1. The first part of the assignment relates to capital budgeting. In particular, you are required to calculate the Net Present Value involving inflation.
a. Halma plc is planning to sell a new security sensor device. Non-current assets costing £700,000 would be needed, with £500,000 payable at once and the balance payable after one year. Initial investment in working capital of £330,000 would also be needed. Halma expects that, after four years, the device will be obsolete and the disposal value of the non-current assets will be zero. The project would incur incremental total fixed costs of £545,000 per year at current prices, including annual depreciation of £175,000. Expected sales of the device are 120,000 units per year at a selling price of £22 per device and a variable cost of £16 per device, both in current price terms. Halma expects the following annual increases because of inflation:
Fixed costs 4 per centSelling price 5 per centVariable costs 7 per centWorking capital 7 per centGeneral prices 6 per cent
If Halma’s real cost of capital is 7.5 per cent and taxation is ignored, appraise whether the project is viable using the NPV technique? [Notes on capital budgeting and NPV involving inflation are available on Blackboard]
b. Critically discuss (i) issues involved in capital budgeting, and (ii) whether net present value is the best appraisal technique and consistent with the goal of the firm.2. The aim of the second part of the assignment is to encourage you to think the extent to which a company’s dividend policy is affected by external and internal factors (e.g. industry, operating and financing decisions, past dividend policy).
USA 
India