Investment Decisions

Original descriptive practice: 30 saved, 1 at 3 marks, 23 at 5 and 6 at 10. Incremental cash flows, depreciation/financing/WC/disposal, payback and ARR, NPV/PI/IRR/MIRR, scale/timing conflicts, rationing, unequal lives, replacement, nominal-real consistency and sensitivity. Original practice, not ICAI questions or official marking schemes. Native tables scroll on phones. Original preparation is not a live or complete official question bank.

Boundaries: Tax/book and usable loss relief are case supplied, not current law. The official page 66 NPV sign line conflicts with its positive result; standard PV-inflows-minus-outflows is used. Page 31 highest-PI selection is not a universal mutually exclusive wealth rule. ARR denominators, fractional payback timing, financing/cash-flow basis and unequal-life repeatability are explicit.

FM-C07-D001 · 5 marks

All financial amounts are Rs lakh unless another unit is stated. A manager wants to buy capacity solely because a supplier advertises fast payback. Required: explain investment objective and planning/evaluation/selection/implementation/review, with limits of one advertised metric. (5 marks)
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MarksCreditWorking / case application
1ObjectiveIncremental risk-adjusted value, not fastest recovery alone.
1PlanDefine demand, capacity, useful life and feasible alternatives.
1EvaluateEstimate incremental dated after-tax cash flows and appropriate return, not brochure profit only.
1Select implementCompare feasible project/constraint combinations, then execute only under actual approval.
1Control reviewCompare actual versus forecast cash/performance and explain variances; sunk spending does not prove continued viability.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 4

FM-C07-D002 · 3 marks

All financial amounts are Rs lakh unless another unit is stated. A plant choice permits either Manual or Automated, not both; a new factory needs a linked access road; an unrelated project can be accepted independently. Classify the three decisions. (3 marks)
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MarksCreditWorking / case application
1PlantMutually exclusive alternatives.
1Factory roadContingent/dependent projects; evaluate necessary combined investment.
1UnrelatedIndependent accept/reject, still subject to capital/resources and value assessment.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 6

FM-C07-D003 · 5 marks

All financial amounts are Rs lakh unless another unit is stated. For a proposed project, study fee 2 already paid/nonrefundable; own land could sell now for 12 net of all disposal taxes/costs; incremental site preparation 3; allocated head-office charge 1 unchanged by project; actual extra supervision.8. Required: classify each. (5 marks)
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MarksCreditWorking / case application
1SunkStudy 2 excluded from incremental present decision, not erased from accounting records.
1OpportunityForegone net land sale 12 included as time 0 opportunity cost.
1PreparationIncremental 3 cash outlay included at its actual date.
1AllocationUnchanged charge 1 excluded; allocation alone is not incremental cash.
1SupervisionAdditional.8 included and tax-adjusted if stipulated; do not call all overhead irrelevant.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 9

FM-C07-D004 · 5 marks

All financial amounts are Rs lakh unless another unit is stated. Sales 80, cash operating expenses 45, tax depreciation 10, tax 25%, full immediate deductions. No interest, capex or WC changes in this year. Compute EBIT/tax/PAT/OCF and reconcile cash-profit method. (5 marks)
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MarksCreditWorking / case application
1EBIT80-45-10=25.
1Tax25 x.25=6.25.
1PAT18.75.
1OCF18.75+10=28.75.
1Check(80-45)x.75+10 x.25=28.75. Depreciation itself is not cash inflow; usable tax saving changes cash.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 8

FM-C07-D005 · 5 marks

All financial amounts are Rs lakh unless another unit is stated. A project EBIT 20, depreciation 5, interest 4, tax 25% all deductible, no WC/capex in year. Appraise operating project cash flows at a WACC that already reflects finance costs. Compute PAT then unlevered OCF two ways; explain double counting. (5 marks)
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MarksCreditWorking / case application
1PAT(20-4)x.75=12.
1Finance add backAfter-tax interest 4 x.75=3, not full 4.
1OCF from PAT12+3+5=20.
1Direct20 x.75+5=20.
1ConsistencyDo not subtract debt interest/dividends again in unlevered WACC cash-flow appraisal. Equity/APV cash-flow models differ and need matching discount rates.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 14

