Your feasibility require land which you bought at Rs.1.2 million on October 10, 2005 and you will pay in December 2005. You plan to construct a building on this land and estimate that 4 million will be paid in 2006 and 4 million will be paid in 2007. Equipment will be required in 2007 and estimated cost for this equipment will be 10 million.

Project also requires an initial investment in net working capital equal to 12% of the estimated sales in the first year. This investment will be made in December 2007 and this working capital will also be required to increase every year by 12% of any sales increase expected during the year. The project estimated economic life is 6 years. At that time, the land is expected to have a market value of 1.7 million, the building a value of 1.0 million and the equipment a value of 2 million.

Marketing department expect sales for 2008 would be 25000 units and price set for this year is Rs. 2200 per unit. The production department has estimated that variable manufacturing costs would total 65% of sales value and fixed overhead costs, excluding depreciation would be Rs.8 million for the first year of operation. Sales prices and fixed overhead costs are expected to increase by 6% per year.

Tax rate is 40%. Assume cash flow will occur at the end of every year. Also assume that company uses diminishing balance method( rate 15%) for equipment and 5% for building depreciation. Assume cost of capital 15% to calculate NPV.