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solution to Capital budgeting problem

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(Querist)
08 November 2008 2. Samreen Ltd is considering an investment in one of the two mutually exclusive proposals – Projects p1 and p2 , which require cash outlays of Rs.3,40,000 and Rs. 3,30,000 respectively. The certainty equivalent (C.E.) approach is used in incorporating risk in capital budgeting decisions. The current yield on government bond is 8% and this be used as the risk less rate. The expected net cash flows and their certainty equivalents are as follows:





Project P1 Project P2
Year-end Cash Flow C.E. Cash Flow C.E.
1 180000 .6 180000 .8
2 200000 .8 180000 .7
3 200000 .7 200000 .8

Present Value factor os Rs. 1.00 discounted at 8% at ehe end of the year 1,2,3 are .926, .857 and .794 respectively. You are required to find out:-
I. Which project should be accepted?
II. If risk adjusted discount rate method is used, which project would be analysed with a higher rate?


please send your answers to psrinivas1@in.com
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srinivas

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srinivas (Querist)
08 November 2008 2. Samreen Ltd is considering an investment in one of the two mutually exclusive proposals – Projects p1 and p2 , which require cash outlays of Rs.3,40,000 and Rs. 3,30,000 respectively. The certainty equivalent (C.E.) approach is used in incorporating risk in capital budgeting decisions. The current yield on government bond is 8% and this be used as the risk less rate. The expected net cash flows and their certainty equivalents are as follows:





Project P1 Project P2
Year-end Cash Flow C.E. Cash Flow C.E.
1 180000 .6 180000 .8
2 200000 .8 180000 .7
3 200000 .7 200000 .8

Present Value factor os Rs. 1.00 discounted at 8% at ehe end of the year 1,2,3 are .926, .857 and .794 respectively. You are required to find out:-
I. Which project should be accepted?
II. If risk adjusted discount rate method is used, which project would be analysed with a higher rate?
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Deepak Agrawal

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Deepak Agrawal (Expert)
13 November 2008 Try urself.
refer past problem of ICAI.

Unable to write answer here
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srinivas

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srinivas (Querist)
13 November 2008 Give atleast the answer. I'll try it out.
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Taranjit Singh

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Taranjit Singh (Expert)
07 October 2009 Hello, is this an old query still pending? You can send me a Pm if yes....I m trying to take all old pending queries in Accounting Forum......Thanx.
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Taranjit Singh

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Taranjit Singh (Expert)
07 October 2009 Hello, is this an old query still pending? You can send me a Pm if yes....I m trying to take all old pending queries in Accounting Forum......Thanx.
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