FM-C07-D006 · 5 marks

All financial amounts are Rs lakh unless another unit is stated. Asset price 90, installation 10, initial WC 12, old equipment sold now for 15 net of all taxes/costs, irrecoverable earlier study 2. Required: relevant time 0 outlay and item treatment, no other incremental effects. (5 marks)
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MarksCreditWorking / case application
1Asset90 included.
1Installation10 included; tax base only as specified separately.
1WC12 included, no depreciation.
1Old proceedsSubtract 15 net; do not double-add a tax already netted.
1Total90+10+12-15=97. Study 2 sunk excluded; replacement future opportunity differences need separate flow comparison.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 10

FM-C07-D007 · 5 marks

All financial amounts are Rs lakh unless another unit is stated. Machine time 0 cash 50. WC 10 invested time 0, additional 4 end year 1, release 3 end year 2, remaining 11 fully recoverable end year 3. Operating cash inflow 25 each year; no salvage/tax differences. Build dated net flows and NPV at 10%. (5 marks)

Rs lakh, time 0 now and year-end flows unless expressly stated otherwise.

TimeOperatingWC movement
00-10
125-4
2253
32511
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MarksCreditWorking / case application
1Time 0-50-10=-60.
1Year 125-4=21.
1Year 225+3=28.
1Year 325+11=36; recovery total 3+11 equals 14 invested, not double 10 plus 14.
1NPV-60+21/1.1+28/1.1^2+36/1.1^3=9.278738. Recovery explicitly supplied; impairment/blocked recovery not silently ignored.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 9

FM-C07-D008 · 5 marks

All financial amounts are Rs lakh unless another unit is stated. Final operating cash 20, asset sale 18, taxbook 12, tax 30%. Case requires immediate tax 30% on sale-minus-taxbook; WC 7 fully recoverable, disposal fee 2 separately deductible immediately. Compute disposal gain/tax/net, fee tax effect and total terminal flow. (5 marks)
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MarksCreditWorking / case application
1Gain18-12=6; case simple disposal model, not universal tax block law.
1Tax6 x.3=1.8.
1Net sale16.2.
1Net fee2 x.7=1.4 outflow, full immediate deduction supplied.
1Terminal20+16.2-1.4+7=41.8. Do not add book value as cash; tax assumptions explicit.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 12

FM-C07-D009 · 5 marks

All financial amounts are Rs lakh unless another unit is stated. Tax asset 100, WDV depreciation 20% for first 3 years, then sale 50 at end year 4. Case says no year 4 depreciation, sale-minus-opening-year 4 taxbook gain/loss, immediate 30% tax/refund. Compute book balances, disposal tax/net; identify current-law limit. (5 marks)
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MarksCreditWorking / case application
1Y 1Dep 20, closing 80.
1Y 2Dep 16, closing 64.
1Y 3Dep 12.8, closing 51.2.
1DisposalSale 50 versus book 51.2: loss 1.2, refund.36; net 50.36.
1BoundarySpecified single-asset simplified model only. Block continuation, additions, relief eligibility/timing or current law must be verified before applying externally.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 13

FM-C07-D010 · 5 marks

All financial amounts are Rs lakh unless another unit is stated. Initial 100; net flows 30/40/50 at yearends 1/2/3. Calculate cumulative recovery, conventional fractional payback if year 3 cash is assumed uniform, actual recovery date under stated strictly yearend receipts, and method limits. (5 marks)
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MarksCreditWorking / case application
1Cumulative30, 70, 120 after years 1/2/3.
1Un recovered100-70=30 after year 2.
1Fraction2+30/50=2.6 years only if uniform third year cash accrual/recovery assumed.
1Strict datesWith only yearend receipts, recovery occurs at end year 3, not 2.6.
1LimitsOrdinary payback ignores time value and post recovery value; timing assumption cannot silently change.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 19

FM-C07-D011 · 5 marks

All financial amounts are Rs lakh unless another unit is stated. Initial 100; 40 netcash at each yearend for 4 years; discount 10%. Compute discounted cumulative through 3 years, discounted payback under conventional linear within year interpolation, recovery date for strict yearend flows, NPV and limitations. (5 marks)
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MarksCreditWorking / case application
1PV first 336.363636+33.057851+30.052592=99.474080.
1Year 440/1.1^4=27.320538.
1Fractional DPB3+(100-99.474080)/27.320538=3.01925 years under interpolation.
1NPV datesNPV 26.794618; strict yearend recovery 4 years.
1LimitDiscounted payback handles time value but still is recovery metric, not full value ranking. Interpolation not literal receipt date.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 43

