Capital budgeting problem.

CA,CS Mehul Bhanawat (Job) (199 Points)

04 August 2011  

 

1.      Suppose you have purchased an equipment of RS. 95000, which has a salvage value of RS. 5000 and is depreciated at a straight line method for next 5 years. With the adoption of machinery the company is able to increase its sales by Rs.42000 for next 5 years, the operating expenses incurred is Rs.15000 with an expected growth of 2% per year for next 5 years. The tax rate is of 35%.

The equipment is sold at the end of 5 years at its salvage value.

Considering the cost of capital to be 12%

Calculate NPV and IRR of the given project.