BioVeda Limited $($BVL$)$ is the Ayurvedic division of Shakti Pharma. BVL is considering a new natural sweetener $$Sumaduram$.$ You have recently joined BVL as Project officer and you report to Arush, Vice President $($Finance$),$ who coordinates the long term investment activity. You have been asked to develop the financials for sumaduram. After discussing with marketing, technical, and other personnel, you have gathered the following information.

The sumaduram project has an economic life of $5$ years. It would generate a revenue of Rs$\mathrm{.}50$ million in year$1$ which will rise by $20\%$ per year for the following two years. Thereafter, revenues will decline by Rs$\mathrm{.}10$ million per year for the remaining two years. Operating costs $($costs before depreciation, interest, and taxes$)$ will be $65$ percent of revenues. sumaduram is expected to erode the revenues of some of the existing chemical sweeteners. Due to this erosion there will be a loss of Rs$\mathrm{.}4$ million per year by way of contribution margin for $5$ years. While there may be some other impacts as well, they may be ignored in the present analysis. sumaduram will require an outlay of Rs$\mathrm{.}40$ million in plant and machinery right in the beginning. The same will be financed by retained profits and a term loan in equal proportions. The term loan will carry an interest of $18$ percent per

annum and will be repayable in five equal annual instalments, the first instalment falling due at the end of year $1.$ For tax purposes, the depreciation rate will be $25$ percent as per the written down value method. The net salvage value of plant and machinery after $5$ years is expected to be Rs$\mathrm{.}20$ million. The net working capital requirement will be $20$ percent of projected revenues. Assume that the investment in net working capital will be made right in the beginning of each year and the same will be fully financed by working capital advance carrying an interest rate of $10$ percent per annum. At the end of $5$ years the working capital is expected to be liquidated at par. Income tax rate for the firm is $30\%.$ Show your detailed calculations of the free cash flows relating to the project and ascertain

its feasibility at a CoC of $18\%.$

Make suitable assumptions, if required and state them clearly