● 14. A limited Company is considering investing a project requiring a capital outlay of

`2,00,000. Forecast for annual income after depreciation but before tax is as follows:

Year `

1 1,00,000 2 1,00,000 3 80,000 4 80,000 5 40,000 Depreciation may be taken as 20% on original cost and taxation at 50% of net income.

You are required to evaluate the project according to each of the following methods:

(i) Payback method

(ii) Rate of return on original investment method

(iii) Rate of return on average investment method

(iv) Discounted cash flow method taking cost of capital as 10%

(v) NPV Year Profit Before Tax Profit After Tax @50%

Cash Inflows After Tax

[PAT + Dep]

Cumulative Cash Inflows Discount Factor @

10%

Present Value 1

2 3

4 5

1,00,000 1,00,000 80,000 80,000 40,000 50,000 50,000 40,000 40,000 20,000 90,000 90,000 80,000 80,000 60,000 90,000 1,80,000 2,60,000 3,40,000 4,00,000 0.9091 0.8264 0.7513 0.6830 0.6209 81,819 74,376 60,104 54,640 37,254 3,08,193