; is the a optimum payout ratio? If not, what is the optimum payout ratio? What | (i) What is the of the firm at this payout ratio? | Payout ratio at which value of the firm will be lowest? hould by i 35? li () When will th, e the Payout ratio if the firm wants to keep its share price at 358? a i | [Pages | iscuss the determi [Page y International belonee sot the dividend poli any. , 2 dividend ot a enily han eee risk class: forwhichthe appropnte capitalizate and an inc Ber share at hone Tuy shares of 880 each. It is thinking of deci" sumptions eet PPOPOSal requiring. re eae: It is expecting a net income 0! SM Hess of new eho" Of dividend dean nvestment of 215 lakh. Show that under re es, 08 not affect the value of the firm now and af "yy Ans rage’? su) Sees (P)SeeQ 29) Unig pePter 4 5 rage a Qoann2020 (NOV-DEC) Fundamentals of Financial Management Name of the Paper : aa Name of the Course : B.Com. ( eee tion: 3 hours : ue Attempt any four questions. All questions carry equal marks. i d with solution of three major inancial Management is concerned | olt e 1 fees sa estment decision, the financing decision and ie dividend decision.” Explain the statement highlighting the inter-relationship among: these decisions. , ‘Also advise Mr. X that if he borrows from Bank an amount of €%12,00,000 i de in six equal annual @ 10% p.a. on 1-4-2020, The repayment is to be ma instalments starting from three years from now. What would be the amount of each instalment? ‘Ans, Part I: See Q. 11, Chapter 1. [Page7 Part Il: Given, Loan amount = %12,00,000 and Rate of interest = 10% p.a. Total amount after 3 years, A= P(1 + R)§= %12,00,000(1 + 0.1)? = €12,00,000 x €1.21 = €14,52,000 +. Amount per instalment = Tofal amount + PVAF aoy,¢) = €14,52,000 + 4.355 = 23,33,410 (approx.) Q.2. XYZ Ltd. is considering the proposal of buying one of the two machines to manufacture a new product. Each of these machines requires an investment of 250,000 and is expected to provide benefits over a period of 4 years. After the expiry of the useful life of the machine, the seller of both the machines has guaranteed to buy back the machine at 25,000. The management of the company uses CE Approach to evaluate risky investment. The company’s risk adjusted discount rate is 16% and the risk free rate is 10%, The expected values of the net cash flow (CFAT) with their respective CE are: Proposal A Proposal B Year CFAT CE CFAT CE i 30,000 08 18,000 09 z 30,000 7 36,000 08 7 30,000 06 24,000 7 2 30,000 08 32,0001 oa _painich machine, if either, should be purchased by the company? Is Certainty Equivalent Approach theoretically superior to the Risk Adjusted Discount Sol Statement. showing Net Present Value of Machine A a Cash Flow @) [CET Adjusted cash flow @) PVF 6%,4y | PV of Cash Flow @) : Bd 08 24,000 0.862 20,688 3 Soo : 21,000 0.743 15,603 yi 30000 6 18,000 0.641 11,538 X Os 15,000 0.552 8,280 26 56,109 oN let Present Value = Py of Cash Inflow ~ PV of Cash Outflow = 856,109 - 750,000 = 6,109 H-16FINANCIAL MANAGEMENT —2020(NOV-DEC) ® H-17 Statement showing Net Present Value of Machine B _Year | Cash inflow @) | CE | Adjusted cash inflow 2) | PVFirex.ay | PV of cash 1 48,000 os | 16,200 [0862 1 2 36,000 08 28,800 07430 | 21,398 3 | 24000 07 16,800 | oeer | 40,769 4 | 32000 04 12,800 | osse | 7.066 | [28 | | 5317 . NPV = PV of Cash Inflow - PV of Cash Outflow = 253,197 - 750,000 = 23,197 Decision. Since NPV of Machine A is higher, therefore Machine A should be accpeted. Certainty Equivalent (CE) co-efficient of Machine A (2.6) is lower than Machine B (2.8). This means Machine A is riskier than Machine B as “higher risk of Cash flow” the lower will be the CE factor. If Risk Adjusted Discounting Rate (RADR) method is used Machine A would be analysed with a higher rate. Q. 3. Give a critical appraisal of Modigliani and Miller Approach to the theory of capital structure. The two companies U and L belong to the same risk class. They have everything in common except that firm L has 12% debentures of 710,00,000. The following information about the two firms is available to you: Particulars Firm U Firm L ‘Net Operating Income (EBIT) 4,00,000 | %4,00,000 12% Debentures = 210,00,000 Equity Capitalisation Rate (K.) | 0.15 [ 0.46 Calculate the value of two firms and explain how under Modigliani-Miller approach an investor who owns 10% equity shares of the overvalued firm will be better off switching his holdings to the other firm. Also explain when arbitrage process will come to an end. Sol. See Q. 28 and 29, Chapter 3. [Page 41 Details Firm U@ Firm L@) EBT 400,000 4,00,000 Less: Interest on Debentures (€10,00,000 x 12/100) = (1,20,000) EAS 700000 | 60,000 K, (Cost of Equity) 015 | 0.46 Market Value of Equity f& 76.86 666 