A firm is planning to invest 1,200,000 in a new project. The project is expected to generate
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Question:
A firm is planning to invest ₹1,200,000 in a new project. The project is expected to generate the following earnings before depreciation and taxes over 5 years:
- Year 1: ₹240,000
- Year 2: ₹250,000
- Year 3: ₹260,000
- Year 4: ₹270,000
- Year 5: ₹280,000
Depreciation is on a straight-line basis with no salvage value. The tax rate is 26%, and the required rate of return is 14%.
Requirements:
- Calculate the annual depreciation expense.
- Determine the Net Present Value (NPV).
- Find the Internal Rate of Return (IRR).
- Calculate the Payback Period.
- Assess the project’s acceptability using NPV and IRR criteria.
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