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DECISION MAKING Numerical
What is the Net Present Value (NPV) decision rule for accepting a project?
Accept the project if NPV is positive (NPV > 0), as it indicates the project adds value to the firm by generating returns above the required rate of return.
What is the NPV of a project if initial investment is ₹1,00,000 and PV of inflows is ₹1,20,000?
NPV is ₹20,000 (positive, accept the project).
How is the Internal Rate of Return (IRR) defined in capital budgeting decisions?
IRR is the discount rate at which the NPV of a project equals zero; a project is accepted if its IRR exceeds the firm's cost of capital or hurdle rate.
If annual cash inflow is ₹25,000 and initial outlay is ₹1,00,000, what is the payback period?
Payback period is 4 years (1,00,000 ÷ 25,000).
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