Hello Class, Here is some additional information and helpful hints for the Week 6 assignment. Please enter all of your responses directly on these pages then submit. This information was already provided in the instructions:

Possible Location Mumbai Bangalore Initial cash outlay $5,000,000 $2,800,000 Useful life 20 years 20 years Net cash inflows excluding depreciation $1,100,000 $860,000 The cost of capital 9% 9% Tax rate 40% 40% Mumbai: Years 1-20 Net Income Cash Flow Annual cash savings $1,100,000 +$1,100,000 Depreciation($5,000,000/20) 250,000 Income before tax $850,000 Tax, 40% 340,000 -340,000 Net Income $510,000 Annual Net cash flow $760,000

1. Average rate of return on investment: Average Investment is (initial cash outlay) / 2 = $x,xxx,xxx (net income) / $x,xxx,xxx =

2. Payback period: Initial investment / Annual net cash flow = x.x years

3. Net present value: Year Explanation Amount Factor = Present Value 0 Initial Investment -$5,000,000 1 -$5,000,000 1-20 Annual net cash inflow (Annual Net cash flow) 9.1285 6,937,660 Net present value $x,xxx,xxx

4. Profitability index: Present value of cash inflow / Present value of cash outflow = $x,xxx,xxx / $x,xxx,xxx = x.xx Note the Present value of cash inflow is the Annual net cash inflow calculated in 3. Above. Also, the Present value of cash outflow is the initial cash outlay.

5. Now try question 5 on Internal Rate of Return. For this IRR or Internal Rate of Return, use your response to #2 above...next...look at the Present Value of an annuity of $1 table, and look for the intersection of 20 years and the factor from #2...you will arrive at a % for the answer. Bangalore: Years 1-20 Net Income Cash Flow Annual cash savings $860,000 +$860,000 Depreciation($2,800,000/20) 140,000 Income before tax $720,000 Tax, 40% 288,000 -288,000 Net Income $432,000 Annual Net cash flow $572,000

1. Average rate of return on investment: Average Investment is (initial cash outlay) / 2 = $x,xxx,xxx (net income) / $x,xxx,xxx =

2. Payback period: Initial investment / Annual net cash flow = x.x years

3. Net present value: Year Explanation Amount Factor = Present Value 0 Initial Investment -$2,800,000 1 -$2,800,000 1-20 Annual net cash inflow (Annual Net cash flow) 9.1285 5,221,502 Net present value $x,xxx,xxx

4. Profitability index: Present value of cash inflow / Present value of cash outflow = $x,xxx,xxx / $x,xxx,xxx = x.x Note the Present value of cash inflow is the Annual net cash inflow calculated in 3. Above. Also, the Present value of cash outflow is the initial cash outlay.

5. Now try question 5 on Internal Rate of Return. See #5 for Mumbai for additional information to calculate IRR. LAST QUESTION: Which is the better investmentMumbai or Bangalore?