1. Project cost is Rs. 30,000 and the cash inflows are Rs. 10,000 p.

a, the life of
the project is 5 years. Calculate the pay-back period.

2. Determine the pay-back period which requires a cash outlay of Rs.10,000

and generates cash inflows of Rs.3,000,Rs.4,000, Rs.3,000 and Rs.2,000 in
the first, second, third and fourth year respectively. Calculate PBP.
3. Determine the pay-back period which requires a cash outlay of Rs.10,000
and generates cash inflows of Rs.2,000,Rs.4,000, Rs.3,000 and Rs.2,000 in
the first, second, third and fourth year respectively.
4. A large sized chemical company is considering investing in a project that
costs Rs. 4,00,000. The estimated salvage value is zero. Tax rate is 55%.
The company uses straight line depreciation and the proposed project has
cash flows before tax and depreciation (CFBT) as follows
Year CFBT
1 1,00,000
2 1,00,000
3 1,50,000
4 1,50,000
5 2,50,000

Calculate PBP

5. A company is considering an investment proposal to purchase a machine

costing Rs.2,50,000. The machine has a life expectancy of 5 years and Rs.
10,000 is a salvage value. The company’s tax rate is 40%. The firm uses
straight line method for providing depreciation. The estimated cash flows
before tax and depreciation from the machine are as follows:
 Year Cash flow before tax and depreciation
1 60,000
2 70,000
3 90,000
4 1,00,000
5 1,60,000 (including scrap value)

Calculate: Pay-back period

6. The Alpha Company Ltd. Is considering the purchase of a new machine. Two
alternative machine ( A and B) have been suggested each costing Rs.4,00,000. Life
time of the machine is 5 years. Earnings before tax and after depreciation are
expected to be as follows:

Year Cash flow before tax and after

depreciation
Machine A Machine B
1 100,000 1,20,000
2 1,20,000 1,60,000
3 1,60,000 2,00,000
4 2,40,000 1,20,000
5 1,60,000 80,000

State which alternative is suitable under PBP method.

7. From the following information calculate the PBP of the two projects and
suggest which of the two projects should be accepted assuming a discount rate of
10%.

Particulars Project X Project Y

Initial Investment Rs.20,000 Rs.30,000
Estimated Life 5 yrs 5 years
Scrap Value Rs.1000 Rs.2,000
Year Profit after depreciation and taxes are as follows:
1 5,000 20,000
2 10,000 10,000
3 10,000 5,000
4 3,000 3,000
5 2,000 2,000

State which alternative is suitable under PBP method.