ABC Corp. is planning to invest Rs. 700 lakhs in a new venture. The expected earnings before
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Question:
ABC Corp. is planning to invest Rs. 700 lakhs in a new venture. The expected earnings before depreciation and taxes are as follows for the next four years:
Year | 1 | 2 | 3 | 4 |
Earnings (Rs.in lakhs) | 240 | 250 | 260 | 270 |
- The cost of raising capital is 11%.
- Depreciation is to be charged at 20% on a Written Down Value basis.
- No scrap value at the end of the project.
- Assume zero income tax applicable.
Requirements:
- Compute the annual depreciation.
- Calculate the NPV of the project.
- Determine the IRR.
- Calculate the profitability index.
- Advise management on whether to proceed with the investment based on the calculated metrics.
Related Book For
Principles Of Managerial Finance
ISBN: 9781292018201
14th Global Edition
Authors: Lawrence J. Gitman, Chad J. Zutter
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