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  3. vwx corp. is considering a project with an initial

VWX Corp. is considering a project with an initial investment of Rs. 3,00,000. The project...

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Accounting

VWX Corp. is considering a project with an initial investment of Rs. 3,00,000. The project is expected to last for 4 years, generating the following annual profits before tax and after depreciation:

  • Year 1: Rs. 1,20,000
  • Year 2: Rs. 1,10,000
  • Year 3: Rs. 1,00,000
  • Year 4: Rs. 90,000

The project will be depreciated on a straight-line basis over its life. The company's tax rate is 25%, and the cost of capital is 10%.

Required:

  • Determine the PBP and ARR.
  • Calculate the NPV and IRR.
  • Evaluate the profitability index.
  • Analyze the effect of a 5% increase in the initial investment on NPV.
  • Conduct a sensitivity analysis with changes in the cost of capital by ±2%.

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