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5. Question. A chemical company is considering investment in a project that costs Rs.500000. The life of the project is 5 years and estimated salvage value is zero. Tax rate is 55%. The company uses straight line depreciation and proposed project has earnings before depreciation and before tax as follows: Year Earnings before depreciations & PV factor @15% Tax (Rs.) 1 2 3 1,50,000 4 1,50,000 5 2,50,000 1,00,000 1,00,000 0.870 0.756 0.658 0.572 0.497 Calculate the following: - 1. Payback period 2. Average rate of return Net present value @15%

5. Question. A chemical company is considering investment in a project that costs Rs.500000. The life of the project is 5 years and estimated salvage value is zero. Tax rate is 55%. The company uses straight line depreciation and proposed project has earnings before depreciation and before tax as follows: Year Earnings before depreciations & PV factor @15% Tax (Rs.) 1 2 3 1,50,000 4 1,50,000 5 2,50,000 1,00,000 1,00,000 0.870 0.756 0.658 0.572 0.497 Calculate the following: - 1. Payback period 2. Average rate of return Net present value @15%

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
10th Edition
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter12: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 11P: REPLACEMENT ANALYSIS St. Johns River Shipyards is considering the replacement of an 8-year-old...
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Initial Investment = 500,000 Salvage Value = 0 Useful Life = 5 years Annual Depreciation = (Initial Investment - Salvage Value) / Useful Life Annual Depreciation = (500,000 - 0) / 5 Annual Depreciation = 100,000 Year CBDT Less: Depriciation CBT Less: tax 55% Net income Add depreciation Net cash flow 1 100000 100000 0 0 0 2 100000 100000 O 0 0 100000 100000 100000 100000 3 150000 150000 100000 100000 50,000 50,000 27500 27500 22500 22500 100000 122500 250000 100000 150,000 82500 67500 100000 100000 122500 167500
Transcribed Image Text:Initial Investment = 500,000 Salvage Value = 0 Useful Life = 5 years Annual Depreciation = (Initial Investment - Salvage Value) / Useful Life Annual Depreciation = (500,000 - 0) / 5 Annual Depreciation = 100,000 Year CBDT Less: Depriciation CBT Less: tax 55% Net income Add depreciation Net cash flow 1 100000 100000 0 0 0 2 100000 100000 O 0 0 100000 100000 100000 100000 3 150000 150000 100000 100000 50,000 50,000 27500 27500 22500 22500 100000 122500 250000 100000 150,000 82500 67500 100000 100000 122500 167500
5. Question. A chemical company is considering investment in a project that costs Rs.500000. The life of the project is 5 years and estimated salvage value is zero. Tax rate is 55%. The company uses straight line depreciation and proposed project has earnings before depreciation and before tax as follows: Year Earnings before depreciations & PV factor @15% Tax (Rs.) 1 1,00,000 2 1,00,000 3 1,50,000 4 1,50,000 5 2,50,000 0.870 0.756 0.658 0.572 0.497 Calculate the following: - 1. Payback period 2. Average rate of return Net present value @15%
Transcribed Image Text:5. Question. A chemical company is considering investment in a project that costs Rs.500000. The life of the project is 5 years and estimated salvage value is zero. Tax rate is 55%. The company uses straight line depreciation and proposed project has earnings before depreciation and before tax as follows: Year Earnings before depreciations & PV factor @15% Tax (Rs.) 1 1,00,000 2 1,00,000 3 1,50,000 4 1,50,000 5 2,50,000 0.870 0.756 0.658 0.572 0.497 Calculate the following: - 1. Payback period 2. Average rate of return Net present value @15%
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