PQR Ltd. is evaluating a project that requires an initial investment of 12,000 and has a life
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Question:
PQR Ltd. is evaluating a project that requires an initial investment of ₹12,000 and has a life of 6 years. The company’s required rate of return is 10%. The project will be depreciated on a straight-line basis. The net cash flows (before taxes) expected to be generated by the project and the present value (PV) factor (at 10%) are as follows:
Year | 1 | 2 | 3 | 4 | 5 | 6 |
Cash inflow (₹) | 3,000 | 3,000 | 3,000 | 3,000 | 3,000 | 3,000 |
PV factor (at 10%) | 0.909 | 0.826 | 0.751 | 0.683 | 0.621 | 0.564 |
Requirements:
- Compute the NPV of the project.
- Determine the IRR.
- Calculate the payback period.
- Assess the profitability index.
- Recommend whether PQR Ltd. should undertake the project.
Related Book For
Managerial Accounting A Focus on Ethical Decision Making
ISBN: 978-0324663853
5th edition
Authors: Steve Jackson, Roby Sawyers, Greg Jenkins
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