47,50,000 Market Value of Debentures (0) a 5 Value of firm (E + D) 26,66,666 27,50,000 Hence overvalued firm is Firm L and investor with 10% of Firm L (%2,75,000) will be better of switching his holding to Firm U. Benefits of switching from Firm L to Firm U Details ‘Amount @) Investor sels of 10% Equity ofthe holdin _ ‘a etal 10% Ey idings in Firm Land gets (10% of €17,50,000) 475.000 (equal to his shar in debt of Firm Lie, 10% of 810,00,000) 4,00,000 Total amount available for investment in Firm U Less: Invests 10% in Equity of Firm U (10% of 226,66,666) Capital Fund saved 2,75,0001-18 @ Shiv Das DELHI UNIVERSITY SERIES Analysis of Income of Investor _ ~~ Details Firm L @) Firm U®) ~~ Dwvidend”, | 28,000 40,000 Less: Interest on Loanz = Earnings 000 over from Firm L to Firm U is able to maintain his income at %28,000 while still having additional capital fund of 78,334 with the investor. The arbitrage process will come to an end when the market value st levered and unlevered firm are equal and no investor can gain by the process ee : The investor after switching of arbitrage. Working Notes: as ; Fini Firm U Dividend (€1.75,000 x 16/100) = €28,000 (€2,66,666 x 15/100) = %40,000 1 Interest on loan = €1,00,000 * a = 212,000 ‘Q. 4. How is the cost of capital relevant in capital budgeting decisions? Also discuss the factors affecting cost of capital. ‘A company has the following capital structure: | Particulars Book Value (®2)_| Market Value (2) | Equity Capital (30,000 shares of €10 each) 3,00,000 4,80,000 Preference Capital 60,000 70,000 (600 shares of 8100 each carrying 12% dividend) Reserves and Surplus 150,000 = Debentures 2,00,000 190,00 (2000 debentures of 8100 each carving 12% interest) ail 710,000 7,40,000 The expected dividend per share is 71.50 and the divi ividend per share i expected to grow at arate of 8 per cent forever. Preference shares are redeemable after 5 years at par whereas debentures are redeemable after 6 years at ° tax rate for the company is 50 per cent. aa a | You are required to compute the weighted i | ieee ele ne ighted average cost of capital (WACC) Ans. The cost of capital aids businesses and i «a and im i : investment opportunities, It does so by turning Reese is evaluating all value by keeping it discounted. The cost of capital can also aid in wget company budget calls that use company’s financial sources as ca fans ed Factors affecting the cost of a firm. itis already stated that cxst of capi the minimum expected rate of return of the investors or suppligg ofa is the firm. The expected rate of return depends upon the risk enone funds to firm, risk perception of the investors and a host of other facto tes OF the Factors whic are relevant for the determination of cost of ca (i) Risk-free interest rate. The risk-free interest rate, Rp, othe wea em the risk-free and default-free securities. For example, the eonvnect Tate On by the Government of India are taken as risk-free and default free ince ued payment of periodic interest as well as principal repayment on manne rity,(ii) Business risk. _Another factor affecting the cost of capital is the risk associated with the firm’s promise to pay interest and dividends tq its investors. The business risk is related to the response of the firm’s Earnings Before Interest and Taxes (BBIT) to change in Sales Revenue Every project has its effect on the business risk of the firm. If a firm accepts a proposal which is more risky than average present risk, the investor will probably raise the cost of funds as a compensation for the increased risk This premium added for the business risk compensated is also known as Business Risk Premium. There would obviously be a point at which the investor will not like to supply the funds, regardless of the returns the firm would be ready to pay. The firm might have become too risky at this stage. It must be noted that the business risk premium is strictly related to the firm unlike the risk-free rate, which mainly depends upon external factors. (iii) Financial risk. The financial risk is another type of risk which can affect the cost of the capital of the firm. The particular composition and mixing of different sources of finance, known as the financial plan or the capital structure, can affect the returns available to the investors. The financial risk is often defined as the likelihood that the firm would not be able to meet its fixed financial charge. It is related to the response of the firm’s earning per share to a variation in EBIT. The financial risk is affected by the Capital structure or the financial plan’of the firm. Higher the proportion of fixed cost securities in the overall Capital structure, greater would be the financial risk, The'investors in such.a case are required to be compensated for this increased risk, They add financial risk premium over and above the business risk premium. (iv) Other considerations. The investors may also like to add a premium with reference to other factors. One such factor may be the liquidity or marketability of the investment. Higher the liquidity available with an investment, lower would be the premium demanded by the investors If the investment is not easily marketable, then the investors may add a premium for this also and consequently demand a higher rate of return. Calculation of Specific Cost of Capital: Cost of Equity, K, = (# + }x 100 5 D, = Expected Dividend, i.e., %1. 