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      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).
      A NPV = Rs. 1,26,000 (Accept) Correct Answer Incorrect Answer
      B NPV = Rs. (1,26,000) (Reject) Correct Answer Incorrect Answer
      C NPV = Rs. 1,37,300 (Accept) Correct Answer Incorrect Answer
      D NPV = Rs. (1,37,300) (Reject) Correct Answer Incorrect Answer
      E None of the above Correct Answer Incorrect Answer

      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). 

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