NMIMS – Corporate Finance – Suppose, a prospective client who wants to invest certain amount of money comes to you but does not know anything about ‘Time Value of Money

Suppose, a prospective client

Corporate Finance

 

Q1: Suppose, a prospective client who wants to invest certain amount of money comes to you but does not know anything about ‘Time Value of Money’. So, please explain to the person the concept of ‘Time Value of Money’ in detail.

 

Q2: A limited company is considering investing a project requiring a capital outlay of Rs. 2,00,000. Forecast for annual income after depreciation but before tax is as follows:

 

 Year
 Rs.
1
 1,00,000
2
 1,00,000
3
 80,000
4
 80,000
5    40,000

Depreciation may be taken as 20% on original cost taxation at 50% of net income.

You are required to evaluate the project according to each of the following methods:

  1. a) Pay back method
  2. b) Rate of return on original investment method
  3. c) Rate of return on average investment method
  4. d) Discounted cash flow method taking cost of capital as 10%

 

Suppose, a prospective client

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Suppose, a prospective client