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448 Corporate Finance BRILLIANT’S

Earning Before Depreciation and Tax: / S>o{à{eEeZ VWm Q>¡³g Ho$ nhbo A{Zª½g…

Year / Q>¡³g Project X / àmoOo³Q> X Project Y / àmoOo³Q> Y
( `) ( `)

1 80,000 85,000
2 60,000 45,000
3 70,000 40,000
4 90,000 50,000
5 50,000 60,000

Cost of capital is 10% and tax rate is 50% / H¡${nQ>b H$s bmJV 10% VWm Q>¡³g aoQ> 50% h¡&
Find: / kmV H$s{OE…
(a) Net cash inflows / ZoQ> H¡$e BZâbmo

(b) Which project is to be purchased under: / {ZåZ Ho$ A§VJ©V {H$g àmoOo³Q> H$mo IarXm OmZm h¡…
(i) Pay-back Period Method / no~¡H$ nr[a¶S> ‘oWS>
(ii) NPV Method / NPV ‘oWS>

(iii) IRR Method / IRR ‘oWS>
Solution:
Working Note:
Computation of Depreciation

Particulars Project X Project Y
Cost 1,80,000 1,60,000
Salvage value 50,000 –
Expected life 5 5

 Cost Salvage Value 
Depreciation   ` 26,000 ` 32,000
 Expected Life 
(a) Net Cash Inflows of the Project X:
Year EBDT Dep. PBT PAT (PBT × 50%) CFAT (PAT + Dep.)
(`) (`) (`) (`) (`)
1 80,000 26,000 54,000 27,000 53,000
2 60,000 26,000 34,000 17,000 43,000
3 70,000 26,000 44,000 22,000 48,000
4 90,000 26,000 64,000 32,000 58,000
5 50,000 26,000 24,000 12,000 38,000