Exercise No.

1
Project A
From N+1 to N+5
Turnover 2900
Additional charges outside of depreciation 400
Depreciation Allocations 2000
Result before corporate tax 500
IS 150
Net result 350
Amortization Allocations 2,000
FNT 2,350
Depreciation allocation = 10000 * 20% = 2,000

Since the NPV is constant, we can use the formula: NPV = -D + CF . 1–(1+ a)-n
a
VAN= - 10,000 + 2,350 1- (1+10%)-5
10%
VAN (A) = -10,000 + 8,906.5 = -1,093.5 kdhs

IP( A) = 1 + VAN/D = 0.89

IP (A) = 0,89

The payback period: since the project is not profitable, the invested amount will not be
recovered, and therefore there is no recovery period

The IRR corresponds to the discount rate 'r' that cancels out the NPV.
VAN(A) = 0 →= - 10,000 + 2,350 1- (1+r)5
r
10,000 / 2,350 = 1 - (1 + r)54.2553
r
On peut trouver“r”par simple lecture sur la table financière N° 4: TIR (A)≈5,5%
Project B

N+1 N+2 N+3 N+4 N+5

Revenue 2,800 3,250 4,500 5,500 6,500
Charges variables 280 325 450 550 650
Cges fixes outside of amortization 150 350 350 350 350
Amortization Allocations 2 400* 2,400 2 400 2,400 2,400
Result before tax -30 175 1 300 2,200 3,100
IS 30% - 43.5** 390 660 930
Result after IS -30 131.5 910 1,540 2,170
Depreciation Allocations 2,400 2,400 2,400 2,400 2,400
Residual value +100
FNT 2,370 2531.5 3 310 3,940 4,670
FNT act 10% 2 154,54 2 092,15 2 486,85 2 691,07 2899.7
cumulative FNT act 2 154,54 4 246,69 6 733,54 9 424,61 12 324,31
FNT act 12% 2 116,07 2 018,1 2 355,99 2 503,94 2 649,88
Depreciation allocation = 12,000 * 20% = 2,400
IS = (175–30)* 30% = 43.5

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VAN = -D + ∑ CFk/ (1+a)k
k=1
VAN = -12 000 +12 324,31 = 324,31 kdhs

VAN (A) = 324,31 kdhs

IP = 1 + VAN / D = 1 + 324.31 / 12,000

IP (B) = 1,027

Recovery time: it is between the 4thand the 5thyear: 4 years + x

To determine it, we use linear interpolation.

X= (5-4) (12 000–9 424,61) / (12 324,31–9 424,61) = 0,888

DR = 4 + 0.888 = 4.888 answer
DR = 4 years 10 months & 20 days

The IRR corresponds to the discount rate r such that NPV = 0

NPV at a discount rate of 12% = -12,000 + 11,643.98 = -356.02
So the IRR is between 10% and 12%, to determine it we apply interpolation.
linear: TIR = 10% + x
x = (12% - 10%) (0–324,31) / (-356,02–324,31) = 0,95%
TIR = 10% + 0,95%
TIR (B)≈10,95%

All profitability criteria are favorable for project B, whereas project A is not.
profitable

Exercise No. 2

N+1 N+2 N+3 N+4 N+5

Revenue 1.000 1.100 1.250 1.250 1.250
Charge variables (20% CA) 200 220 250 250 250
Fixed charges excluding depreciation. 250 320 320 320 320
Amortization allocation 340* 340 340 340 340
Result before corporate tax 210 220 340 340 340
IS 30% 63 66 102 102 102
Net income 147 154 238 238 238
Depreciation allocation 340 340 340 340 340
FNT 487 494 578 578 578
FNT updated 9% 446,79 415,79 446.32 409.47 375.66
Cumulative FNT 446,79 862,58 1 308,9 1 718,37 2 094,03
FNT updated 18% 412,71 354,78 351.79 298,13 252,65
FNT capitalized 10% 713,02 657,51 699.38 635.8 578
Amortization allocations = 1,700 * 20% = 340 thousand dirhams

VAN = -1.700 + 2,094.03 = 394.03.

