STU Inc. is evaluating a new investment project requiring an initial outlay of Rs. 2,00,000....
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Accounting
STU Inc. is evaluating a new investment project requiring an initial outlay of Rs. 2,00,000. The project is expected to generate the following annual profits before tax and after depreciation:
- Year 1: Rs. 70,000
- Year 2: Rs. 65,000
- Year 3: Rs. 60,000
- Year 4: Rs. 55,000
- Year 5: Rs. 50,000
The project will be depreciated at 20% on the original cost. The company’s tax rate is 29%, and the discount rate is 8%.
Required:
- Calculate the PBP and ARR.
- Compute the NPV and IRR.
- Determine the profitability index.
- Evaluate the impact of a 10% increase in the discount rate on NPV.
- Assess the sensitivity of the project to changes in the annual profit by ±10%.
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