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JKL Corp. is planning to invest in a new project with an initial cost of...

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Accounting

JKL Corp. is planning to invest in a new project with an initial cost of Rs. 4,00,000 and no salvage value. The expected profits after depreciation but before tax over the project’s life of 5 years are:

  • Year 1: Rs. 90,000
  • Year 2: Rs. 85,000
  • Year 3: Rs. 80,000
  • Year 4: Rs. 75,000
  • Year 5: Rs. 70,000

The project will be depreciated at 10% on the original cost, and the tax rate is 33%.

Required:

  • Calculate the PBP and ARR.
  • Compute the NPV and PI, assuming a discount rate of 11%.
  • Determine the IRR for the project.
  • Evaluate the impact of a 20% decrease in profits on the project’s NPV.
Conduct a sensitivity analysis with a tax rate of 25%.

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