Question 4

A company is contemplating a new project requiring an investment of Rs. 450 lakhs in fixed assets. The following are the expected earnings before depreciation and tax (EBDT) for the next five years:

Year	EBDT (Rs. in lakhs)
1	160
2	170
3	180
4	190
5	200

The cost of capital is 13%, and depreciation is to be calculated at 10% on a written-down value basis. The estimated salvage value at the end of five years is Rs. 20 lakhs. Assume zero income tax.

Requirements:

1. Calculate the net present value (NPV).
2. Determine the internal rate of return (IRR).
3. Compute the payback period.
4. Calculate the accounting rate of return (ARR).
5. Provide a recommendation based on the computed financial metrics.