Rank the following three proposals on the basis of net present value index method: A B C Cost of Proposal (₹) 2,00,000 2,40,000 5,00,000 Working Life 5 years 6 years 10 years Scrap value (₹) 20,000 40,000 80,000 Annual c

CS Executive · Corporate and Management Accounting · PYQS · December 2018
Rank the following three proposals on the basis of net present value index method: A B C Cost of Proposal (₹) 2,00,000 2,40,000 5,00,000 Working Life 5 years 6 years 10 years Scrap value (₹) 20,000 40,000 80,000 Annual cash inflow (₹) 50,000 80,000 1,00,000 The present values of the annuity of ₹1 for 5, 6 and 10 years at 10% discount rate are 3.791, 4.335 and 6.145 respectively. Similarly the present values of ₹1 to be received at the end of fifth, sixth and tenth year at 10% discount rate are .621, .564 and .386 respectively.

Answer & Explanation:

Particulars A B C Present Value of Cash inflows (50000*3.791); (80000*4.335); (100000*6.145) 1,89,550 3,46,800 6,14,500 Add: Present value of scrap value (20000*.621) (40000*.564) (80000*.386) 12,420 22,560 (a) 2,01,970 3,69,360 6,45,380 Less: Cost of project (Cash outflow) (b) 2,00,000 2,40,000 5,00,000 Net Present Value (c) = (a-b) 1,970 1,29,360 1,45,380 Net present value index (c/b*100) 0.985% 53.9% 9.076% Ranking III I II

Topics: Management Accounting

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