Find the NPV of the project

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Reference no: EM132822216

Question - Super Dairy Limited (STL) is planning to buy dairy equipment costing Rs 300 lacs. Milk Board provides 10% subsidy on the capital cost. It can process milk to produce cheese with the capacity of 1800 tons per annum. The selling price of cheese is taken as Rs 50 per Kg. The management of expects the life of the plant at 8 years and the depreciation policy is SLM. However the plant can be sold at Rs 50 lacs at the end of its useful life. The utilisation of plant is expected as below:

Years 1 2 3 4 to 8

Capacity utilisation 60% 70% 80% 90%

The variable cost constituting primarily of the raw material, milk is placed at 40% while the fixed expenses are Rs 300 lacs per annum. The firm pays 35% tax. The additional working capital required is Rs 100 lacs.

Required - Find the following:

a) Cash flows of the project from Year 0 to Year 8

b) NPV of the project

c) IRR of the project, and

d) Payback period

e) Should the project be accepted based on NPV and IRR.

Reference no: EM132822216

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