Bhimsen company is considering investing in a machine to produce bowling b

The building which is proposed to be used in the production process can be s

immeidately an after tax amount of 150,000. If you go ahead with the investm
the building can be sold at the end 5th year at an after tax amount of 150,000
cost of the machine is 100,000 and it is expected to last 5 years. At the end of
years, the machine will be sold at estimated value of 30000. The machine can
depreciated on a straight line basis to value of 20000. The production units du
year of machine life is expected to be 5000, 8000 , 12000 , 10000 and 6000 u
The price of bowling balls will be Rs 20 per unit in the first year`. And the pric
expected to increase at 2% per year. The first year production cost will be Rs 1
And it is expected to increase at 10% per year. The project requires an
immediate( year 0) investment in working capital of 10000. The net working c
every year is 10% of sales. The tax rate is 34%. Discounting rate is 10%
o produce bowling balls.
on process can be sold for time 0 1 2 3
ead with the investment OP Bal
x amount of 150,000. The Dep
years. At the end of 5 Closing Bal
00. The machine can be Dep Tax Shield
production units during 5
, 10000 and 6000 units. Initial Inv
t year`. And the price is Salvage Value
Capital Gain tax
tion cost will be Rs 10. Opp Cost
t requires an
0. The net working capital Units
g rate is 10% Price
Cost
Business Cashflows
After-tax cashflows

WC
Change in WC
Net Cashflows
4 5