Question 8

A renewable energy firm is planning to invest Rs. 700 lakhs in a new solar power plant. The project is expected to generate the following cash flows over a ten-year period:

Year	Cash Flow (Rs. in lakhs)
1	100
2	120
3	140
4	160
5	180
6	200
7	220
8	240
9	260
10	280

The firm's cost of capital is 10%. The plant will have no salvage value at the end of year 10. Annual operating costs are estimated at Rs. 50 lakhs. The company uses a straight-line depreciation method and faces a 25% tax rate.

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 Profitability Index (PI). 5. Advise the management on whether to invest in the solar power plant.