Managerial Economics and Accountancy

Set-1

1st Internal Examination

Answer all: (3x2=6)

1. Explain the Opportunity Cost Principle.

2. Difference between the Fixed Capital and Working Capital.
3. Write a small note on PayBack Period and NPV.

Answer any two: (2x7=14)

1. Explain different types of Price and Income Elasticies of demand with diagrams.
2. A company is considering of investing into a project which requires an initial outlay of
____________________ (your own value). The company’s cost of capital is _____(your own
percentage). The cashflows are as follows ( your own values)

Years 1 2 3 4 5

CFAT

Calculate (i) NPV (ii) Payback Period (iii) Profitability index

3. a) A company is in the consideration of two mutually exclusive projects requiring an initial outlay
of Rs. 2,50,000 each and have a life of 5 years. The discount rate is 10%. The cash inflows after
taxes are as follows.

1st Year 2ndYear 3rd Year 4th Year 5th Year

Project A Rs 1,50,000 Rs 1,30,000 Rs 1,10,000 Rs. 90,000 Rs. 70,000

Project B Rs. 90,000 Rs. 90,000 Rs 90,000 Rs 90,000 Rs. 90,000

Calculate
(i)Payback Period
(ii) NPV
(iii) Profitability index
Judge which project is suitable for investment.

(or)

b) The following information is given below

Year 1 2 3 4 5

Cashflows 50000 60000 40000 30000 20000

before tax

Investment: Rs,200,000, Depreciation 10%, Tax rate= 20%.

Calculate NPV assuming discount rate as 12% P.A.