With project cost of ₹ 300 lacs, profits after depreciation (straight line method) and tax for its…
With a project cost of ₹ 300 lacs and a 5-year life (zero salvage), annual straight-line depreciation is 300 / 5 = ₹ 60 lacs. Adding ₹ 60 lacs depreciation back to annual…
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With project cost of ₹ 300 lacs, profits after depreciation (straight line method) and tax for its lifetime of 5 years are estimated at ₹ 10 lacs, ₹ 10 lacs, ₹ 30 lacs, ₹ 40 lacs and ₹ 50 lacs respectively. The cost of capital is 12% and discount factors @ 12%, for the first five years are 0.89, 0.80, 0.71, 0.64 and 0.57 respectively. The Net present value of project is :
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Correct answer A
With a project cost of ₹ 300 lacs and a 5-year life (zero salvage), annual straight-line depreciation is 300 / 5 = ₹ 60 lacs. Adding ₹ 60 lacs depreciation back to annual PAT (10, 10, 30, 40, 50 lacs) yields annual Cash Flows After Tax (CFAT) of 70, 70, 90, 100, and 110 lacs. Multiplying by the 12% discount factors (0.89, 0.80, 0.71, 0.64, 0.57) gives Present Value of Inflows = 62.30 + 56.00 + 63.90 + 64.00 + 62.70 = ₹ 308.90 lacs. Therefore, NPV = ₹ 308.90 lacs - ₹ 300.00 lacs = ₹ 8.90 lacs.
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