Fizz Limited is considering a 5 year project to improve its production efficiency. To check the efficiency of the machine, one engineer visited a factory in India that cost BDT 50,000. The required machine will cost BDT 6,00,000 that will result in annual pre-tax saving of BDT 2,00,000. The machine will be fully depreciated in straight line basis. It is expected that the machine will have a selvedge value of BDT 1,00,000 after the economic life. The project requires an initial investment of BDT 2,50,000 in working capital along with 40,000 in successive years. Annual applicable corporate tax rate for Fizz Limited is 30% and capital gain tax rate is 20%. The project will arrange 30% debt and rest from equity. Cost of debt is 12% and the cost of equity is 13%.

Evaluate the project using following criteria and explain your decision

a)Net Present Value

b)Internal rate of return

c)Payback period

d)Discounted Payback Period

e)Profitability Index .

Answer rating: 100% (QA)

Net Present Value NPV NPV is the difference between the present value of the projects cash inflows and the present value of its cash outflows A positi... View the full answer