Mondelez, a manufacturer of confectionery products under the Cadbury trademark, plans to launch a range of premium chocolate boxes under the brand name 'Gazelle'. These boxes will be sold only in special chocolate boutiques set up in malls and hotels. Manufacturing and packaging the product would require special units, and thus, this would be an expensive investment. Also, Mondelez plans to support the launch of Gazelle with a high decibel marketing campaign.

The brand manager of Gazelle projects the following cash flows for the first five years (all figures in lakh):

Year1 2 3 4 5

Cash Outflow 100 80 50 20 20

Cash Inflow 30 50 100 120 150

Assume that there are no expenses in Year 0

NPV of the project L 111.14 lakhs

Sensitivity Analysis

The brand manager has been given a target of achieving a cash inflow of 30 lakh in Year 2. If he fails to do so, the project will be discontinued. This is the worst-case scenario for the manager.

The manager estimates the worst-case analysis with the help of the cash inflows provided in the following table.

Year12345Cash Outflow( lakh)10080000Cash Inflow( lakh)2020000

What would be the NPV of the project in case the brand is discontinued after two years, i.e., the cash inflowand outflow is 0 for the rest of the three years?

1) -32.21 lakhs

2) -125.51 lakhs

3) -220 lakhs

4) -193 lakhs