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2 . The total cost of a project will be ` 1 0 million. This comprises ` 6 million in plant and machinery and `

2. The total cost of a project will be `10 million. This comprises `6 million in plant and
machinery and `4 million in gross working capital. The entire outlay will be incurred at the
beginning of the project.
The life of the project is expected to be 5 years. At the end of 5 years, the plant and machinery will
fetch a salvage value of `2 million. The liquidation value of working capital will be `4 million, its book
value.
The project will increase the revenue of the firm by `7 million p.a. The increase in expenses on
account of the project will be `4 million p.a. This includes all items of expenses other than
depreciation, interest, and taxes. The effective tax rate will be 30%. Plant and machinery will be
depreciated @ 20% p.a. as per the reducing balance method. Calculate The NPV of the project at
10% D.F.

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