PROBLEM 9-1 INDEPENDENT NEW VENTURE A business promoters' team has recently completed a feasibility study of its new venture. The feasibility study made provisions of Rs. 530,000 as the cost of the plant suitable for the venture and Rs. 40,000 for erection of the plant. Rs. 50,000 as a provision for pre-operation management cost has been made. An additional provision of Rs. 60,000 for net working capital, which will continue till the operation of plant. Investm Rs. 20,000. However, plant will realize Rs. 75,000 as cash salvage value upon lapse of its economic The plant will run for 10 years and straight-line depreciation will be applicable to the book value to cash cost of Rs. 350,000 and annual fixed costs equal to Rs. 100,000 excluding depreciation of plant life. The output expected out of the plant will generate sales revenue of Rs. 625,000. An operating will be needed for pre-operation management cost also to be written off in 10 years. The rate of e return expected on investment is 12%. The tax rate on the corporate net income is 50%. Required 1. Initial investment on the venture. 2. Annual CFAT. 3. Final year CFAT. 4. NPV and comment on the profitability of the venture. Ans: (1) NCO Rs. 680,000 (2) Annual CFAT Rs. 117,500 (3) Final year CFAT Rs. 225,000 (4) NPV Rs. 18.513.5