FM-C07-D012 · 5 marks

All financial amounts are Rs lakh unless another unit is stated. Asset 100, salvage 20, life 4, straight-line accounting depreciation 20/year; annual profit before depreciation 40, tax 25%. Permanent WC 10 kept full throughout life. Compute average PAT and ARR on initial 100 asset investment, average asset 60 and average asset plus WC 70; label bases. (5 marks)
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MarksCreditWorking / case application
1PAT(40-20)x.75=15 annual.
1Asset initial basis15/100=15%.
1Asset average(100+20)/2=60; ARR 25%.
1Average including WC60+10=70; ARR 21.428571%.
1ConsistencyNot interchangeable; initial total including WC 110 gives 13.636364%. ARR uses accounting profit not OCF and ignores cash timing.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 23

FM-C07-D013 · 5 marks

All financial amounts are Rs lakh unless another unit is stated. Time 0 outlay 100, year end cash 45 for 3 years, no terminal extras; required return 10%. Compute discount factors/PV inflows/NPV/PI and conditional decision. (5 marks)
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MarksCreditWorking / case application
1PVAF1/1.1+1/1.1^2+1/1.1^3=2.48685199.
1PV45 x 2.48685199=111.908339.
1NPV111.908339-100=11.908339.
1PI1.11908339.
1DecisionIndependent positive NPV passes value threshold under supplied cash/risk/return; feasibility/constraints still apply, no actual spending authorised.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 27

FM-C07-D014 · 5 marks

All financial amounts are Rs lakh unless another unit is stated. Official page 66 prints NPV as outflow minus PV inflows but reports positive 17.922 for 80 outlay and 97.922 PV. Required: calculate standard NPV/PI, show literal printed subtraction, reconcile decision and preserve source conflict. (5 marks)
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MarksCreditWorking / case application
1Standard97.922-80=+17.922.
1PI97.922/80=1.224025.
1Literal80-97.922=-17.922, not printed positive 17.922.
1DecisionPV exceeds outlay; positive NPV under standard wealth criterion.
1Source holdKeep printed sign-line discrepancy visible. Do not copy reversed definition or claim verified official erratum.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 66

FM-C07-D015 · 10 marks

All financial amounts are Rs lakh unless another unit is stated. Mutually exclusive one-year projects: A initial 50/end cash 70; B initial 100/end cash 130; discount 10%. No capital shortage, same compatible risk basis. Compute NPV/PI/IRR both, incremental B-A and conditional choice; critique highest PI rule. (10 marks)

Rs lakh, time 0 now and year-end flows unless expressly stated otherwise.

ProjectInitialYear 1
A5070
B100130
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MarksCreditWorking / case application
1A PV70/1.1=63.636364.
1A NPV13.636364.
1A PI IRR1.272727 and 40%.
1B PV130/1.1=118.181818.
1B NPV18.181818.
1B PI IRR1.181818 and 30%.
1IncrementB-A: outlay 50, cash 60; NPV 4.545455.
1Increment IRR60/50-1=20%, above 10%.
1ChoiceB higher absolute NPV without binding capital; A higher PI/IRR does not prove better wealth.
1Source boundaryPage 31 blanket highest PI for mutually exclusive selection needs scale/constraint context; do not silently merge with NPV wealth rule.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 31

FM-C07-D016 · 5 marks

All financial amounts are Rs lakh unless another unit is stated. Outlay 100, end year cash 50 for 3 years. Required: exact numerical IRR, check NPV at 10% and 20%, bracket/difference from linear interpolation and conditional decision at 10%. (5 marks)
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MarksCreditWorking / case application
1NPV 1024.342600.
1NPV 205.324074; root above 20%, need upper bracket not assume 10 to 20.
1Exact IRR23.375193% from root of-100+50 PVAF(r, 3)=0.
1ApproximationTwo-rate interpolation is an estimate; solve/recheck NPV at result rather than call interpolation exact.
1DecisionConventional independent cash flows IRR above 10% matches positive NPV; mutually exclusive/rationing/non conventional cases need other checks.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 33

