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Querist : Anonymous

Querist : Anonymous (Querist)

25 November 2011 a company is considering an investment proposal , involving an initial cash outlay of rs 45 lakh . the proposal has an expected life of 7 years and zero salvage value . at a required rate of return of 12% , the proposal has a profitability index of 1.182 , calculate the annual cash inflows

CA Dileep Surya Kumar

CA Dileep Surya Kumar (Expert)
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25 November 2011 PI indicates cash inflow for rupee of cash outflow(investment)

Total cash inflow=cash outflow*PI

i,e 45l*1.182=53.19 lac

i.e sum of discounted cash inflows =present value of annuity factor*Annual cash inflow=53.19 lacs

PV of AF@12% for 7 years=4.5638

.'.Annual cash inflow=sum of Discounted cash inflows
------------------------
PV of AF

.'. =53.19 lac
--------
4.5638

Annual cash inflow=11.65476 lacs

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