Capital budgeting

Zenith Industries Ltd. are thinking of investing in a project cost ` 20 lakhs. The life of the project is

five years and the estimated salvage value of the project is zero. Straight line method of charging

depreciation is followed. The tax rate is 50%. The expected cash-flows before tax are as follows:

Year                                                                                      1 2 3 4 5

Estimated Cash flow before depreciation and tax (` Lakhs)        4 6 8 8 10

You are required to determined the:

i) Pay back period for the investment

Replies (8)
Payback period = 3.833 years Please correct me if I'm wrong

My answer is 3.833 years.

CFAT = (CFBT - T) + (T�D) CFAT = Cash flows after tax CFBT = Cash flows before tax T = Tax rate D = Depreciation Find out the cash flows after tax for each year and then find cumulative cash flows. Apply the payback period formula and then find the value.

how you calculate after getting cfat result ? solve it here

PBDBT 468110 Less dep. 400000 PBT. 68110 Less tax. 34055 PAT. 34055 Add Dep. 400000 PBDAT. 434055 By this PBP is 4.60 years. Isn't it correct?
@ thakuranshdeepsingh The figures are 4,6,8,8,10 (in lakhs) for the years 1,2,3,4,5. You misunderstood it as Rs. 4,68,810 /- @ satyajitmohanty It is difficult to explain the calculation here (as I'm using the CCI mobile app). So I solved the entire sum on a paper and uploaded the picture to Google drive. Here's the link https://drive.google.com/folder/d/0B_LDilExTeaCQXVtMDRoVzlyNWs/edit
Yea I was confused so took while numbers as one figure. Nvm :)
Yea since it says year 2,3,4,5 I got confused so took while numbers as one figure. Nvm :)

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