Question 7

A food processing company is considering expanding its operations by investing Rs. 450 lakhs in new equipment. The new equipment is expected to generate the following cash inflows:

Year	Cash Flow (Rs. in lakhs)
1	90
2	100
3	110
4	120
5	130

The company's discount rate is 13%. The equipment will have a salvage value of Rs. 40 lakhs at the end of year 5. Annual operating costs are estimated at Rs. 30 lakhs. Depreciation is applied on a straight-line basis, and the tax rate is 28%.

Required:

1. Calculate the Net Present Value (NPV) of the investment.
2. Determine the Internal Rate of Return (IRR).
3. Calculate the Payback Period.
4. Compute the Accounting Rate of Return (ARR).
5. Recommend whether the company should proceed with the expansion.