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
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