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Jirani Chemists is putting up a 5-year project. The project is expected to generate the following sales revenue: Year 1 2 3 4 5 Sales

Jirani Chemists is putting up a 5-year project. The project is expected to generate the following sales revenue:

Year

1

2

3

4

5

Sales Revenue

750,000

780,000

700,000

900,000

950,000

The project requires an initial cash outlay of one million shillings and annual operating expenses of Kshs 300,000 p.a. the project will have a salvage value of Kshs 200,000 at the end of its economic life. The firm applies a straight-line method of depreciation for all new projects. All the income will be subjected to a tax rate of 40%. The cost of capital is 12%.

Required:

Prepare a schedule to show the cash flows generated by the project. (8 marks)

Evaluate the project using the following techniques:

Regular payback period (2 marks)

Discounted payback period (2 marks)

ARR (2 marks)

NPV (2 marks)

Internal rate of return (2 marks)

Profitability index

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