Mr. Bean Iron Company is considering to install a machine which cost

Rs.1,00,000. The machine has a life of 5 years, and has no salvage value. The company’s

tax rate is 50 per cent, and no investment allowance is provided. The company uses straight

line depreciation. The estimated cash flows before tax from the proposed investment

proposal is as follows.

Sl.No. Year Cash Flow Before Tax

1. 2006-07 20,000

2. 2007-08 22,000

3. 2008-09 28,000

4. 2009-10 30,000

5. 2010-11 50,000

Compute the following:

a) Pay back period

b) Average rate of return

c) Net-profit value at 10% discount

d) Profitability index