Question
Assume that the company XYZ decides to establish a new production plant to smooth manufacturing process of its white cement. This plant requires an investment
Assume that the company XYZ decides to establish a new production plant to smooth manufacturing process of its white cement. This plant requires an investment of Rs. 12 million. The company estimates Rs. 18M as net income and Rs. 20M as annual cash flows from this investment. (the return required for AAR is 20% and benchmark for the payback period is 2 years.) Required:
1. Determine the following:
a) The time period required to recover the initial investment.
b) Average accounting return (AAR) for the project.
2. Does the project is feasible for the company based upon the results of parts A & B above.
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