● 13. A company can make either of the two investments at the beginning of 2010. Assuming a required rate of return of 10% p.a., evaluate the investment proposals under

(i) Payback Profitability (without considering P.V factor, (ii) Discounted Payback Period,

(iii) Profitability Index. The particulars relating to the projects are given below:

Project X Project Y Initial Investment (`)

Estimated life (Years)

Scrap Value (`)

Net Cash Flow after Depreciation and Tax (`)

End of 2010 End of 2011 End of 2012 End of 2013 End of 2014 Method of Depreciation 40,000 5

Nil 8,000 10,000 12,000 16,000 10,000 S.L. Method 56,000 5

Nil 15,000 16,000 15,000 15,000 15,000 S.L. Method It is estimated that each of the alternative proposals will require an additional working capital of `4,000 which will be received back in full after expiry of each project life. The present value of `1.00 to be received at the end of each year at 10% p.a. is given below:

Year 1 2 3 4 5 P.V Factor (`) 0.909 0.826 0.751 0.683 0.621