Question

Raman Ltd. is evaluating a new machine costing ₹60

Q: Answer-Raman Ltd. is evaluating a new machine costing ₹60 lakhs with a useful life of 5 years. The expected...

Annual inflows 18L for 5 years PV of inflows 18 3.605 64.89L Tax on salvage 10L 30 3L Net Salvage 7L PV of Salvage 7 0.567 3.969L Total PV 64.89 3.969 68.86L NPV 68.86 60 8.86L

lakhs with a useful life of 5 years. The expected annual operating cash inflows (after-tax) are ₹18 lakhs. The machine will be depreciated straight-line to zero but will have a salvage value of ₹10 lakhs at the end of 5 years. The company’s tax rate is 30%, and the cost of capital is 12%. The present value factors (12%) for 5 years are: Year 1: 0.893, Year 2: 0.797, Year 3: 0.712, Year 4: 0.636, Year 5: 0.567 PV of ₹1 after 5 years = 0.567 Cumulative PV factor = 3.605 What is the NPV of the project?

A ₹4.25 lakhs

B ₹6.80 lakhs

C ₹2.15 lakhs

D ₹8.86 lakhs

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Raman Ltd. is evaluating a new machine costing ₹60

Solution