Mgt201 solution

Solution:


0 Year
Revenues in 0 year 0
Less: Expenses 1,000,000
Net Cash Flow -1,000,000
Present Value -1,000,000
PV= NCF/ (1+i) n
PV=-1,000,000

1st Year
Revenues in 1st year 510,000
Less: Expenses 250,000
Net Cash Flow 260,000
Present Value 238532.1
Net Cash Flow
PV= NCF/(1+i)n
PV=260000/(1+0.09) 1
PV=260000/(1.09) 1
PV= 238532.1

2nd Year
Revenues in 2nd year 510,000
Less: Expenses 250,000
Net Cash Flow 260,000
Present Value 218836.8
PV= NCF/ (1+i) n
PV=260000/ (1+0.09) 2
PV=260000/ (1.09) 2
PV= 218836.8


3rdYear
Revenues in 3rd year 510,000
Less: Expenses 250,000
Net Cash Flow 260,000
Present Value 201550.4
PV= NCF/ (1+i) n
PV=260000/ (1+0.09) 3
PV=260000/(1.09) 3
PV= 201550.4

4th Year
Revenues in 4th year 510,000
Less: Expenses 250,000
Net Cash Flow 260,000
Present Value 184266.5
PV= NCF/ (1+i) n
PV=260000/ (1+0.09) 4
PV=260000/(1.09) 4
PV= 184266.5

5thYear
Revenues in 5th year 510,000
Less: Expenses 250,000
Net Cash Flow 260,000
Present Value 168831.16
PV= NCF/ (1+i) n
PV=260000/ (1+0.09) 5
PV=260000/(1.09) 5
PV= 168831.16

6thYear
Revenues in 6th year 510,000
Less: Expenses 250,000
Net Cash Flow 260,000
Present Value 154974.07
PV= NCF/ (1+i) n
PV=260000/ (1+0.09) 6
PV=260000/(1.09) 6
PV= 154974.07

7th Year
Revenues in 7th year 410,000
Less: Expenses 250,000
Net Cash Flow 160,000
Present Value 87527.4
PV= NCF/ (1+i) n
PV=160,000/ (1+0.09) 7
PV=160,000/(1.09) 7
PV= 87527.4

8th Year
Revenues in 8th year 450,000
Less: Expenses 250,000
Net Cash Flow 200,000
Present Value 100401.60
PV= NCF/ (1+i) n
PV=200,000/ (1+0.09) 8
PV=200,000/(1.09) 8
PV= 100401.60

9th Year
Revenues in 9th year 500,000
Less: Expenses 250,000
Net Cash Flow 250,000
Present Value 115101.29
PV= NCF/ (1+i) n
PV=250,000/ (1+0.09) 9
PV=250,000/(1.09) 9
PV= 115101.29

10th Year
Revenues in 10th year 600,000
Less: Expenses 250,000
Net Cash Flow 350,000
Present Value 147679.32
PV= NCF/ (1+i) n
PV=350,000/ (1+0.09) 10
PV=350,000/(1.09) 10
PV= 147679.32





NET PRESENT VALUE

NPV= -IO + CF/(1+i)n + CF2/(1+i)n+1 + CF3(1+i)n+2+ CF3/(1+i)n+3+ CF3/(1+i)n+4+ CF3/(1+i)n+5+ CF3/(1+i)n+6 CF3/(1+i)n+7 CF3/(1+i)n+8 CF3/(1+i)n+9 CF3/(1+i)n+10

NPV=617,701

Since Net Present value is greater than zero i.e. 0.6 million, it is feasible for Premier National Bank to start the new branch in Chitral.