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Calculate discounted payback period

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Question - The following details are available for Gamma Ltd:

Details Proposal A Proposal B

Initial Cost Rs.10,00,000 Rs. 12,00,000

Expected life 4 years 5 years

Profits before tax after depreciation

Rs. 3,00,000 each for first two years

Rs. 3,50,000 each for next two years

Rs. 3,00,000 each for first two years

Rs. 3,50,000 each for next three years

Calculate Discounted Payback period and suggest which one is better if the discounting factor is 10% and tax rate 30%. Show in detail relevant calculations and use Straight Line Method of Depreciation.

Reference no: EM132789288

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