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The problem involves calculating the **payback period** and **profitability** of a project with the following data extracted from the image:

- **Initial Investment**: ₹600,000
- **Salvage Value**: ₹5,000 (likely used for other considerations, but we will focus on payback first)
- **Years**: 5
- **Profit After Tax (PAT) per year**:
  1. Year 1: ₹220,000
  2. Year 2: ₹130,000
  3. Year 3: ₹200,000
  4. Year 4: ₹150,000
  5. Year 5: ₹175,000

### 1. **Payback Period Calculation:**

We need to calculate how many years it takes to recover the initial investment of ₹600,000 using the annual profits (after tax) provided.

Let's calculate this step by step by accumulating the profits year by year until the investment is fully recovered.

- After **Year 1**: Cumulative profit = ₹220,000
- After **Year 2**: Cumulative profit = ₹220,000 + ₹130,000 = ₹350,000
- After **Year 3**: Cumulative profit = ₹350,000 + ₹200,000 = ₹550,000
- After **Year 4**: Cumulative profit = ₹550,000 + ₹150,000 = ₹700,000 (investment fully recovered)

Thus, the payback period is slightly more than **3 years** but before the end of Year 4.

**Exact payback period calculation**:
- We need ₹50,000 more to fully recover the investment at the beginning of Year 4. Since Year 4 generates ₹150,000 profit, the payback occurs within a fraction of the year.
- Fraction of Year 4 needed = ₹50,000 / ₹150,000 = 1/3 year or approximately **4 months**.

Thus, the **payback period** is **3 years and 4 months**.

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### 2. **Profitability Calculation:**

To assess profitability, we calculate the **total profit** over the 5 years:

Total Profit (5 years) = ₹220,000 + ₹130,000 + ₹200,000 + ₹150,000 + ₹175,000 = ₹875,000

From this, we subtract the initial investment of ₹600,000 to get the **net profit**:

Net Profit = ₹875,000 - ₹600,000 = ₹275,000

Thus, the project generates a profit of **₹275,000** over 5 years.

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Let me know if you want further details on profitability ratios or other aspects! Here are some questions to explore further:

1. How is the salvage value of ₹5,000 factored into project evaluation?
2. What is the significance of the payback period in project analysis?
3. How can we calculate the project's profitability index?
4. What are alternative methods for profitability evaluation, such as Net Present Value (NPV)?
5. How would changes in annual profit affect the payback period?

**Tip**: For long-term projects, also consider the time value of money through methods like NPV for a more accurate profitability assessment.

Find the payback period and profitability for a project with the following details:
- Initial Investment: ₹600,000
- Salvage Value: ₹5,000
- Project Duration: 5 Years
- Profit After Tax for 5 years:
  Year 1: ₹220,000
  Year 2: ₹130,000
  Year 3: ₹200,000
  Year 4: ₹150,000
  Year 5: ₹175,000

Learn how to calculate the payback period and profitability for a project with an initial investment of ₹600,000. Detailed analysis of profits after tax for 5 years is provided, along with cumulative profits, leading to a payback period of 3 years and 4 months. Suitable for business and finance students.

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