50 wwhere| 8 = Growth Rate, ie, 8%, Py = Market Value of Share 15 = (22 +008),100 = 17.375 Cost of Preference Capital K, = (2° Pp = Preference Dividend, ie, €12(€100% 12/10) owhere| 22 = Market Price, ie, 2117 (© 000) Ry = Redeemable Value, i.e,, 7100 N = Life of Preference Shares, i.¢.,5H-20 @ Shiv Das DELHI UNIVERSITY SERIES 24 ow 12-3 = 5 -34 (100+117)72 * 100= SES x 100 = 7.930% ( [1-14 RY Bo Cost of Debt, Ky = | —57 ae 100 Ff + By 2 I =Interest on debentures, ie, 712 8,1, 212(8100%1 RV= Redemption Value, ie, 100 12/1) Where] By = Market Price, i.e, %95(81,90,000 /2, N’ aie of debentures iene! 20) t =Tax rate @ 50% 1201-05) + 100=95 +088 = a0 * 100 = 3 * 100 = 7.01% WACC based on Market Value Weights Source of Capital Amount | Weight | Cost of Capital | Weighted Cost ®) WW (kK) [km Equity Share Capital 4,80,000 | 0.649 0.17375 [0.11276 (30,000 @ 716 each) | | 12% Preference Share Capital 70,000} 0.094 ores | 007s @ 17 each 12% Debentures 2,000 @%95 each | 1,90,000| 0.257 oro | oseots Total 7,40,000 1 l 0.36742 Therefore, the WACC of the Company is 0.36742 or 36.74%. Q. 5. Radiant Corporation, a market leader dealing in refrigeration products, has been paying dividend consistently over last several years. The growth rate of dividend on an average has been 12%. The capitalisation rate of Radiant Corporation is 16%. ; ; Consistent with its developmental philosophy Radiant Corporation acquired a technology for a new refrigerant that called for huge investment but offered a market potential of growth of 14% in earnings and dividends as well. The management decided to skip the dividend for next three years. However, as a measure of good corporate governance and to reassure the investors it announced that the dividend would re-commence in 4 years from now at 12 only and would offer better growth of 14% instead of 12%. What do you think would the impact be on the price of shares of Radiant Corporation in the market of the announcement of new project and resultant postponement of dividend, assuming Gordon Assumptions? In this context, “Do you agree that dividend policy can be used to maximize the wealth position of equity holders.” Explain with reference to the determinant of dividend policy. Ans. See Q. 2, Chapter 4. Given. Dy =12; g= 12%; K,=16% Growth rate due to development = 14% \ ; Dy. 1240. Market Price of share for current position, Po = ey Zt a = 2336 [Page 45NCIAL MANAGE DEQ) @ He21 of shar€ after development, P, = ~oi—-«—1 12d+074) 7 Ra eK) 438.44 016-014 * q@z046> a 6. “The efficiency of cash management depends on how efficiently the manages its inventory and Receivables.” Comment. Transient Ltd. is currently operating at the 65% capacity utilization level with its sales pegged at 7950 lakhs. As per its current credit policy the firm is offering a credit period of 20 days. The average collection period for Transient Ltd. is 30 days. In view of increased competition that has started to erode its bottom-line recently, the firm’s management has been contemplating relaxing its credit terms. As per management's projections such a liberalization of firm's credit policy is likely to boost its sales by 30%. However, since the proposed change is likely to increase the average credit period for the firm by 30 days, ‘one section of company management is opposed to such a change proposed in the credit policy and is advocating a status quo. The variable costs for the firm are 75% of the sales and the fixed cost is 7100 lakhs. Are you in favour of such a change proposed in the firm's credit policy? Assume the opportunity cost of capital for Transient Ltd is 12%. Ans. Efficiency of cash management depends upon the firm’s management because Cash is the primary asset. Individuals and Companies use to pay their obligations on a regular basis. In business, Entities have a multitude of cash inflows and outflows that must be prudently managed in order to meet payment obligations, plan for future payments, and maintain adequate business stability Inventories involve cash flow because inventory requires a cash outlay