CA Inter P6 · Chapter 7 · Question 2 of 10
A machine costing ₹ 10,00,000 is expected to generate cash inflows after tax of ₹ 3,50,000 a year for 4 years, with no salvage value. The cost of capital is 10% and the PVIFA (10%, 4 years) is 3.170. The net present value is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) ₹ 1,09,500
Explanation
PV of inflows = 3,50,000 x 3.170 = ₹ 11,09,500. NPV = ₹ 11,09,500 - 10,00,000 = ₹ 1,09,500. The undiscounted surplus (14,00,000 - 10,00,000 = ₹ 4,00,000) ignores the time value of money. Since NPV is positive, the project is acceptable.
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