Question: PQR Ltd. is evaluating a project that requires an initial investment of 12,000 and has a life of 6 years. The companys required rate of

PQR Ltd. is evaluating a project that requires an initial investment of ₹12,000 and has a life of 6 years. The company’s required rate of return is 10%. The project will be depreciated on a straight-line basis. The net cash flows (before taxes) expected to be generated by the project and the present value (PV) factor (at 10%) are as follows:

Year

1

2

3

4

5

6

Cash inflow (₹)

3,000

3,000

3,000

3,000

3,000

3,000

PV factor (at 10%)

0.909

0.826

0.751

0.683

0.621

0.564

Requirements:

  • Compute the NPV of the project.
  • Determine the IRR.
  • Calculate the payback period.
  • Assess the profitability index.
  • Recommend whether PQR Ltd. should undertake the project.

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