Fundamentals of Financial Management, Third Edition

SOLVED NUMERICAL PROBLEMS

1. A firm with rationed funds for Rs 1,20,000 has in view 5 projects with varying NPV and IRR. Find out which of the projects will be taken up, with a given discount rate of 10%.
   

   Solution

   A + B + D are three projects that make use of the entire funds in hand, although the total NPV is not the maximum. The NPV can be maximised with A + B + C but in this case, funds are not sufficient. Thus the first alternative is the only way out under the conditions of capital rationing.

    

2. There are two proposals with unequal lives. The cash flow and NPV with 10% discount rate are as follows:

   Cash flow Rs	Proposal A	Proposal B ...