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A company is planning to invest 600 lakhs in a new product line. The expected annual cash flows from the product line for the next
A company is planning to invest ₹600 lakhs in a new product line. The expected annual cash flows from the product line for the next five years are as follows:
Year | Cash Flow (₹ in lakhs) |
1 | 150 |
2 | 160 |
3 | 170 |
4 | 180 |
5 | 190 |
The cost of capital is 13%, and the equipment will depreciate at 20% on a Written Down Value basis. The salvage value at the end of five years is ₹40 lakhs.
Required:
- Calculate the NPV of the product line.
- Determine the IRR.
- Compute the Discounted Payback Period.
- Analyze the impact of a 5% increase in annual cash flows on the project's financial metrics.
- Evaluate the sensitivity of the NPV to changes in the discount rate (±2%).
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