MGT201 GDB No 1 Solution Spring 2018

MGT201 GDB No 1 Spring 2018

Dear Students, Here you can read or Download MGT201 - Financial Management GDB No 1 Solution and Discussion of Semester Spring 2018. We are here to facilitate your learning and we do not appreciate the idea of copying or replicating solutions. MGT201 GDB Solution File has been added. Previously we added MGT201 GDB no 01 Solution Spring 2017.

MGT201 GDB No 1 Solution and Discussion Spring 2018

MGT201 GDB Topic:

“Capital budgeting techniques”

MGT201 GDB Question:

Suppose you are a new employee in the finance department of a well-known firm. Management of the firm has assigned you a task to select a Plan on the basis of Profitability index (PI) criterion (one of the capital budgeting techniques). Management has given you two alternate plans; Plan A with old technology and Plan B with new technology. Primarily both plans have identical life and interest rates, but with the use of new technology the initial investment of the plan B will increase by 14% (compared to Plan A) while its cash inflows will increase by 10% each year (compared to Plan A).

Particulars	Plan A (Amount in Rs.)	Plan B (Amount in Rs.)
Initial investment	500,000	?
Cash flow year 1	120,000	?
Cash flow year 2	216,000	?
Cash flow year 3	300,000	?
Interest rate per annum	10%

Based on above given information about Plan A; complete the table for plan B.
Calculate PI of both projects (Complete Calculations of PI for both projects is mandatory as it carries marks; marks will be deducted on providing just answers)
Based on calculations of PI which plan you will suggest and why?(Your selection should be supported with logical reasoning; no marks will be given on just selection of the project)