FM-C07-D017 · 5 marks

All financial amounts are Rs lakh unless another unit is stated. Outlay 100, cash 40 year end for 3 years. Use NPV at 8% and 12% to interpolate IRR, compare true numerical root and decision at 10%. (5 marks)
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MarksCreditWorking / case application
1Low NPVAt 8%: +3.083880.
1High NPVAt 12%: -3.926749.
1Interpolated8%+[3.083880/(3.083880+3.926749)]x 4%=9.759545% approx.
1Exact9.701026%; NPV at reported root near zero; interpolation curvature causes difference.
1At 10NPV-.525920, reject under independent threshold; near threshold rounding can change claim, retain precision.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 35

FM-C07-D018 · 10 marks

All financial amounts are Rs lakh unless another unit is stated. A[-100, 140, 0], B[-100, 0, 160]at years 0/1/2, mutually exclusive risk-compatible; compute NPV at 10% and 15%, IRRs, crossover and why rankings change. (10 marks)

Rs lakh, time 0 now and year-end flows unless expressly stated otherwise.

ProjectTime 0Year 1Year 2
A-1001400
B-1000160
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MarksCreditWorking / case application
1A 10140/1.1-100=27.272727.
1B 10160/1.1^2-100=32.231405.
1A 15140/1.15-100=21.739130.
1B 15160/1.15^2-100=20.982987.
1A IRR40%.
1B IRRsqrt(1.6)-1=26.491106%.
1IncrementB-A=[0, -140, 160].
1Crossover-140/(1+r)+160/(1+r)^2=0 implies r=160/140-1=14.285714%.
1Conditional rankB higher NPV below crossover; A higher above rate; ties at rate within relevant positive domain.
1LimitsCash timing and discount return drive NPV choice; highest IRR not universal mutually exclusive rule. NPV discount valuation does not require literal reinvestment at discount rate.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 38

FM-C07-D019 · 5 marks

All financial amounts are Rs lakh unless another unit is stated. Cashflows[-100, +230, -132]at 0/1/2. Required: derive IRR polynomial/roots, NPV at 15%, decision limit and avoid largest root rule. (5 marks)
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MarksCreditWorking / case application
1Equation-100(1+r)^2+230(1+r)-132=0.
1Roots1+r=1.10 or 1.20; IRRs 10% and 20%.
1NPV 15-100+230/1.15-132/1.15^2=+.189036.
1ThresholdUse NPV at appropriate return; between roots positive here, not universal pattern for all non conventional flows.
1No max rootDo not select 20% as unique true IRR. Sign changes may allow multiple roots but not guarantee a fixed number of positive roots.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 41

FM-C07-D020 · 5 marks

All financial amounts are Rs lakh unless another unit is stated. Cashflows[-100, 50, 50, 50]at 0/1/2/3. Financing and reinvestment rates 10%. Compute PV outflows, FV inflows, MIRR, compare IRR and interpretation. (5 marks)
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MarksCreditWorking / case application
1PV outflow100 at 0.
1FV50 x 1.1^2+50 x 1.1+50=165.5 at year 3.
1MIRR(165.5/100)^(1/3)-1=18.285815%.
1IRR contrastIRR 23.375193% from NPV root; different rate construction.
1ScopeMIRR explicit finance/reinvestment/end horizon assumptions; not automatically best mutually exclusive NPV option.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 44

FM-C07-D021 · 5 marks

All financial amounts are Rs lakh unless another unit is stated. Flows[-100, 230, -132]at 0/1/2, finance 10%, reinvestment 8%. Required: PV negative flows, FV positive flows, MIRR, compare NPV and root ambiguity. (5 marks)
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MarksCreditWorking / case application
1PV negative100+132/1.1^2=209.090909.
1FV positive230 x 1.08=248.4 at year 2.
1MIRRsqrt(248.4/209.090909)-1=8.995413%.
1DistinguishIncludes future outflow discounted with specified finance rate; do not divide by initial 100 alone.
1DecisionIRR has 10/20% roots; NPV at appropriate return remains direct value test. MIRR rates are case inputs, not observed market terms.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 44

FM-C07-D022 · 10 marks

All financial amounts are Rs lakh unless another unit is stated. Budget 100. Independent indivisible projects A(cost 60, NPV 30), B(50, 26), C(50, 25). No other period constraints/dependencies. Compute PI and NPV per cost, enumerate feasible portfolios, max value and contrast greedy ranking. (10 marks)

Rs lakh, time 0 now and year-end flows unless expressly stated otherwise.

