Calculate the equipment pay-bank period

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A company is considering a proposal of installing a cash outlay of Rs. 6,00,000. And net working capital of Rs. 80,000. The expected life of the project is 5 years without any salvage value. Assume that the company is allowed to charge deprecation on straight-line basis for income-tax purposes.

The estimated before-tax cash inflows (earnings before depreciation and tax) are given below:

Year                       Before-tax cash inflows(in Rs.'000)

1                                 240

2                                275

3                               210

4                                180

5                               160

Question 1: The applicable income-tax rate of the company is 35%. If the company's opportunity cost of capital is 12%, calculate the equipment's pay-bank period, net present value and internal rate of return.

Reference no: EM132566409

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