Question

    ABC Ltd. is evaluating a project requiring an initial

    investment of ₹50 lakhs. The project is expected to generate cash flows of ₹15 lakhs per year for the next 5 years. The company’s cost of capital is 10%. Calculate the NPV and suggest whether the project should be accepted.
    A NPV is positive; accept the project Correct Answer Incorrect Answer
    B NPV is negative; reject the project Correct Answer Incorrect Answer
    C NPV is zero; accept if strategic Correct Answer Incorrect Answer
    D Insufficient data Correct Answer Incorrect Answer

    Solution

    NPV = Present Value of inflows – Initial Investment PV = ₹15L × PVAF(10%,5) = ₹15L × 3.7908 = ₹56.86L NPV = ₹56.86L – ₹50L = ₹6.86L → Positive → Accept

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