IP = 2,094.03 / 1.700 = 1.23

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DR is between 3th& the 4thyear.
DR = 4 + [(4 - 3) * (1.700 - 1.308.9)] / (1.718.37 - 1.308.9) = 3.95 years
DR = 3 years 11 months & 12 days

IRR is the rate r such that: NPV = 0.

NPV (at a discount rate of 18%) = -1,700 + 1,670.06 = -29.94.
The IRR is then between the rates: 9% and 18%, to find it, we apply interpolation.
linear:
TIR = 9% + [(18% - 9%) * (0 - 394.03)] / (-29.94 - 394.03)
TIR ≈ 17.36%.

3- VANg & TIRg

VANg = -1.700 + 3.283,71 /1,095
VANg = 434,19

TIRg is the rate rgsuch that VAN g = 0.

1700 = + 3,283.71 * (1 + rg)-5 → (1 + rg)-51700 / 3,283.71 = 0.5177
By looking in the financial table No. 2: rg ≈ 14%.
4- Recalculation of the NPV

N N+1 N+2 N+3 N+4 N+5

Expense -1 700
Net income 147 154 238 238 238
Amortization allowance 340 340 340 340 340
BFR -95
Residual value +25
Working Capital Recovery +95
FNT -1 795 487 494 578 578 698
FNT act 9% -1 795 446,79 415,79 446,32 409,47 453,65

VAN = -1795 + 2172.02 = 377.02 kdhs

Calculation of the variations of the working capital requirement

N+1 N+2 N+3 N+4 N+5

BFR 111,11 122,22 138,89 138,8 138,89
Variation BFR 111.11 11.11 16.67 0 0

N N+1 N+2 N+3 N+4 N+5

Expense -1 700
Net income 147 154 238 238 238
Amortization allowance 340 340 340 340 340
BFR -111.11 -11,11 -16,67
Residual value +10
Working Capital Recovery + 138.89
FNT -1 811.11 475,89 477,33 578 578 726.89
FNT act 9% -1 811,11 436,6 401,76 446,32 409,47 472.43

VAN = -1,811.11 + 2,166.58 = 355.47 kdhs

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Exercise No. 3.
The 1erproject:

Elts Amount
VAN = -12,000 + 2,875 *[ 1- (1+0.11)-6/ 0 ,11]
CA 3,500
Charges supp 250 VAN = 162,79.
Depreciation Allowance 2.000
Result before corporate tax 1.250
TIR = r such that VAN = 0
IS 375
12.000 / 2.875 = 4,173913
Net result 875
The financial table No. 4 gives TIR ≈11.5%.
Amort 2,000
FNT 2.875
Amortization Allocation = 12,000 / 6 = 2,000

The 2thproject:

This is a replacement investment:

Depreciation of new equipment: 15,000 / 6 = 2,500
Depreciation allocation of the old equipment: 10,000 * 20% = 2,000

N N+1 N+2 N+3 N+4 N+5 N+6

Dep. Inv -15.000
Old material transfer +4,000
CA - - - - - -
Eco / costs 3.600 3.600 3.600 3.600 3.600 3.600
. Amort -500* -500 -1 500 -2.500 -2.500 -2.500
Result before IS 3.100 3.100 2.100 1.100 1.100 1.100
IS -930 -930 -630 -330 -330 -330
Result Net 2.170 2.170 1.470 770 770 770
Dot amort 500 500 1.500 2,500 2,500 2.500
FNT 2.670 2.670 2.970 3.270 3.270 3.270
FNT act 11% -11.000 2.405.41 2.167.03 2 171.64 2 154.05 1.940.58 1.748.28
RNT act 16% -11.000 2 301,72 1 984,24 1 902,75 1 805,99 1 556,89 1 342,15
Differential depreciation between the new and the old equipment: 2,500 - 2,000 = 500

VAN = -11,000 + 12,586.99 = 1,586.99.

IRR is the rate r such that: NPV = 0.

VAN (au taux d’actualisation 16%) =-11 000 + 10 893,74 = -106,26.
The IRR is then between the rates: 11% and 16%, to find it we apply interpolation.
linear:
TIR = 11% + [(16% - 11%) * (0 - 1,586.99)] / (-106.26 - 1,586.99)

TIR ≈ 15.68 %.

