Question 8:

VWX Inc. is considering a new project with a life of 6 years. The initial capital investment is ₹4.5 crores. The project will also require a working capital investment of ₹40 lakhs, which will be recovered at the end of the project. The estimated annual revenues are ₹1.8 crores, ₹2 crores, ₹2.2 crores, ₹2.4 crores, ₹2.6 crores, and ₹2.8 crores from year 1 to year 6, respectively.

Operating costs, excluding depreciation, are 45% of revenues. The equipment will be depreciated using the straight-line method to zero salvage value over the project's life. The tax rate is 33%, and the discount rate is 14%.

Requirements:

1. Calculate the annual depreciation expense.
2. Estimate the annual net cash flows.
3. Determine the project's Net Present Value (NPV).
4. Compute the project's Internal Rate of Return (IRR).
5. Conduct a break-even analysis to find the minimum revenue needed to achieve an NPV of zero.