Question

project requires an initial investment of Rs.5,00,000 and yields annually a profit of Rs.80,000 after depreciation @12% p.a. but before tax of 50% for 7 years. Find the payback period.

Answer 1

1. profit profit before tax depreciation -80,000
2. less depreciation =60,000
3. profit before tax = 20,000
4. less tax @50% =10,000
5. profit before tax= 10,000
6. and depreciation @ 12% on =60,000

total =70,000

pay back period =cost of the project 5,00,000=7.14 years

annal cash flow =70,000