Nepal Mine Company (NMC) is planning to purchase Hydraulic Truck to collect the mines raw material. Truck with compacting system costs Rs. 6,000,000.…
BBS Fundamentals of Financial Management · 2082 · Solved Question with Answer
Nepal Mine Company (NMC) is planning to purchase Hydraulic Truck to collect the mines raw material. Truck with compacting system costs Rs. 6,000,000. The company estimates that it will generate the annual net cash flows of Rs. 2,500,000 each year for the first and second year, Rs. 1,500,000 for third year and Rs. 2,000,000 each year for fourth and fifth year. Required rate of return of the company is 10 percent.
a. What is the payback period of the project? Should NMC purchase the Truck if its maximum cost recovery period is 3 years? b. What is the NPV of the project? Should NMC purchase the Truck? c. What is the IRR of the project? Should NMC purchase the Truck? d. Which method NPV or IRR is superior? Why?