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A company is evaluating a project that requires an initial outlay of Rs. 2,000 lakhs. The expected earnings before depreciation and taxes are: Year Earnings
A company is evaluating a project that requires an initial outlay of Rs. 2,000 lakhs. The expected earnings before depreciation and taxes are:
Year | Earnings (Rs. in lakhs) |
1 | 400 |
2 | 420 |
3 | 440 |
4 | 460 |
5 | 480 |
The cost of capital is 16%, and the depreciation rate is 10% on a straight-line basis. The scrap value of the project at the end of five years is Rs. 250 lakhs.
Required:
- Calculate the net present value (NPV).
- Determine the internal rate of return (IRR).
- Compute the payback period.
- Calculate the annual depreciation.
- Decide whether to invest in the project based on the financial analysis.
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