ePGP has developed a new hand held device (you can wear it as if it is a ring). Test Guzzler. The device just needs to be held in hand and needs to be pointed towards any question and it shall transmit the answer to the holder's mind. You need to decide whether to invest in order to produce and market it or wait for an opportune moment to do so. R&D cost so far have totalled Rs. 10 m. Test Guzzler is to be put in the market beginning this year and will have a life of five years (because after five years each exam hall may have test guzzler jammers in place). Market survey costing Rs. 5 million shows that there is a thriving market for Test Guzzler. You must decide whether or not to launch the gadget. All cash flows are assumed at the end of the year except the initial investment ePGP initially needs to invest Rs. 80 m in production equipment which can be sold for Rs. 51 million at the end of the 5 years. The equipment is expected to depreciate @ 25% p.a. This is the only equipment in this block of assets. The gadget will be sold in two markets: Original Equipment (OE) market (Coaching Centres): The expected price is Rs. 36 per gadget. The variable cost is Rs. 18 per gadget Open Market. The expected price is Rs. 59 with the same variable cost ePGP plans to raise the prices @1% above the inflation rate (inflation rate is expected to be 3.25% for the five years under consideration). Accordingly, the variable costs will also change (ie. Growing at 1% above inflation rate). Marketing costs are expected to be Rs. 25 M in the first year growing at the inflation rate. The company shall be paying corporate taxes @ 40% and the capital gain tax (if any) is 15%. In the OE market 2m students are expected to be enrolled this year and grow by 2.5%. ePGP plans to earn a share of 11% of this market. In the open market 14 M students are expected to be enrolled and will grow at 2%. ePGP plans to earn a share of 8%. In the third year, the company does not expect any revenues because the institutions that construct the test papers would have altered the exam pattern to beat Test Guzzler. This would result in no sales in the third year. However, they expect Test Guzzler to bounce back and gain 5% of both the OE as well as the open market in the fourth year. In the fifth year they feel they shall be able to back to their market share of 11%. At the end of fifth year you sell all your assets at a salvage value of 51 M, retire and settle in Honolulu. ePGP plans to invest half the money on their own and borrow the rest using a gold loan scheme of SBI at 9% p.a. It is estimated that equity investors would expect 18% return from this venture. Initial NWC is Rs. 11m and it becomes 15% of sales for each year thereafter. There is no intermittent capex that you need to invest. You, as the CFO of ePGP, are required to decide whether to invest in this new gadget. Hint: Do recollect the discussions on carry forward of losses, treatment of opportunity cost and sunk costs as well as the treatment of incidental capital gains in the class.