Virat Ltd., a steadily growing company in Mumbai, has been performing well in its current line of business. The management believes the timing is…

Virat Ltd., a steadily growing company in Mumbai, has been performing well in its current line of business. The management believes the timing is right to expand, and they have approached you—the company's financial analyst—to evaluate whether their planned new venture is financially sound. At present, the company earns - 20,00,000 in annual revenue. To generate this income, Virat Ltd. incurs several operating costs. About 40% of the revenue, or - 8,00,000, goes toward the cost of goods sold. Additionally, the company spends - 2,00,000 on employee salaries, 50,000 on electricity and other overheads, and another - 50,000 on advertising and promotional activities. After all these expenses, the company pays 35% tax on its profits. To run the existing business, Virat Ltd. uses a total capital of 1.5 crore. This capital is funded partly through equity of 80,00,000, represented by 8,00,000 shares with a face value of 10 each, and partly through debt of 70,00,000, on which the company pays 9.95% interest per year. Since the company is listed on the NSE, its performance is compared with the market index, which has produced a return of 14.95%. The company carries a beta of 1.10, indicating slightly higher risk than the market. For risk-free benchmarks, the latest RBI T-Bill rate is 5.45%. Virat Ltd. is evaluating expansion into a new product line. Management has already conducted preliminary research and provided expected revenue and cost estimates for the next five years. Expected Performance of the New Project Year 2026 2027 2028 2029 2030 Revenue 9,50,000 10,45,000 11,49,500 12,64,450 13,90,895 COGS % 40% 42% 45% 47% 50% COGS (₹) 3,80,000 4,38,900 5,17,275 5,94,291.5 6,95,447.5 Gross Profit 5,70,000 6,06,100 6,32,225 6,70,158.5 6,95,447.5 Employee Costs 45,000 47,250 49,612.5 52,093.13 54,697.78 Electricity/Other 5,000 5,100 5,202 5,306.04 5,412.16 Advertising 15,000 15,150 15,301.5 15,454.52 15,609.06 To begin this project, Virat Ltd. will need to invest - 15,00,000 in fixed assets, with a useful life of 10 years and terminal (sale) value at the end of 5th as 7,50,000. This investment will be financed through a mix of 5,00,000 in equity (50,000 new shares at 10 each) and - 10,00,000 in debt. For this company issued 10,000, 10% debentures of 100 each at a premium of 10% on 1.4.2026 to be matured after 5 years The debentures will be redeemed at par on maturity. You are now required to analyse both the company's current performance and the financial feasibility of the new project using the information provided and answer the following questions (MCQ 1 to 5):