It is observed that: NPV (Project 2) > NPV (Project 1) & IRR (Project 2) > IRR (Project 1)
The comparison of NPV and IRR of the two projects shows that project 2 is more
more profitable than project 1, the company therefore has an interest in choosing project 2emeproject.

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 Exercise No. 4.

1. Calculation of the NPV of the two projects:

VAN (A) = -25.000 + 10.000 * [ 1 - (1 + 0.10) -5/ 0 ,1]

= -25 000 + 37 907,87
12,907.87 dirhams

VAN (B) = -25.000 + 11.500 * [ 1 - (1 + 0.10) -4/ 0 ,1]

= -25 000 + 36 453,45
11,453.45 kdhs.

NPV (A) > NPV (B), so project A is more profitable than project B, but both projects
do not have the same lifespan

2. Alignment on the shortest duration assuming a residual value of 6,000 for the
project A at the end of the 4thyear.

VAN (A) = -25.000 + 10.000 * [ 1 - (1 + 0.10) ]-4/ 0 ,1] + 6.000 *(1+10%)-4

= -25 000 + 31 698,65 + 4 098,08
10,796.73 KDHS

For project B, no changes:

VAN (B) = -25.000 + 11.500 * [ 1 - (1 + 0.10) ]-4/ 0 ,1]

= -25 000 + 36 453,45
11,453.45 KDHS.

3. Alignment on the longest duration assuming a placement rate of 9%.

For project A: no changes:

VAN (A) = -25,000 + 10,000 *[ 1 - (1 + 0.10)-5/ 0 ,1]
= -25 000 + 37 907,87
12,907.87 KDH

For project B, it is assumed that at the end of the lifespan, the amount of expenditure
The investment will be placed for one year at a rate of 9%.

N N+1 N+2 N+3 N+4 N+5

Dep of inv -25.000
CF 11,500 11,500 11.500 11,500
Investment at a rate of 9% -25.000 27.250*
FNT -25,000 11,500 11,500 11,500 -13 500 27 250
FNT updated 10% -25,000 10,454.54 9 504,13 8 640,12 -9 220,68 16,920.11
*25,000 * (1 + 9%) = 27,250

VAN (B) = - 25,000 + 36,298.22 = 11,298.22 kdhs

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Exercise No. 5.
Depreciation allowance for the equipment = 2000 * 20% = 400
Self-financing case:
N N+1 N+2 N+3 N+4 N+5
Dep of inv -2.000
Tax on depreciation 120* 120 120 120 120
Net disbursements -2.000 +120 +120 +120 +120 +120
Net disbursements act 9% -2 000 110.09 101 92.66 85.01 77.99
Tax savings on depreciation = 400 * 30% = 120

VAN = -2 000 + 466,75 = -1 533,25 kdhs

Case of the loan:
Loan amount = 2000 * 75% = 1,500 dirhams
Annuité : a = ?
1.500 = a * [ 1 - (1 + 0.10) ]-5/ 0,1] → 1500 = a * 3.790787 → a = 395.7
Amortization schedule for the loan: 1,500,000 MAD at an interest rate of 10%.
Remaining due period cap InterestsAmort annuity
1 1.500 150 245.7 395,7
2 1,254.3 125.43 270.27 395,7
3 984.03 98.40 297.3 395.7
4 686.73 68.67 327.03 395.7
5 359.7 35.97 359.73 395.7

N N+1 N+2 N+3 N+4 N+5

Dep of Inv -500
Eco of tax on depreciation +120 +120 +120 +120 +120
Echo of interest taxes +45 +37.63 +29.52 +20.6 +10.79
Loan annuities -395.7 -395.7 -395.7 -395.7 -395.7
Net disbursements -500 -230,7 -238,07 -246,18 -255,1 -264,91
Net disbursements act 9% -500 -211.65 -200.38 ["-190.1","-180.72","-172.17"]

VAN = - 1 455,02 kdhs

Lease financing case:

N N+1 N+2 N+3 N+4 N+5

Rent -450 -450 -450 -450
Eco on rent +135* +135 +135 +135
Purchase -300
Eco tax / amortization +90
Net disbursements -315 -315 -315 -615 +90
Updated net disbursements. 9% -288,99 -265,13 -243,24 -435,68 +58,49
*450 *30% = 135
VAN= - 1 174,55 kdhs

The most favorable financing mode is the one that gives the highest NPV.
our case is leasing

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 Exercise No. 6.

