Calculate the payback

1.       A company is currently earning 12 percent return on equity. The following stock market data is available. Rf = 12 percent, beta = 1.1 and risk premium = 10 percent. Would you force the company to pay more?

2.       Estimate BSE 30 returns (weekly and monthly) for the last two years. Convert them into annual returns.

A project requires an initial investment of Rs 1,000,000. The first year cash flow is expected to be Rs 100,000. It is expected to grow at 20 percent per annum for five years and remain at year 6 level for four more years. Calculate the payback.

A fuel injection company has four investments:

a. A project to implement ERP software in the company.

b. A proposal to start a software subsidiary

c. Repairing an old assembly line.

d. A proposal to manufacture spark plugs.

Classify them as cost reducing, revenue expanding (related business) and revenue expanding (unrelated business).

Solution:

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