Question 9:

YZA Ltd. is planning to undertake a project with a life of 5 years. The initial investment required is ₹3 crores, and an additional ₹70 lakhs for maintenance will be needed at the end of year 2. The estimated sales revenue is ₹1.2 crores in the first year, increasing by ₹30 lakhs each subsequent year. Operating costs are 40% of the revenue.

The equipment will have a salvage value of ₹25 lakhs at the end of the project. The tax rate is 28%, and the company's required rate of return is 15%.

Requirements:

1. Calculate the net operating income for each year.
2. Compute the annual net cash flows.
3. Determine the Net Present Value (NPV) of the project.
4. Evaluate the project's Internal Rate of Return (IRR).
5. Analyze the impact of a 15% decrease in the annual sales revenue on the project's NPV.