Strategic Financial Management (FIBA733)-Semester II

Strategic Financial Management (FIBA733)-Semester II

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Assignment 2

Case Study: 

From the following details relating to a project, analyse the sensitivity of the project to changes in initial project cost, annual cash inflow and cost of capital:                                                      Initial Project Cost (INR.)   1,20,000

Annual Cash Inflow (INR.)   45,000

Project Life (Years)    4

Cost of Capital     10%                                                                                                                                                                                                                                IDENTIFY which of the three factors, the project is most sensitive if the variable is adversely affected by 10%? (Use annuity factors: for 10% 3.169 and 11% … 3.103).

Situation: If initial project cost is varied adversely by 10%. What is the value of new NPV and change in NPV from the Base/ present NPV?

Select one:

a. NPV= 9,700 and Changes in NPV- 60.08%

b. NPV= 10,605 and Changes in NPV- 53.08%

c. NPV= 10,700 and Changes in NPV- 54.00%

d. None of the above

Clear my choice

Question 2. Situation:- If annual cash inflow is varied adversely by 10%. What is the value of new NPV and change in NPV from the Base/ present NPV?

Select one:

a. NPV= 8,345 and Changes in NPV- 63.08%

b. NPV= 7,300 and Changes in NPV- 55.54%

c. NPV= 8,250 and Changes in NPV- 62.05%

d. None of the above

Clear my choice

Question 3. Situation:- If cost of capital is varied adversely by 1%

i.e. it becomes 11%.

What is the value of new NPV and change in NPV from the Base/ present NPV?

Select one:

a. NPV=20,555 and Changes in NPV- 14.51%

b. NPV= 19,250 and Changes in NPV- 13.88%

c. NPV= 18,950 and Changes in NPV- 14.75%

d. NPV= 19,635 and Changes in NPV- 13.14%

Clear my choice

Question 4. Calculation of Coefficient of Variance depends on:

Select one:

a. Standard Deviation

b. Expected Return

c. Expected cash flow

d. All of the above

Clear my choice

Question 5. Certainty Equivalent:

Select one:

a. Is a guaranteed return from an Investment after adjusting for risk

b. Is the return that is expected over the lifetime of a project

c. Is equivalent to Net Present Value

d. Is an important component in Decision Tree Analysis

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