Project B (Rs.) Initial Investment (1.25.000 1.000) (1.25,000) Cash Inflow After Tax (27,000*5.335) 1,44,045 NPV 19,045 Equivalent Annual NPV Project A = 13,730/3.791 = Rs. 3,622 Project B = 19,045/5.335 = Rs. 3,570 Analysis If it is one time Project, Project B suggested, since its NPV is greater than Project A If a Project is to be replaced every time after the end of economic life of earlier Project, then Project A is preferable, since its equivalent annual NPV is higher than Project B. Illustration 12: 40 XYZ Ltd., an infrastructure company is evaluating proposal to build, operate and transfer a section of 35 kms. of road at a project cost of Rs. 200 crores to be financed as follows: Equity Share Capital Rs. 50 crores, loan at the rate of interest of 15% p.a. from financial institutions Rs. 150 crores. The Project after completion will be opened to traffic and a toll will be collected for a period of 15 years from the vehicles using the road. The company is also required to maintain the road during the above 15 years and after the completion of that period, it will be handed over to the Highway Authorities at zero value. It is estimated that the toll revenue will be Rs. 50 crores per annum and the annual toll collection expense including maintenance of the roads will amount to 5% of the project cost. The company considers to write off the total cost of the project in 15 years on a straight line basis. For Corporate Income tax purposes the company is allowed to take depreciation @ 10% on WDV basis. The financial institutions are agreeable for the repayment of the loan in 15 equal annual installments consisting of principal and interest. Calculate Project IRR. Ignore Corporate taxation