Q No.1

A company is considering an investment proposal to install new milling machine. The project will cost Rs.50,000. The facility has a life expectancy of 5 years and no salvage value. The company tax rate is 40%. Firm uses straight-line method for depreciation. The estimated earnings before tax from the proposed investment plan are as under.

Year Earningbefore tax

1 Rs. 22,000

2 18,000

3 14,000

4 15,000

5 25,000

Compute cash flow for 5 years.

Calculate:

1. Payback period

2. Profitability Index

3. IRR

4. NPV (discount rate is 15%)