The acquisition value of the production equipment = 200,000 dirhams

Depreciation allowance = 200,000 * 20% = 40,000 dirhams

Variation of the working capital requirement:

N+1 N+2 N+3 N+4 N+5

BFR 50,000 55,000 57,000 60,000 80,000
Variation BFR 50,000 5,000 2,000 3,000 20,000

Case of complete self-financing:

N N+1 N+2 N+3 N+4 N+5
Investment expenditure. -200,000
EBE 75,000 77,000 80,000 85,000 87,000
Depreciation allocation -40,000 -40,000 -40,000 -40,000 -40,000
Result before corporate tax 35,000 37,000 40,000 45,000 47,000
IS 30% -10 500 -11 100 -12,000 -13 500 -14 100
Net result 24,500 25 900 28,000 31,500 32 900
Dotation d’amort +40,000 +40,000 +40 000 +40 000 +40,000
Variation BFR -50,000 -5,000 -2 000 -3 000 -20,000
Working Capital Recovery +80,000
Net residual value + 30 000
FNT -250,000 59,500 63,900 65,000 51,500 182 900
FNT act 10% -250 000 54 090,91 52 809,92 48 835,46 35 175,19 113 566,51

VAN = -250 000 + 304 477,99 =54 477,99 dhs

Case of borrowing + self-financing:

Bank loan of 150,000 dirhams, at a rate of 12% and repayable by amortization
constant, and self-financing of 100,000 dirhams

Amortization table of the loan:

Outstanding capital period Interest Depreciation Annuity
1 150,000 18,000 30 000 48,000
2 120,000 14,400 30,000 44,400
3 90,000 10,800 30,000 40 800
4 60,000 7,200 30,000 37 200
5 30,000 3,600 30,000 33,600

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 Cash flow nets:

N N+1 N+2 N+3 N+4 N+5

Investment expenditure. -50,000
EBE 75,000 77,000 80,000 85,000 87,000
Amortization allocation -40,000 -40,000 -40,000 -40,000 -40,000
Interests -18 000 -14 400 -10 800 -7 200 -3 600
Result before corporate tax 17,000 22,600 29,200 37,800 43 400
IS 30% 5 100 6 780 8,760 11,340 13,020
Net income 11 900 15,820 20 440 26,460 30 380
Depreciation provision +40 000 +40,000 +40,000 +40 000 +40 000
Variation BFR -50,000 -5 000 -2 000 -3 000 -20,000
Working Capital Recovery +80,000
Net residual value +30 000
Loan repayment -30,000 -30,000 -30,000 -30 000 -30,000
FNT -100,000 16,900 23,820 27 440 16,460 150 380
FNT act 10% -100 000 15 363,64 19 685,95 20 616,08 11 242,4 93 374,15

VAN = -100,000 + 160,282.22 = 60,282.22 dirhams

Lease financing case

Finance the 50,000 dirhams of working capital through equity, and resort to a leasing contract with
an annual fee of: 55,000 DHS payable at the end of the period, & a buyout option at
start of the 5eyear for: 35,000 dirhams.

N N+1 N+2 N+3 N+4 N+5

EBE 75,000 77,000 80 000 85,000 87,000
Lease payment -55,000 -55,000 -55 000 -55,000
Depreciation allocation -35,000
Result before corporate tax 20,000 22,000 25,000 30,000 52,000
IS 30% -6 000 -6 600 -7,500 -9 000 -15 600
Net profit 14,000 15,400 17 500 21,000 36 400
Amortization provision +35 000
Redemption value -35,000
Variation BFR -50,000 -5 000 -2 000 -3 000 -20,000
Recovery of working capital +80,000
Net residual value + 30 000
FNT -50,000 9,000 13,400 14 500 -34 000 181 400
FNT act 10% -50,000 8 181,82 11 074,38 10 894,06 -23 222,46 112,635.13

VAN = -50 000 + 119 562,93 =69 562,93 dhs

In comparing the disbursements of the three financing methods, it is the leasing that
seems the most profitable, since it gives the highest NPV, the company has an interest in
finance your investment through leasing.

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