Assume that you are appointed as a manager for an upcoming project of HUL company ltd. The company is looking to produce a new cosmetic product. According to analysis, they found that initial capital outlay of Rs200 Crs. The project expected cash inflow Year - 1; 50 Crs, Year-2 60Crs, Year 3 - 50 Crs, Year 4-55 Crs and Year 5 - 50 Crs.  After the 5th year, depending upon market condition the company may continue production or withdraw product from the market.

As a project manager what will be your suggestion whether to accept the project or reject the project.

 

1. What will be your decision if the cost of capital is 10%? 10 Marks

2. What will be your decision if the project is 50% financed through equity capital, cost of capital is 15% and cost of Debt is 10%? 10 Marks

3. What will be your decision if the WACC is 12%? 10 Marks

4. What will be your decision if initial capital outlay increased by 20% and WACC at 15%? 10 Marks

 

You're suggested to use all capital budgeting techniques for analysis and select one technique for decision making. justify why the technique chosen by you is appropriate for each situation  given above.