Question: A company is evaluating a project that requires an initial outlay of Rs. 2,000 lakhs. The expected earnings before depreciation and taxes are: Year Earnings

A company is evaluating a project that requires an initial outlay of Rs. 2,000 lakhs. The expected earnings before depreciation and taxes are:

Year	Earnings (Rs. in lakhs)
1	400
2	420
3	440
4	460
5	480

The cost of capital is 16%, and the depreciation rate is 10% on a straight-line basis. The scrap value of the project at the end of five years is Rs. 250 lakhs.

Required:

Calculate the net present value (NPV).
Determine the internal rate of return (IRR).
Compute the payback period.
Calculate the annual depreciation.
Decide whether to invest in the project based on the financial analysis.

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