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A company is considering an investment proposal to install new milling controls. The project will cost Rs. 50,000. The facility has a life expectancy of 5 years and no salvage value. The company's tax rate is 55% and no investment allowance is allowed. The firm uses straight line depreciation. The estimated cash flows before tax (CBT) from the proposed investment proposal are as follows:
Question 1: Compute the following:
i) Payback period,
ii) Average rate of return,
iii) Internal rate of return,
iv) Net present value at 10% discount rate,
v) Discounted payback period
vi) Profitability index at 10% discount rate,
Comment on the results computed as above.
Year CFBT (Rs.)
1 10,000
2 11,000
3 14,000
4 15,000
5 25,000
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