GHI Industries is considering an investment project that requires an initial outlay of Rs. 5,00,000....
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Accounting
GHI Industries is considering an investment project that requires an initial outlay of Rs. 5,00,000. The project is expected to last for 5 years with the following annual profits before tax and after depreciation:
- Year 1: Rs. 1,50,000
- Year 2: Rs. 1,40,000
- Year 3: Rs. 1,30,000
- Year 4: Rs. 1,20,000
- Year 5: Rs. 1,00,000
The project will be depreciated at 15% per annum on the original cost. The tax rate is 30%, and the cost of capital is 8%.
Required:
- Determine the PBP and ARR.
- Calculate the NPV and IRR.
- Evaluate the profitability index.
- Analyze the effect of a 5% increase in annual profits on the NPV.
- Assess the project's sensitivity to a 2% change in the cost of capital.
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