Reference no: EM133168223

Question - Dazzling Enterprises Ltd is a manufacturer of high-quality running shoes? Ms. Dazzling, president, is considering computerizing the company's ordering, inventory and billing procedures. She estimates that the annual savings from computerization include a reduction of ten clerical employees with annual salaries of Rs.15000 each, Rs.8000 from reduced production delays caused by raw materials inventory problems, Rs. 12000 from lost sales due to inventory stock outs, and Rs.3000 associated with timely billing procedures. The purchase price of system is Rs.2,00,000 and installation costs are Rs.50,000. These outlays will be depreciated on straight line basis to a zero-book salvage value which is also its market value at the end of 5 years. Operation of the new system requires two computer specialists with annual salaries of Rs.40000 per person. Also annual maintenance and operating cash expenses of Rs.12000 are estimated to be required. The company's tax rate is 40% and its required rate of return for this project is 12%.

Required -

Q1. Find the project's net present value.

Q2. Find the project's initial cash outlay.

Q3. Find the project's operating value cash flows per year over its 5 year life.

Q4. Calculate the profitability index of the project.