Corporate Fin Mgt NDLM.PDF

Learning Unit – 2

Group Activity

Discounted cash flow Technique and

Internal Rate of Return

1. This exercise will also be conducted in 4 groups. The first two groups will be
   entrusted with the task of applying Discounted Cash Flow Technique. The next two
   groups will calculate the Internal Rate of Return.

1.1. Each group will be given sufficient time to discuss and to solve the problems

entrusted to them and to prepare visual aids.

1.2. Each group will make a presentation using visual aids. Each group may be

given approximately 25 minutes for the presentation and Faculty may require

5 - 10 minutes for moderation and summing up.

1.3. At the end of each presentation all groups will list out the key learning

points, which will be consolidated in the plenary.

2. The Tasks: DCFT
   Groups I and II.

Application of DCFT for purchase decisions.
(The following problems taken from the book ‘Expenditure Control and Zero base budgeting’ by Prof. K.L.
Handa)

The purchase choice relates to two machines, i.e., Machine A and Machine B

The details of Machine A are as follows:

ÿ Initial cost of ‘A’ Rs.3.5 Lakhs

ÿ O & M expenses

• First year Rs.0.30 Lakhs


• Second year Rs.0.30 Lakhs


• Third year Rs.0.40 Lakhs


• Fourth year Rs.0.50 Lakhs


• Fifth year Rs.0.55 Lakhs

The life span of Machine A is 5 years. The salvage value of Machine ‘A’ at the

end of the 5th year is Rs.50,000- 00