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FIN3701 May 2024 Exam Memo(DETAILED) A+

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FIN3701 May 2024 Exam Memo(DETAILED)

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FINANCIAL MANAGEMENT

FIN3701

MAY /JUNE 2024




QUESTION 1


1.1 Use the concept of risk and cash inflows to calculate the NPV and IRR
relating to the investment in project A.




PROJECT A



Cash Certainty Certain PVIF Present value of
Year
inflows Equivalents Cashflows @10% cashflows
1 200 000 0,9 180000 0,9091 163 636,36
2 160 000 0,8 128000 0,8264 105 785,12
3 120 000 0,6 72000 0,7513 54 094,67
4 100 000 0,5 50000 0,6830 34 150,67
5 100 000 0,4 40000 0,6209 24 836,85
Total PV 382 503,68


Discount rate (RADR) = risk-free rate + the risk premium
= 8% + 2% = 10%

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