Question
A project requires an investment of Rs. 10,00,000. It
generates annual cash inflows of Rs. 3,00,000 for 5 years. If cost of capital is 10%, should the project be accepted based on NPV? (PV factor of annuity of Rs. 1 for 5 years @10% = 3.791).Solution
PV of inflows = 3,00,000 × 3.791 = Rs. 11,37,300. NPV = 11,37,300 – 10,00,000 = Rs. 1,37,300 (Accept).Â
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