FIN526 (Financial Analytics)

Practice Problems

Ques1:(a) Following are the cash inflows (in Rs.) related to Independent Project PQR and
Project XYZ . Cost of capital of firm is 15%. Increase in working capital at the end of 1 year is
5000 for project PQR.

  Year 0 Year 1 Year 2 Year 3 Year 4

Project PQR (60,000) 25,000 10,000 25,000 30,000

Project XYZ (90,000) 40,000 25,000 25,000 25,000

Find NPV and suggest whether you should invest in projects or not and why?

(b) Calculate IRR (Internal Rate of return for the following data:

10% Annual discount rate

Cash
Description
Flows
Initial cost of investment one year from
-10000
today
3500 Return from first year
4700 Return from second year
6200 Return from third year

Ques2: Assume that you need 2,700,000 when you retire and you are now 23 years old. How
much will you need to deposit each year at the end of the year if your account earns 8% each
year? Show the impact of change in interest rate on payment for optimistic and conservative
scenario and compare it with the base case scenario.

Ques3: You are required to calculate the duration (Weighted Average Method) for a 5-year loan
with principal of 1,000,000 and interest rate 5% (twice in a year) and required rate is 11%.