Question 3

A manufacturing firm is considering an expansion project that involves a capital outlay of Rs. 600 lakhs. The project is projected to generate the following cash flows over its life:

Year	Cash Flows (Rs. in lakhs)
1	180
2	200
3	220
4	240
5	260

The firm’s cost of capital is 9%, and it uses a straight-line depreciation method over five years. The residual value at the end of the project life is estimated to be Rs. 40 lakhs. Assume the company faces no income tax.

Requirements:

1. Compute the net present value (NPV) of the project.
2. Calculate the internal rate of return (IRR).
3. Determine the simple payback period.
4. Evaluate the project's profitability index.
5. Advise the management on the feasibility of the project based on these calculations.