Question 2

A retail chain is considering opening a new store, which will require an initial investment of Rs. 200 lakhs. The store is expected to generate the following net cash flows over a five-year period:

Year	Net Cash Flow (Rs. in lakhs)
1	40
2	50
3	60
4	70
5	80

The company's cost of capital is 12%. The store will have a residual value of Rs. 20 lakhs at the end of year 5. The company uses straight-line depreciation, and the store is expected to incur annual operating expenses of Rs. 10 lakhs. The corporate tax rate is 25%.

Required:

1. Calculate the Net Present Value (NPV) of the new store.
2. Determine the Internal Rate of Return (IRR).
3. Calculate the Discounted Payback Period.
4. Compute the Profitability Index (PI).
5. Advise the management on whether to proceed with the investment.