ABC Co., a franchise of Apollo pharmacy, sells 150 strips/day of low budget drugs at an average contribution of 25/strip and 100 strips/day of high budget drugs at an average contribution of 760/ strip Sales volume and average price are expected to grow by 5% every year for both the drugs.

To operate a franchise, it needs to have a 750 sqft space for retail shop with a lease rental of 100/sqft /month (rental contract for 5 years, deposit of 10,00,000 at the start).

A one time renovation of the premises worth 20,00,000 will need to be incurred at the start.

Required personnel costs are 280,000/month Wage inflation in the economy is 7%. Other operational expenses are expected to be 25% of the contribution, generated for the period. Tax rate in the economy is 35%. Tax losses cannot be carried forward. The initial investment (deposit + renovation) can be funded by 60% bank loan (@12% interest rate). The remaining should be funded using equity.

The debt is to be repaid at the end of 5 years in lump sum, other investment opportunity with ABC Co. is expected to provide a return of 20%.

Evaluate the business opportunity with a project life of 5 years.

After 5 years the franchise will be handed over to Apollo Pharmacy and the deposit will be refunded to the ABC Co. (Ignore depreciation) If ABC Co. invests in the project, what is the expected IRR?