ProjectCostNPV
A6030
B5026
C5025
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MarksCreditWorking / case application
1A efficiencyNPV/cost=.5; PI 1.5.
1B efficiency.52; PI 1.52.
1C efficiency.5; PI 1.5.
1SinglesA 30, B 26, C 25 NPV.
1AB ACCosts 110 each; infeasible.
1BCCost 100, NPV 51.
1ABC160, infeasible.
1OptimumBC max 51 among feasible portfolios.
1Greedy warningLargest individual NPV for A leaves 40 unused and misses BC. Efficiency ties also need whole combination checking.
1BoundaryEnumerated indivisible one-period case, not universal greedy rule; dependencies/multiple budgets change feasibility.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 53

FM-C07-D023 · 5 marks

All financial amounts are Rs lakh unless another unit is stated. Budget 80; independent perfectly divisible linear projects A(cost 60, NPV 30), B(50, NPV 26), C(50, NPV 25). No other limits. Required: rank efficiencies, allocation, value and partial project assumption. (5 marks)
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MarksCreditWorking / case application
1RankingB.52 first; A/C.50 tie.
1AllocationAll B cost 50, value 26.
1Remaining30 capacity into A(half)orC(.6).
1Total NPV26+15=41; budget 80 used.
1AssumptionProportional cost/value and partial project feasibility explicit; not apply to binary projects or interactions.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 53

FM-C07-D024 · 10 marks

All financial amounts are Rs lakh unless another unit is stated. Same-risk alternatives: A outlay 60, cash 25 annually 3 years; B 90, cash 30 annually 5 years; discount 10%. Stable identical repeat cycles and service horizon assumed. Compute NPV/PVAF/equivalent annual value, rank and common 15 year cycle logic; limit if not repeatable. (10 marks)
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MarksCreditWorking / case application
1A PVAF2.48685199.
1A NPV25 x PVAF-60=2.171300.
1A EAV.873112 yearly.
1B PVAF3.79078677.
1B NPV30 x PVAF-90=23.723603.
1B EAV6.258227 yearly.
1RankB higher equivalent annual benefit under repeatability and compatible service.
1A chainRepeat at 0/3/6/9/12 for 15 year horizon, include each renewal outlay/flow.
1B chainRepeat at 0/5/10; same common horizon NPV consistent with EAV ranking.
1LimitWithout repeats or common service expectation, annualisation can mislead; use actual terminal/replacement opportunities, not automatic reinvestment assumption.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 55

FM-C07-D025 · 10 marks

All financial amounts are Rs lakh unless another unit is stated. New machine cost 60 now, WC increase 5; old machine sale 24 before disposal tax now, taxbook 12. Simple immediate tax 25% gain/loss rule. Keeping old would cost 25/year and depreciate 4/year; new cost 8/year and tax depreciate 18/year for 4 years. Revenue unchanged. End year 4 net of all tax salvage new 8 versus old 4; WC 5 fully recoverable. Discount 10%. Required: outlay, annual incremental OCF, terminal, NPV and decision. (10 marks)
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MarksCreditWorking / case application
1Old sale tax(24-12)x.25=3; net 21.
1Time 0-60-5+21=-44.
1Cash saving25-8=17 yearly.
1Dep change18-4=14 yearly.
1EBIT change17-14=3.
1Tax change.75 tax outflow.
1OCF3 x.75+14=16.25; also 17 x.75+14 x.25.
1TerminalIncremental net residual 8-4=4 plus WC 5=9; year 4 total 25.25.
1NPV-44+16.25 PVAF(10%, 4)+9/1.1^4=13.657435.
1DecisionPositive incremental NPV under stated assumptions. Foregone old sale/old terminal and tax must not be double counted; actual tax block/usable loss/current law separate.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 11

FM-C07-D026 · 5 marks

All financial amounts are Rs lakh unless another unit is stated. Flows base OCF 25 end year for 3 years; initial 50, required additional capex 20 at end year 2 already net of all tax effects; no salvage. Required: dated cash vector, NPV at 10%, effect of omitting midlife outlay and conditional decision. (5 marks)
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MarksCreditWorking / case application
1Vector[-50, 25, 5, 25].
1P VOC F25 PVAF(10%, 3)=62.171300.
1PVC APEX20/1.1^2=16.528926.
1NPV-4.357626, negative; omitting addition would falsely show+12.171300.
1LimitInclude incremental outlays at their dates, not only initial cost. Negative NPV fails standalone value criterion under case.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 10

