Super Dairy Limited (STL) is planning to buy dairy equipment costing Rs 300 lacs. Milk Board provides a 10% subsidy on the capital cost. It can process milk to produce cheese with the capacity of 1800 tons per annum. The selling price of cheese is taken as Rs 50 per Kg. The management expects the life of the plant at 8 years and the depreciation policy is SLM. However, the plant can be sold at Rs 50 lacs at the end of its useful life. The utilization of plant is expected as below:

Years 1 2 3 4 to 8

Capacity utilisation 60% 70% 80% 90%

The variable cost constituting primarily of the raw material, milk is placed at 40% while the fixed

expenses are Rs 300 lacs per annum. The firm pays 35% tax. The additional working capital required is Rs

100 lacs.

Find the following:

a) Cash flows of the project from Year 0 to Year 8

b) NPV of the project

c) IRR of the project, and

d) Payback period

e) Should the project be accepted based on NPV and IRR.

Answer rating: 100% (QA)

In the first place the initial investment outlay in year zero is the cost ... View the full answer