Bms fm case study series-9

M/s Maha Sweet would like to setup a food-processing unit. The technology for the processing is always on improvement and  hence the propose unit would become obsolete  within  four  years  of  operation  and  would  be  scrapped.  The  company estimates to achieve sales of Rs.50 lakh in the first year of operation. This will be double every year. Net profit margin is 50%.  Initial Outlay is Rs.5 crores. Company will also pump-in initial working capital of Rs.1 crore. Scrap value of the unit is Rs.1 crore. Depreciation on SLM basis.

Present Value table of Re.1 is as follows:

Years    1          2          3          4

17%      0.855   0.731    0.624    0.534

18%      0.847   0.718    0.609    0.516

Calculate:

(a)  Payback Period

(b)  Payback Profitability

(c)  NPV at 17% discounting rate

(d)  NPV at 18% discounting rate

(e)  IRR