ABC Ltd is considering an investment project. The expected original investment in the project will...
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Accounting
ABC Ltd is considering an investment project. The expected original investment in the project will be Rs.1,50,000. The life of the project will be 4 years with no salvage value. The expected profit after depreciation but before tax during the life of the project will be as follows:
Year | 1 | 2 | 3 | 4 |
Rs. | 40,000 | 50,000 | 60,000 | 70,000 |
The project will be depreciated at 25% on the original cost. The company is subjected to 35% tax rate. Required:
a. Calculate Payback Period (PBP) and Accounting Rate of Return (ARR)
b. Calculate Net Present Value (NPV) and Profitability Index (PI), if cost of capital is 12%
c. Calculate Internal Rate of Return (IRR)
d. Determine the discounted payback period
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