Question 9

An automotive company is considering a new project requiring an initial investment of Rs. 350 lakhs. The project will produce the following cash inflows over the next five years:

Year	Cash Flow (Rs. in lakhs)
1	80
2	90
3	100
4	110
5	120

The company's cost of capital is 9%. The project will have a salvage value of Rs. 30 lakhs at the end of year 5. The annual operating costs are estimated to be Rs. 20 lakhs. Depreciation is calculated on a straight-line basis, and the tax rate is 20%.

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 Accounting Rate of Return (ARR).
5. Provide a recommendation on whether to proceed with the project.