Question

(This is a question from corporate finance)

You are helping a manufacturing firm decide whether it should invest in a new plant. The

initial investment is expected to be Rs. 50 crores, and the plant is expected to generate

after-tax cash flows of Rs. 5 crores for the next 20 years. An additional incremental investment of Rs. 20 crores will be needed to upgrade the plant in 10 years. If the discount

rate is 10%, estimate the net present value of the project.​

Answer 1

Answer:

I didn't get the question

Answer 2

Net Present Value is Rs 4,45,93,088.40

Net present value is a capital budgeting measure used to assess a project's or investment's profitability. The difference between the present value of cash inflows and present value of cash withdrawals over a period of time is used to compute it.

NPV = $\frac{Rt}{(1+i)^t}$

where.

Rt = Net cash flow

i = discount rate = 10% = 0.1

t = time period. = 20 years

Net Cash flow = - Initial Investment + Cash Flow - Incremental Inestment

∴ Rt = - 50 Crores + 5 × 20 Crores - 20 Crores

∴ Rt = 30 Crores

∴ NPV = $\frac{Rt}{(1+i)^t}$

∴ NPV = $\frac{30,00,00,000}{(1+0.1)^c20}$

∴ NPV = Rs 4,45,93,088.40