$2.$ 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$.$