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VWX Corp. is considering an investment of Rs. 550 lakhs in new facilities. The expected earnings before depreciation and taxes for the next five years
VWX Corp. is considering an investment of Rs. 550 lakhs in new facilities. The expected earnings before depreciation and taxes for the next five years are:
Year | Earnings (Rs. in lakhs) |
1 | 140 |
2 | 160 |
3 | 180 |
4 | 200 |
5 | 220 |
The cost of capital is 13%, and the facilities will depreciate at 15% on a straight-line basis. The residual value at the end of five years is estimated at Rs. 120 lakhs. Assume zero taxes.
Requirements:
- Compute the net present value (NPV).
- Calculate the internal rate of return (IRR).
- Determine the discounted payback period.
- Assess the profitability index.
- Provide a recommendation based on financial calculations.
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