MNO Ltd. is considering a project requiring an initial investment of Rs. 3,50,000. The project’s...
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Accounting
MNO Ltd. is considering a project requiring an initial investment of Rs. 3,50,000. The project’s life is 4 years, and it has no salvage value. The expected profits before tax but after depreciation are as follows:
- Year 1: Rs. 1,00,000
- Year 2: Rs. 1,20,000
- Year 3: Rs. 1,10,000
- Year 4: Rs. 1,30,000
The depreciation rate is 30% on the original cost. The company is subject to a 32% tax rate, and the cost of capital is 9%.
Required:
- Determine the PBP and ARR.
- Calculate the NPV and IRR.
- Evaluate the profitability index.
- Assess the impact of a 15% increase in initial investment on the NPV.
- Conduct a sensitivity analysis with a change in the discount rate to 7%.
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