Happy Travel Tours Ltd. is considering to run tourist bus from Sauraha to Kathmandu. A tourist bus costs Rs. 1,000,000 and it will pay daily for 4…
BBS Fundamentals of Financial Management · 2077 · Solved Question with Answer
Happy Travel Tours Ltd. is considering to run tourist bus from Sauraha to Kathmandu. A tourist bus costs Rs. 1,000,000 and it will pay daily for 4 years to come. Annual net cash inflows for four years will be as follows:
| Year | Cash Flows (Rs.) |
| 1 | 400,000 |
| 2 | 400,000 |
| 3 | 600,000 |
| 4 | 500,000 |
Assume the required rate of return of the project is 12 percent.
a. Define payback period. What is the payback period of the project? Should the company run tourist bus from Sauraha to Kathmandu if it's maximum cost recovery period is 3 years?
b. Define net present value (NPV). Calculate the NPV of the project. Should the company tourist bus service?
c. Define IRR. What is the IRR of the project? Should the company run tourist bus service?