that affects the company’s cash balance. An increase in inventory stock will appear as a negative amount in the cash flow statement, indicating a cash outlay, or that a business has purchased more goods than it has sold Receivables are forms of investment in any enterprise manufacturing and selling goods on credit basis. Large sums of funds are tied up in trade debtors. When company sells its goods and services on credit, and it does not receive cash for it immediately, but would collect it in near future. Evaluation of Profitability under Different Credit Periods (in ? lakh) Details [_ Present Plan | Proposed Plan Credit Period 20 days 0 A. Sales z Variable Cost @ 75% on Sales Fired Cost B. Total Cost C. Profit(A-B) Average Debtors: (Tota! Cost + 360) « Credit Penod D-Cost of Debtors 12% (Opportunity Cost) Net Profit (C - 0) squfcision The Firm's proposed credit policy, ie. increasing the credit period by lays, should be accepted as it is giving a higher incremental profit gaoaa2021 (NOV-DEC) Fundamentals of Financial Management Name of the Paper Name of the Course : B.Com. (Hons.) tov ; ee Maximum marks: 75 Duration: 3 hours Attempt any four questions, All questions carry equal marks, Use of Simple Calculator is Allowed. Q.1. ‘Wealth maximisation as the goal of financial management is superior to profit maximisation’, Do you agree? Explain. Also explain whether %1,00,000 received today is better than %1,25,000 to be received 3 years from today? (Make your own assumption while-explaining this) Ans. First Part. Yes, wealth maximisation as the goal of financial management is superior to profit maximisation, Wealth maximisation. See Q. 15, Chapter 1. [Page 8 Time Preference of Money. See Q. 16, Chapter 1. [Page 9 Second part. As per the time value of money concept, we can compare %1,00,000 received today 21,25,000 to be received 3 years from today. It majorly depends upon ihe interest rate involved in the transaction. If the rate of interest is less, say 10%, it is better to receive Cash today. In case the interest rate is 5% it is better to receive €1,25,000 after three years, ae ) jaserstand this concept by taking a hypothetical example. Let us assume fe of interest to be 10%, e Sone oa of %1,00,000 at 10% for 3 years would be 1,00,000 x 1.331 = 21,33,100 Here, 31,33,100 > %1,25,000 Or Present value of 21,25,000 at 10% for 3 years 1,25,000 * PV Frags, seam = 31,25,000 * 0.751 = 293,875, Here, 293,875 < 81,00,000 : Therefore, %1,00,000 received today i: , from phe at interest rate one? 15 Detter than €,25,000 to be received 3 years Now, we can move ths situation by taking the interest rate of 5%. The FV of 21,00,000 at 5% for 3 years = 71,00,000 * CVF, 3 yeany = %1,00,000 x 1.1576 = %1,15,760 Here, 71,15,760 < %1,25,000 Therefore %1,25,000 received 3 years from today is better than £1,00,000 received today if the rate of interest is 5%. | : Q.2, Blue Diamond Ltd. isa marketing organisation that is considering launch of a product with two different strategies: Strategy A and Strategy B. It has to chance either of the two strategies. Both the strategies have initial outlay of %20 crores but have different streams of cash inflows. Over the period of 5 years, the cash flows of the strategies are estimated as follows: H-22FINANCIAL MANAGEMENT — 2021(N0\ nisin Yer 2 Cash Flows in Lakhs | of Rupees [Strategy B __-2000_ 1000 __875 V-DEC Niky StrategyA | 2000 500 | 850° (a) Find out the. NPV of both the strategies at discount rates between 11% = 17% at the intervals of 2%. id (b) Find IRR of both the strategies. (c) Which of the strategies is preferable if the cost of capital is 11% ang 134 according to NPV method? Justify your answer. Sol. (a) Calculation of NPV at 11% Year CF | CF PVF (11%) PVof strategy | PV Of strategy A@ | B® Ag) Bit) 1 500 7,000 0.901 450.50 tO 2 850 875 ogre 690.20 705 3 550 500 0.731 402.05 3655 4 650 140 | oss | 428.35 92.26 5 400 20H |ens0.S0e eens 237.20 | 186 Present Value of All Cash Inflows 2208.30 2187.86 Loss: Present Value of All Cash Outfows 000) Net Present Value of Cash Flows Calculation of NPV at 13% Year CF CF PVF (13%) | PVofstrategy | PV of strategy (A@ | (BR A i BR) 7 500 7,000 0885 44250 [8850 2 850 875 0.783 665.55 3 550 500 0.693 381.15 3465 4 650 140 0613 398.45 | 95.82 5 400 200 0543 21720 | 1086 Present Value of Al Cash Inflows 70485] 210 Less: Present Value of All Cash Outflows (2,000) (2,000) Net Present Value of Cash Flows 104.85 111.048 Calculation of NPV at 15% a Year CF rte WO | aii | PEGS PVofstrategy | PV oe a ) AG B _ 300 Sa 7 3 550 500 0.756 6426 | 39 4 650 40 0.658 3619 | 8008 5 ; 400 200 an 371.8 | 4 resent Value ofA z 498.8 6 Less: Present Vabe ofa Cash Ona, wie] ey Net Prasent Value of Cash Flows see or | 10.11