Jai Ltd. is a manufacturing company considering a project with an Investment of Rs.15000. The Project is expected to generate annual revenue of Rs. 9000. The variable cost will be 60% of sales, and fixed cost for the project will be Rs.1500. Fixed cost includes depreciation of Rs.1000. The duration of the project is 3 years. The tax rate applicable to the company is 30%. The cost of capital is 12%.

(A) Using the above information, calculate NPV when there is a 10% adverse (pessimistic) change in each of the variables during the recession (investment, sales, and fixed cost excluding depreciation).

(B) Calculate NPV using sensitivity analysis if sales change by 20% favorably. 

(C) If the risk-adjusted discount rate is 15%. Find NPV.

(D) If the cash flows of the company are Rs. 3000 each for three years, and considering the risky environment, the certainty of receiving these cash flows(α) is given as: α1=0.90, α2=0.70, and α3=0.65. Calculate NPV.

Answer rating: 100% (QA)

A To calculate the NPV when there is a 10 adverse change in each of the variables during the recession we need to adjust the investment sales and fixed costs excluding depreciation Investment Adverse ... View the full answer