XYZ Ltd., is considering an investment in a small project that has a cost of Rs.

300,000. The project will produce 1,000 cartons of Product-X per year indefinitely. The

current sales price is Rs. 276 per carton. The current variable cost per carton is Rs. 210. The

tax rate of the firm is 35%. The sales price and cost are expected to rise at a rate of 6% per

annum. The firm uses only equity, and its cost of capital is 15%. You may assume that there

would be no fixed cost or depreciation.

Required:

Would you recommend XYZ Ltd., to accept the project? (10 Marks)

Paste here Answer 2: