Initial cash outflows

Property 35 M Rs.Capital 28 M Rs.

Total 63M Rs.

Annual Cash Outflows

O & M 1 M Rs.Labour 1.8 M Rs

(5000Rs/labour)/month30 labours.

Milk 10.8 M Rs. 1000 ltr /day.30 Rs / ltr.

Flavors and Goods 3 M Rs.Transport 1 M Rs.Total 17.6 M Rs.

Annual cash inflows36 M Rs.1000/ltr/day100 / ltr

(Rs. In Million)

Pay back period

year 0. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

Cash out flows

63 17.6 18 17.8 16 19 18.5 17.9 17.5 18.6 17.2 19.3 18.9 17.8 18.8 16.5

Cash inflows

0 36. 38. 37.5 35 40 38.7 39.2 38.8 37.9 39 39.5 40 39.7 36 34

Profit 0 18.4 20 19.7 19 21 20.2 21.3 21.1 19.3 21.8 20.2 21.1 21.9 17.3 17.5

sum 0 18.4 38.4 58.1 77.1 98.1 118.3 139.6 160.7 180 201.8 222 243.1 265.0 282.3 299.8

Pay Back Period

Required pay back period 5 year

PBP = 3 + 63 – 58.1 77.1

= 3.06 yearsSince pay back period is less than required pay back period so

Accept the project

Net present value and profitability index

year 0. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

Cash out flows

63 17.6 18 17.8 16 19 18.5 17.9 17.5 18.6 17.2 19.3 18.9 17.8 18.8 16.5

Cash inflows

0 36. 38. 37.5 35 40 38.7 39.2 38.8 37.9 39 39.5 40 39.7 36 34

PV of outflows(10%

0 16 14.88 13.37 10.92 11.79 10.44 9.19 8.26 7.88 6.63 6.76 6.02 5.16 4.92 3.94

PV of inflows (10%)

0 32.73 31.4 28.17 23.9 24.83 21.84 20.12 18.1 16.07 15.03 13.84 12.75 11.5 9.48 8.14

(Rs. In Million)

Net present value

Net Present value = (Sum of present value of cash inflows) – (sum of present of cash out flows)

NPV = 287.9 M - 136.16M

= 151.74 M

> 0

Accept the project

Profitability Index

PI = (Sum of present value of cash inflows) / (sum of present of cash out flows)

PI = 287.9 M / 136.16M

= 2.11 > 1

Accept the project

Internal rate of return

year 0. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

Cash out flows

63 17.6 18 17.8 16 19 18.5 17.9 17.5 18.6 17.2 19.3 18.9 17.8 18.8 16.5

Cash inflows

0 36. 38. 37.5 35 40 38.7 39.2 38.8 37.9 39 39.5 40 39.7 36 34

Profit 0 18.4 20 19.7 19 21 20.2 21.3 21.1 19.3 21.8 20.2 21.1 21.9 17.3 17.5

PV IL at 10%

0 16.73 16.53 14.8 12.98 13.04 11.4 10.93 9.10 8.19 8.4 7.0 6.73 6.34 4.56 4.19

PV IH at 10%

0 13.63 10.97 8.00 5.72 4.68 3.34 2.0 1.91 1.3 1.08 0.74 0.57 0.44 0.26 0.19

(Rs. In Million)

Internal rate of return

Investor Required rate of return IR = 15%

IRR = IL + ( IH - IL ) (PVL – ICO)PVL – PVH

= 10% + (35% - 10%) (150.92 – 63) 150.92 – 54.83

= 32.87 % > IR

Accept the project

Acceptance and rejection of project

We accept the project from NPV. Because decision criteria of net present value should be positive. Our NPV is positive so we accept the project.