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    Question

    A project with the following cash flows is under

    evaluation: • Initial Investment: ₹200 lakh • Yearly cash inflows: ₹50 lakh for 6 years • Discount rate: 12% Should the project be accepted based on Net Present Value (NPV) criteria?
    A Yes, NPV is positive Correct Answer Incorrect Answer
    B No, NPV is negative Correct Answer Incorrect Answer
    C Yes, because payback is < 6 years Correct Answer Incorrect Answer
    D No, because IRR is low Correct Answer Incorrect Answer
    E Not determinable Correct Answer Incorrect Answer

    Solution

    PV factor at 12% for 6 years ≈ 4.111 NPV = 50 × 4.111 – 200 = 205.55 – 200 = ₹5.55 lakh (positive) Hence, the project is acceptable based on NPV.

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