A Caselet: Nirmal Chemical Company The Nirmal Chemical Company is planning to invest in a new plant. The team of analysts responsible for investment appraisal has arrived at the following information:

Estimated investment — 10 lac Estimated life of the plant — 7 years Annual Cash flows: Years 1–3 — Rs 1.5 lac Years 4–7 — Rs 2 lac Appropriate discount rate — 15 percent Now:

(i) Find the present value of all cash flows.

(ii) How would your answer change if cash flows were to grow at 40 percent per year after year 3 up to the seventh year?

(iii) Now reduce the life of the plant to 6 years. Keeping the other data constant, find the present value.

(iv) Recalculate the present value using a discount rate of 14 percent.