FM-C07-D027 · 5 marks

All financial amounts are Rs lakh unless another unit is stated. Real cash 30 yearly for 3 years, time 0 cost 70; expected inflation 5%, nominal discount 15.5%. Required: real rate, nominal cash path, NPV using both consistent bases and wrong mix limit. (5 marks)
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MarksCreditWorking / case application
1Real rate1.155/1.05-1=10%.
1Nominal flows31.5, 33.075, 34.72875.
1Real NPV-70+30 PVAF(10%, 3)=4.605560.
1Nominal NPV-70+31.5/1.155+33.075/1.155^2+34.72875/1.155^3=same 4.605560.
1BoundaryDo not discount real cash at nominal rate or add inflation twice; taxes/prices may not inflate identically in real forecasts.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 27

FM-C07-D028 · 5 marks

All financial amounts are Rs lakh unless another unit is stated. Time 0 cost 100 plus WC 10. Annual OCF 35 for 3 years; terminal extra 28 including net asset sale/WC recovery. Discount 10%. Required: base NPV, required constant annual OCF for zero NPV, sensitivity gap and interpretation. (5 marks)
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MarksCreditWorking / case application
1Base PV35 PVAF+28/1.1^3=108.076634.
1NPV-1.923366.
1Break-even OCF[110-28/1.1^3]/2.48685199=35.773414.
1Gap.773414/year above 35, about 2.209754%.
1LimitOne-variable conditional threshold, not probability of success or actual spending choice; terminal extra and rate fixed.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 27

FM-C07-D029 · 5 marks

All financial amounts are Rs lakh unless another unit is stated. Independent project time 0 cost 100. PV future cash under low/base/high cases 80/110/140, probabilities.25/.50/.25. Required: scenario NPVs, expected NPV, negative outcome probability and why expected positive value not a cash guarantee. (5 marks)
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MarksCreditWorking / case application
1NPVs-20, +10, +40.
1ProbabilitiesTotal 1; supplied mutually exclusive scenarios.
1Expected-.25 x 20+.5 x 10+.25 x 40=10.
1Downside25% of the given outcomes have negative NPV.
1LimitPositive expected NPV not guaranteed realised profit/payment capacity; cash dates, loss capacity and risk-adjusted inputs remain relevant.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 27

FM-C07-D030 · 10 marks

All financial amounts are Rs lakh unless another unit is stated. Cedar Components pays 100 for asset including installation and 10 WC now. Life 4 years; tax/accounting straight-line 20/year, taxbook 20 at end. Annual revenue 80, cash operating cost 40; tax 25% immediately usable. Net disposal sale 20 at year 4 with no tax on book-equals-sale, full WC 10 recovery then. Discount 10%, all flows year end. Compute outlay, annual PAT/OCF, terminal, NPV/PI/payback/ARR average capital and decision. (10 marks)

Rs lakh, time 0 now and year-end flows unless expressly stated otherwise.

TimeOperating cashExtra terminalNet
000-110
135035
235035
335035
4353065
Show answer and marking
MarksCreditWorking / case application
1Outlay-110 at time 0.
1EBIT PAT80-40-20=20; PAT 15 yearly.
1OCF15+20=35 yearly; no debt interest in specified project flows.
1TerminalYear 4: 35+20+10=65.
1PV35/1.1+35/1.1^2+35/1.1^3+65/1.1^4=131.435694.
1NPV21.435694 positive.
1PI131.435694/110=1.194870.
1PaybackStrict year end recovery 4 years; conventional uniform annual OCF fraction 3+5/35=3.142857 before terminal receipt, if that different timing assumption explicitly adopted.
1ARRAverage asset(100+20)/2+WC 10=70; average PAT 15/70=21.428571%.
1DecisionPositive NPV conditional on case inputs/feasibility; ARR/payback not full wealth proof. No actual booking/purchase or public deployment instruction.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. Cash-flow dates, tax treatment, required return and decision constraints are case supplied; no purchase or spending instruction.

Official concept source, PDF page 27