XYZ Ltd. is considering a project with the following details:Initial investment: Rs. 1,50,000Project life: 6...
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Accounting
XYZ Ltd. is considering a project with the following details:
- Initial investment: Rs. 1,50,000
- Project life: 6 years
- No salvage value
- Expected profit after depreciation but before tax (Rs.): 60,000, 70,000, 50,000, 40,000, 30,000, 20,000
- Depreciation: 25% on original cost
- Tax rate: 35%
Required: a. Calculate the Payback Period (PBP) and Average Rate of Return (ARR). b. Determine the Net Present Value (NPV) and Profitability Index (PI) if the cost of capital is 12%. c. Compute the Internal Rate of Return (IRR). d. Assess the impact of a 10% increase in costs on the project's NPV. e. Evaluate the project’s sensitivity to changes in tax rates.
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