5. Question. A chemical company is considering investment in a project that costs Rs.500000. The life of the project is 5 years and estimated salvage value is zero. Tax rate is 55%. The company uses straight line depreciation and proposed project has earnings before depreciation and before tax as follows: Year Earnings before depreciations & PV factor @15% Tax (Rs.) 1 2 3 1,50,000 4 1,50,000 5 2,50,000 1,00,000 1,00,000 0.870 0.756 0.658 0.572 0.497 Calculate the following: - 1. Payback period 2. Average rate of return Net present value @15%
5. Question. A chemical company is considering investment in a project that costs Rs.500000. The life of the project is 5 years and estimated salvage value is zero. Tax rate is 55%. The company uses straight line depreciation and proposed project has earnings before depreciation and before tax as follows: Year Earnings before depreciations & PV factor @15% Tax (Rs.) 1 2 3 1,50,000 4 1,50,000 5 2,50,000 1,00,000 1,00,000 0.870 0.756 0.658 0.572 0.497 Calculate the following: - 1. Payback period 2. Average rate of return Net present value @15%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Please do not give solution in image format thanku
Transcribed Image Text:Initial Investment = 500,000
Salvage Value = 0
Useful Life = 5 years
Annual Depreciation = (Initial Investment - Salvage Value) / Useful Life
Annual Depreciation = (500,000 - 0) / 5
Annual Depreciation = 100,000
Year
CBDT
Less:
Depriciation
CBT
Less: tax 55%
Net income
Add
depreciation
Net cash flow
1
100000
100000
0
0
0
2
100000
100000
O
0
0
100000
100000
100000 100000
3
150000
150000
100000
100000
50,000 50,000
27500
27500
22500
22500
100000
122500
250000
100000
150,000
82500
67500
100000
100000
122500 167500
Transcribed Image Text:5. Question. A chemical company is considering investment in
a project that costs Rs.500000. The life of the project is 5
years and estimated salvage value is zero. Tax rate is 55%.
The company uses straight line depreciation and proposed
project has earnings before depreciation and before tax as
follows:
Year Earnings before depreciations & PV factor @15%
Tax (Rs.)
1
1,00,000
2
1,00,000
3 1,50,000
4 1,50,000
5 2,50,000
0.870
0.756
0.658
0.572
0.497
Calculate the following: -
1. Payback period
2. Average rate of return
Net present value @15%
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