Estimate the post-tax cash flows of the project

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Question - Futura limited is considering a capital project in which the following information is available. The investment outlay on the project will be Rs 200 million. This consists of rs 150 million on plant and machinery and Rs 50 million on net working capital. The entire outlay will be incurred at the beginning. The life of the projects is expected to be 7 years. At the end of 7 years, fixed assets will fetch a net salvage value of Rs 48 million whereas net working capital will be liquidated at its book value.

The project is expected to increase the revenues of the firm by Rs 250 million per year. The increase in costs on account of the project is expected to be Rs 100 million per year. (This includes all items of cost other than depreciation, interest, and tax.) The tax rate is 30%.

Plant and Machinery will be depreciated at the rate of 25% per year as per the written down method.

Estimate the post-tax cash flows of the project.

Calculate IRR of the project.

Reference no: EM132847608

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