Reference no: EM132752341

Bhutan Electronics wants to take up a new project of manufacturing an electronic device which has a good market in Bhutan. Further details are given below:

(i) Cost of the Project as estimated (in 100 Thousand Nu.)

Land 2 (will be incurred at the beginning of the year 1)

Buildings 3 (will be incurred at the end of year 1)

Machinery 10 (will be incurred at the end of year 2)

Working capital 5 (Will be incurred at the beginning of year 3)

Total 20.00

(ii)The project will go into production from the beginning of year 3 and will be operational for a period of 5 years. The annual working results (In 100 Thousand Nu.) are estimated as follows:

Sales 20.00

Variable cost 8.00

Fixed cost (excluding depreciation) 4.00

Depreciation of assets 2.00

(iii) Cost of capital of the firm is 10%. Applicable tax rate is 50%. You are required to evaluate the proposal, by working out the net present value & profitability index and advise the firm.