Question 6

A construction company is planning to undertake a new housing project requiring an investment of Rs. 600 lakhs. The project is expected to generate the following cash flows:

Year	Cash Flow (Rs. in lakhs)
1	120
2	130
3	140
4	150
5	160

The company's cost of capital is 11%. The housing project will have a salvage value of Rs. 50 lakhs at the end of year 5. Annual operating expenses are estimated to be Rs. 40 lakhs. The company uses a straight-line depreciation method and has a tax rate of 25%.

Required:

1. Calculate the Net Present Value (NPV) of the project.
2. Determine the Internal Rate of Return (IRR).
3. Calculate the Discounted Payback Period.
4. Compute the Modified Internal Rate of Return (MIRR).
5. Advise the management on whether to invest in the housing project.