POTOHAR STEEL

Initial Cost 80000000

End of years 0 1 2 3 4 5 6 7
Cash flows 80000000 16000000 20000000 24000000 28000000 32000000 36000000 40000000
Less:
Tax Depriciation 26664000 35560000 11896000 5928000 0 0 0
EBIT -10664000 -15560000 12104000 22072000 32000000 36000000 40000000
Tax @18.5% -1972840 -2878600 2239240 4083320 5920000 6660000 7400000
EAIT -8691160 -12681400 9864760 17988680 26080000 29340000 32600000
Add:
Tax Depriciation 26664000 35560000 11896000 5928000 0 0 0
Net Cash Flows 17972840 22878600 21760760 23916680 26080000 29340000 32600000

P.V of cash inflows ### ### ### ### ### ### ###
@17.1% ###
P.V of cash outflow 80000000
NPV ###

PI 1.15 Its >1 so we accept the Project

If
P.V of cash inflows ### ### ### ### ### ### ###
@22% ###
P.V of cash outflow 80000000
NPV ###

Now
IRR = rl+ (rh-rl)(P.V.L - P.V.Y) / (P.V.L – P.V.H)
0.19

Amount of finance Proportion Cost Weighted Cost

Debt: 56000000 70% 15% 10.50%
Equity: 24000000 30% 22% 6.600%
100% 17.100%