Mathematics of FinanceMCQMTP Nov 21Question 3961 of 512
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If the cost of capital be 12%\displaystyle 12\% per annum, then the Net Present Value (in nearest Rs.) from the given cash flow is given as (in thousands)Year: 0, 1, 2, 3Operating profit: (100), 60, 40, 50

Options

A34,048\displaystyle 34,048
B34,185\displaystyle 34,185
C51,048\displaystyle 51,048
D21,048\displaystyle 21,048
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Correct Answer

Option d21,048\displaystyle 21,048

All Options:

  • A34,048\displaystyle 34,048
  • B34,185\displaystyle 34,185
  • C51,048\displaystyle 51,048
  • D21,048\displaystyle 21,048

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Detailed Solution & Explanation

The Net Present Value (NPV\displaystyle NPV) is: NPV=CF0+CF11+i+CF2(1+i)2+CF3(1+i)3NPV = CF_0 + \frac{CF_1}{1+i} + \frac{CF_2}{(1+i)^2} + \frac{CF_3}{(1+i)^3} Given: * CF0=100\displaystyle CF_0 = -100 (in thousands) * CF1=60\displaystyle CF_1 = 60 * CF2=40\displaystyle CF_2 = 40 * CF3=50\displaystyle CF_3 = 50 * Interest rate (i\displaystyle i) = 12%\displaystyle 12\% p.a. = 0.12\displaystyle 0.12 Substituting the values: NPV=100+601.12+40(1.12)2+50(1.12)3NPV = -100 + \frac{60}{1.12} + \frac{40}{(1.12)^2} + \frac{50}{(1.12)^3} NPV=100+53.5714+31.8878+35.5890=21.0482 thousandsNPV = -100 + 53.5714 + 31.8878 + 35.5890 = 21.0482 \text{ thousands} This is Rs. 21,048\displaystyle 21,048. Hence, **Option D** is the correct answer.

About This Chapter: Mathematics of Finance

Paper

Paper 3: Quantitative Aptitude

Weightage

12-16 Marks

Key Topics

Simple & Compound Interest, Annuity, Perpetuity

The most important mathematical chapter in the entire syllabus. It covers Simple Interest (SI), Compound Interest (CI), Nominal vs Effective rates, Present and Future Value, Annuities (Ordinary and Due), Sinking Funds, and Perpetuities. The concepts learned here are applied heavily in CA Intermediate and Final.

View Official ICAI Syllabus

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