Question 8

A firm is planning to introduce a new product line requiring an initial outlay of Rs. 520 lakhs. The forecasted cash flows before depreciation and taxes for the next five years are:

Year	Cash Flows (Rs. in lakhs)
1	200
2	210
3	220
4	230
5	240

The discount rate is 10%, and the assets will be depreciated at 18% on a straight-line basis. The residual value of the project at the end of five years is Rs. 50 lakhs.

Requirements:

1. Calculate the net present value (NPV) of the project.
2. Determine the internal rate of return (IRR).
3. Compute the discounted payback period.
4. Calculate the accounting rate of return (ARR).
5. Provide a recommendation on whether to proceed with the project.