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2. Project Management CASE STUDY (20 Marks) N Electricals Ltd. is evaluating a capital project requiring an outlay of Rs 12 million. It is expected to generate an annual cash inflow of Rs 3 million for 6 years. The opportunity cost of Capital is 20 per cent. N Electricals can raise a term loan of Rs 8 million for the project. It will carry an interest rate of 18 p.c. and will be repayable in 8 equal annual installments, the first installment falling due at the end of the second year. The balance amount required for the project can be raised by issuing external equity. The issue cost is expected to be 12 per cent. The tax rate for the company is 30 per cent.

3. Answer the following question. Q1. What is base case of NPV? Q2. What is adjusted cost of capital? Q3. What is adjusted NPV if the adjustment is made only for the issue cost of external equity? Q4. What is the present value of the tax shield on debt finance?

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