Question 5

A pharmaceutical company is evaluating the feasibility of a new drug development project requiring an investment of Rs. 1000 lakhs. The project will yield the following cash inflows over the next eight years:

Year	Cash Flow (Rs. in lakhs)
1	100
2	150
3	200
4	250
5	300
6	350
7	400
8	450

The company's required rate of return is 18%. The drug will have a salvage value of Rs. 80 lakhs at the end of year 8. The annual operating costs are Rs. 70 lakhs. Depreciation is calculated on a straight-line basis, and the corporate tax rate is 30%.

Required:

1. Calculate the Net Present Value (NPV) of the project.
2. Determine the Internal Rate of Return (IRR).
3. Calculate the Payback Period.
4. Compute the Profitability Index (PI).
5. Provide a recommendation on whether to proceed with the drug development project.