. PC is planning to buy the machinery for Rs. 5,000 million with a life span of

five years. The profit projections are given in the following

Table:

Table: Profitability Projections

(Rs. in million)

Year

1 2 3 4 5

Sales 5000 5500 6000 8000 6500

Materials 1000 2000 2500 2000 2000

Wages and salaries 1500 1500 2000 2000 2000

Selling expenses 500 700 1000 500 600

Corporate office costs 100 200 300 400 500

Depreciation (WDV@ 20%)

Tax @30%

The company proposes to finance the project by equity @ 10%.

Discussion question:

Should the project be accepted?

Use capital budgeting methods to give your recommendation