ITCE Ltd. is considering a new product launch. It is estimated that the Cash flows will be Rs. 120,000/- each year for 4 years and Rs. 60,000/- for the remaining project life. A new plant costing Rs. 200,000/- will be installed for the manufacture of the new product. It will have a salvage value of Rs. 40,000/- at the end of the project life of 10 years. In addition to this, a working capital investment of Rs. 20,000/- is required if project is launched and Rs. 15,000/- is required in year 1. If the company’s hurdle rate is 20%, should if go for the product launch?(10) ii. ‘NPV Method ensures the maximisation of shareholder’s wealth in the long run.’ Comment.(10)
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