GSP is profitable company. The company is situated in Central India. Its sales are expected to grow about three times from Rs. 360 million in 2019 to Rs. 1100 million in 2020. The company is considering a 35 km pipeline between two areas to carry gas to a state electricity board. The project will cost Rs.500 million. The company will enter into a contract with the electricity board to supply gas. The revenue from the sale to electricity board is expected to be Rs.240 million p.a. The pipeline will also be used for transportation of LNG to other users in the area. This will bring additional revenue of Rs.160 million per annum. The company management considers the useful life of pipeline to be 20 years. The financial manager estimates cash profits to sales ratio of 20% p.a. for first 12 years of the project's operations and 17% p.a. for the remaining life. The company required rate of return is 15% from the project.    

1. Calculate project payback period and ROI. 

2. Compute project NPV and IRR. 

3. Should the project be accepted? Why?

Answer rating: 100% (QA)

1 Project Payback Period and ROI To calculate the project payback period we need to divide the initial investment by the annual cash inflows Initial I... View the full answer