The management of the Play Toy Factory, a manufacturer of toys in New Delhi, is considering the introduction of a new type of a toy-remote control motorbike. In the past, the management has been quite conservative in making investments in new products and considers this project quite a risky one. The management feels that the normally used required rate of return of 10% is not proper in this case and, instead, a return of 16% is expected on this project.

The project, requiring an outlay of Rs 1,50,000 has the following expected returns over its estimated life of 6 years.

Should the project be undertaken?

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Year 1 2 3 Cash flow ('000 Rs) : 30 30 30 30 50 50 4 5 6 60 60 40 25