CS Professional · Strategic Management and Corporate Finance · Project Evaluation
Sundaram Textiles Ltd is evaluating a machine costing ₹5,00,000 that will generate net cash inflows of ₹3,00,000 at the end of Year 1 and ₹3,63,000 at the end of Year 2. There is no salvage value. The cost of capital is 10%. What is the NPV of the project?
The NPV is about ₹73,000, found by discounting ₹3,00,000 for one year and ₹3,63,000 for two years at 10%, giving a present value near ₹5,72,727, and subtracting the ₹5,00,000 outlay.
- A₹1,00,000Correct
- B₹73,000
- C₹1,63,000
- D₹1,36,364
Explanation
PV of Year 1 = 3,00,000/1.10 = 2,72,727. PV of Year 2 = 3,63,000/1.21 = 3,00,000. Total PV = 5,72,727 (rounded from 5,72,727.27). NPV = 5,72,727 - 5,00,000 = 72,727, roughly ₹73,000. Rechecking: this equals ₹73,000 approx, so the key must be that value; the ₹1,00,000 option wrongly ignores discounting.
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