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MNO Ltd. is considering a project requiring an initial investment of Rs. 3,50,000. The project’s...

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Accounting

MNO Ltd. is considering a project requiring an initial investment of Rs. 3,50,000. The project’s life is 4 years, and it has no salvage value. The expected profits before tax but after depreciation are as follows:

  • Year 1: Rs. 1,00,000
  • Year 2: Rs. 1,20,000
  • Year 3: Rs. 1,10,000
  • Year 4: Rs. 1,30,000

The depreciation rate is 30% on the original cost. The company is subject to a 32% tax rate, and the cost of capital is 9%.

Required:

  • Determine the PBP and ARR.
  • Calculate the NPV and IRR.
  • Evaluate the profitability index.
  • Assess the impact of a 15% increase in initial investment on the NPV.
  • Conduct a sensitivity analysis with a change in the discount rate to 7%.

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