CAPITAL BUDGETING SOLUTIONS TO ASSIGNMENT PROBLEMS Problem No.1 Payback reciprocal = 20% 20,000 4,000X100 = The above payback reciprocal provides a reasonable approximation of the internal rate of return, i.e. (iii) In case of deficit fund exceeding $42,000, issue of shares is preferred (considerin… It has been decided by the Management that: (i) In case of deficit fund within the limit of $10,000 arrangements can be made with bank. I. Formulas This section contains the formulas that you will need for this homework set: 1. I I Ex. Capital Budgeting problems solutions 1. 19%. Problem No.2 Initial investment includes capital expenditure and WC 2. Depreciation is $2M/10 = $0.2M for first 10 years 4. Chapter 5 Capital Budgeting 5-11 1. Finance 100 Problem Set Capital Budgeting (Alternative Solutions) Note: Where appropriate, the \flnal answer" for each problem is given in bold italics for those not interested in the discussion of the solution. Capital Budgeting: _ R Solutions to * Exercises & Problems 2. The cost of a project is $50,000 and it generates cash inflows of $20,000, $15,000, $25,000 and $10,000 in four years. CAPITAL BUDGETING SOLUTIONS TO ASSIGNMENT PROBLEMS Problem No.1 Calculation of ARR for machine A and B: Particulars Machine – A Machine - B Step 1: Average Profit After Tax = No.of Years Total Profit = 5 20,000 25,000 5,000 10,000 R&D expense is a sunk cost 3. Balance at the bank on 1st Jan. $8,000. IPCC_34.5e_F.M_ Capital Budgeting_Assignment Solutions _____1 No.1 for CA/CWA & MEC/CEC MASTER MINDS 2. Project should be charged for cannibalization of … Project should not be charged for painting-machine time 5. IPCC_33e_F.M_ Capital Budgeting_Assignment Solutions _____1 No.1 for CA/CWA & MEC/CEC MASTER MINDS 2. (ii) In case of deficit fund exceeding Rs. 5,000 each month. Using present value index method, appraise profitability of the proposed investment assuming a 10% rate of discount. From the following information, prepare cash budgetfor the month of January to April: Wages to be paid to workers Rs. 10,000 but within the limits of $42,000 issue of debentures is to be preferred.