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Spring 2012 acc501 2 sol

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SEMESTER SPRING 2012 Business Finance (ACC501) ASSIGNMENT NO. 2 ( SOLUTION ) BK Brothers (Pvt.) Limited is a sports goods manufacturing company of Sialkot. The company manufactures different sports goods including cricket bats, footballs and tennis rackets. Now, the company has planned to manufacture baseball bats and gloves. In order to manufacture these products, the company needs to install a new manufacturing plant for which it has received two proposals. To analyze these two alternatives, financial analyst of the company Mr. Usman Ali has prepared following estimates of the initial investment and cash inflows associated with the acquisition of new plants: Initial Investment Years (t) Plant A Plant B ( 700,000 ) ( 420,000 ) Cash Inflows (CFs) 1 130,000 90,000 2 185,000 125,000 3 170,000 100,000 4 172,000 92,000 5 450,000 220,000 Mr. Usman Ali has analyzed both projects for a period of 5 years. According to his analysis, the plants would be sold after 5 years resulting large fifth-year cash inflows. He feels that although the two plants have similar risk but plant A has a much higher initial investment. He has applied the firm’s cost of capital (required ...
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