The Nirmal Chemical Company is planning to invest in a new plant. The team of analysts responsible for investment appraisal has arrived at the following information:
Estimated investment — 10 lac
Estimated life of the plant — 7 years
Annual Cash flows: Years 1–3 — Rs 1.5 lac
Years 4–7 — Rs 2 lac
Appropriate discount rate — 15 percent
Now:
(i) Find the present value of all cash flows.
(ii) How would your answer change if cash flows were to grow at 40 percent per year after year 3 up to the seventh year?