ABC Co a franchise of Apolloo pharmacy, sells 150 strips/day of low budget drugs at an average

contribution of Rs.25/ strip and 100 strips/day of high budget drugs at an average contribution of
Rs.60/ strip Sales volume and average price are expected to grow by 5% every year for both the drugs .

To operate a franchise , it needs to have a 750 sqft space for retail shop with a lease rental of Rs.100 /
sqft / month (rental contract for 5 years, deposit of Rs.10,00,000 at the start).

A one time renovation of the premises worth Rs.20,00,000 will need to be incurred at the start.
Required personnel costs are Rs 80,000/month Wage inflation in the economy is 7%. Other operational
expenses are expected to be 25% of the contribution, generated for the period Tax rate in the economy
is 35%. Tax losses cannot be carried forward The initial investment (deposit + renovation) can be funded
by 60% bank loan (@12% interest rate). The remaining should be funded using equity.

The debt is to be repaid at the end of 5 years in lump sum Other investment opportunity with ABC Co. is
expected to provide a return of 20%.

Evaluate the business opportunity with a project life of 5 years.

After 5 years the franchise will be handed over to Apolloo and the deposit will be refunded to the ABC
Co.(Ignore depreciation) If ABC Co. invests in the project, what is the expected IRR?