Best Steel Limited is considering a project for producing quality bearings for machines.

The
project will require an investment of Taka 25,00,000 for plants, Taka 18,00,000 for land, Taka
20,00,000 for building and Taka 8,00,000 for furniture and fixture. In addition, the project will use
a warehouse that is being rented out currently at Taka 25,000 per month. Working capital
requirement is about 10% of next year’s sales.

The firm expects to sell 80,000 units in the first year and 100,000 units in each year from year 2
to year 5. Unit sales price is expected to be Taka 100. Variable operating costs will be Taka 50 per
unit. Fixed costs, excluding depreciation, will be around Taka 5,00,000 annually. Plants and
furniture have a life of five years and these will be depreciated on straight-line basis towards
salvage values of Taka 5,00,000 and Taka 2,00,000 respectively. Building will be depreciated at 4
percent of cost each year, and it can be sold (along with land) at Taka 64,00,000 at the end of fifth
year.

The company will enjoy tax holiday for the first two years, but it has to pay 35 percent corporate
tax from the third year. Discount rate is 10 percent. Should the firm take up the project? Estimate
NPV, MIRR and profitability index.