Question $2(25$ marks$)$

DK Engineering has agreed to pay AB Consulting the sum of Rs$250,000$ for the

development of the online system which includes the website and the subscription

system. The hardware cost is Rs$150,000$ while overhead costs have been estimated at

R$40,000($cost of a technical staff and other overheads$)$ per month. It is estimated that the

online system will generate revenue of some Rs $60,000$ per month.

$($a$)$ How much revenue will lead the company to breakeven? Why is this

information important to DK Engineering?

$($b$)$ Assuming that the project has the following cash flows:

Year $1$ cash inflows Rs$100,000$

Year $2$ cash inflows Rs$150,000$

Year $3$ cash inflows Rs$200,000$

Work out the NPV for the project and the payback period. Explain the

importance of working out the NPV as well as the payback period, for

management decision making. How are these different from breakeven analysis?

Assume an interest rate of $6\%.$

$[15$ marks$]$