A company is engaged in evaluating an investment project which requires an initial cash outlay of Rs.
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Question:
A company is engaged in evaluating an investment project which requires an initial cash outlay of Rs. 2,50,000 on equipment. The project's economic life is 10 years and its salvage value Rs.30,000. It would require current assets of Rs. 50,000. An additional investment of Rs.60,000 would also be necessary at the end of 5 years to restore the efficiency of the equipment. This would be written off completely over the last 5 years. The project is expected to yield annual (before tax) cash inflow of Rs.1,00,000. The company follows the sum of the years digit method of depreciation. Income-tax rate is assumed to be 40%. Should the project be acceped if the minimum required rate of return is 20%?
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