A project requires an initial investment of Rs.5, 00,000. It is estimated to have a life of 6 years. The estimated net cash flows are as under:

Year Net Cash Flow (Rs.)

1 60,000 

2 80,000

3 1, 10,000

4 1, 20,000 

5 1, 30,000

6 1, 00,000 Cost of capital is 10%.

Calculate:

a. Payback Period

b. Net Present Value

c. IRR of the project.

Assume that the standard payback period is 4 years. Should the project be accepted as per each of the above measures? Why? [Discount factors at 10% are 0.909, 0.826, 0.751, 0.683, 0.621, 0.564 for 1 to 6 years.] 

Answer rating: 100% (QA)

Solution a To calculate the payback period we need to determine the point in time at which the cumul... View the full answer