4 Financial Analysis And Investment Decisions

Software Project Management · Unit 4

Financial Analysis and Investment Decisions

Exam-focused notes for Financial Analysis and Investment Decisions (Software Project Management, BIT402): what the TU syllabus asks and how it has actually been tested, with 5 solved past questions from this unit.

What this unit covers

  • Cost benefit analysis and values
  • Net Present Value calculation and application
  • Return on Investment calculation
  • Break Even Point significance
  • Payback period calculation
  • Cash flow forecasting

Payback period calculation

20825 marks

Calculate payback period and ROI for the following project

$$\begin{array}{|c|c|}\hline \text{Year} & \text{Project} \ \hline 0 & -100000 \ 1 & 50000 \ 2 & 30000 \ 3 & 10000 \ 4 & 20000 \ 5 & 20000 \ \hline \end{array}$$

[5]

Year Cash Flow (Rs.) ----------------------- 0 -100,000 (initial investment) 1 50,000 2 30,000 3 10,000 4 20,000 5 20,000 --- The payback period is the time needed to recover the initial investment of Rs. 100,000 from cumulative inflows. Cumulative Cash Flo...

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Net Present Value calculation and application

208110 marks

How Net Present Value can be utilized in choosing an appropriate project to invest on? Explain with an example. Calculate ROI if an initial investment is Rs. 5 lakh and projected benefit is Rs. 10 lakhs for 5 years (2 lakhs per year).[10]

ROI calculation: - Initial Investment = Rs. 5,00,000 (5 lakh) - Total Projected Benefit = Rs. 10,00,000 (10 lakh) over 5 years - Annual Benefit = Rs. 2,00,000 per year NPV example: No specific project cash flows, discount rate, or investment amounts are giv...

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Cash flow forecasting

20815 marks

How cash flow forecasting is carried out? Explain. [5]

Cash flow forecasting is the process of estimating the future inflows and outflows of cash in a business over a specific period. It helps organizations predict their liquidity position and plan financial operations accordingly. - Collect past financial reco...

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Break Even Point significance

20805 marks

Explain the significance of Break Event Point and Return on Investment. [5]

Definition: The Break Even Point is the level of sales or production at which total revenue equals total costs, resulting in neither profit nor loss. Significance: 1. Financial Planning & Decision Making - Helps determine the minimum sales volume required t...

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Cost benefit analysis and values

05 marks

Explain the importance of cost benefit analysis. What are different values that are calculated while performing cost benefit analysis? [5]

Cost Benefit Analysis (CBA) is a systematic approach to evaluating the strengths and weaknesses of alternatives in project or business decisions. Its importance includes: 1. Informed Decision Making: Provides a quantitative basis for comparing different pro...

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