Corporate Fin Mgt NDLM.PDF

Year

Earning Cost Net Cash Flow

1.

Rs.6000 Rs.2000 Rs.4000

2.

Rs.7000 Rs.2000 Rs.5000

3.

Rs.8000 Rs.2000 Rs.6000

4.

Rs.8500 Rs.2500 Rs.6000

5.

Rs.8500 Rs.2500 Rs.6000

6.

Rs.8500 Rs.2500 Rs.6000

7.

Rs.9000 Rs.3000 Rs.6000

8.

Rs.8000 Rs.3000 Rs.5000

9.

Rs.7000 Rs.3000 Rs.4000

10.

Rs.7000 Rs.3000 Rs.5000*

*includes Rs.1000 as salvage value of the project.

His earnings include income from grinding 15 to 20 quintals of oil seeds of
Sarson (mustard) by charging a specified rate, revenue from sale of oil, etc. His
costs in operating the oil ghani include expenditure on raw material, labour,
overheads etc. His earnings from the project are termed as cash in-flows, and his
costs are called cash out-flows. The difference between the cash in-flow and the
cash out-flow is termed Net Cash Flow. The net cash flow for the 10th year (last
year of the life of the project) has been calculated as Rs.5000 which includes
Rs.1000 as salvage value of the project left at the end of its life.

Now, calculate Internal Rate of Return to find out the viability of the project.