Calculation of Internal Rate of Return (IRR)

The internal rate of return (IRR) is the rate at which the present value of cash inflows equals the cost of investment. To calculate the IRR of the given plant, we will use the following formula:

PV of cash inflows = cost of investment x (1+IRR)^n

Where PV is present value, IRR is the internal rate of return, n is the number of years, and ^ is the exponential function.

Using the given values, we can calculate the IRR as follows:

PV of cash inflows = ₹ 20,000 x [(1+IRR)^6-1]/IRR
Cost of investment = ₹ 62,500

Equating the two values and solving for IRR, we get:

62,500 = 20,000 x [(1+IRR)^6-1]/IRR
IRR = 17.15%

Therefore, the internal rate of return for the given plant is 17.15%.

Risk in Capital Budgeting, Accountancy and Financial Management

Capital budgeting is the process of evaluating and selecting long-term investment projects that will yield a positive return on investment. It involves estimating future cash flows, determining the cost of capital, and evaluating the risks associated with the investment.

There are several risks involved in capital budgeting, accountancy, and financial management, including:

1. Business risk: This refers to the risk of loss due to factors such as competition, changes in technology, or changes in consumer preferences.

2. Financial risk: This refers to the risk of loss due to factors such as changes in interest rates, exchange rates, or credit ratings.

3. Market risk: This refers to the risk of loss due to factors such as changes in the stock market, commodity prices, or inflation.

4. Liquidity risk: This refers to the risk of loss due to the inability to convert an asset into cash quickly enough to meet financial obligations.

To mitigate these risks, companies use various techniques such as diversification, hedging, and risk management strategies. They also use financial models and analysis to evaluate the potential risks and returns associated with investment projects. By carefully evaluating the risks and returns of each investment opportunity, companies can make informed decisions that will help them achieve their long-term financial goals.