B

MADE IN INDIA

Traditional Methods

1 Amt Payback Period = Initial Investment/Annual Cash Flow

Initial Investment 27827232 3.36
Annual Cash Flow 8274148.88 Years
3.36 < 5 The PBP < Asset Life. Therefore, the project can be accepted.

2 Amt ARR = Average Annual Profit/Initial Investment X 100

Initial Investment 27827232 9.82
Avg. Annual Profit 2733599.28
9.82 < 12 ARR < Company Required Rate of Return.

Modern Methods

3 Amt NPV = PV of Inflows - PV of Outflows

PV of Outflow 27827232.00 2080483.83
PV of Inflows 29907715.83
NPV > 0 Since NPV > Zero, the project can be accepted.

Present Value Factor = PV Cash Inflows - PV Cash Outflows

PV Factor @ 12% 2080483.83
PV Factor @ 25% -905.91

4 Amt IRR = X +(Px - I)/(Px - Py)*(Y-X)

X = Lower Dis. Rate 12.00
Y = Higher Dis. Rate 25.00 24.99434185
Px = PV of Cash Inflow at X 29907715.83
Py = PV of Cash Inflow at Y 27826326.09
I = Initial Investment 27827232.00
Px - I 2080483.83
Px - Py 2081389.74
Y-X 13.00
24.99% > 12% IRR is greater than opportunity cost. Thus, project can be accepted.

5 Amt Profitabilty Index = PV of Inflows/PV of Outflows

PV of Outflows 27827232 1.07
PV of Inflows 29907715.83
PI > 1 PI > 1 : Therefore, proposal can be accepted.

This project have been evaluated by each method of capital budgeting.

All the results are positive except ARR.