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Question

With project cost of Rs.300 lakh and cost of capital at 12%, the estimated profits over its lifetime of 5 years are Rs.10 lakh, Rs.10 lakh, Rs.30 lakh, Rs.40 lakh and Rs.50 lakh respectively. If the discount factors @ 12%, for the first five years are 0.89, 0.80, 0.71, 0.64 and 0.57 respectively, what is the net present value of project?

A Rs.92.30 lakh Correct Answer Incorrect Answer
B Rs.140 lakh Correct Answer Incorrect Answer
C Rs.(-) 160.40 lakh Correct Answer Incorrect Answer
D Rs.(-)207.70 lakh Correct Answer Incorrect Answer
E Rs.392.30 lakh Correct Answer Incorrect Answer

Solution

Net present value (NPV) = present value of inflows – initial investment Calculating PV of inflows:

Inflow (profits) Discount factor Present Value
10,00,000 0.89 8,90,000
10,00,000 0.80 8,00,000
30,00,000 0.71 21,30,000
40,00,000 0.64 25,60,000
50,00,000 0.57 28,50,000
Total 92,30,000
NPV = 92.30 – 300 lakh = -207.70

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