Q2

ATUL ENTERPRISES INTRODUCE A NEWPRODUCT WITH LIFE OF 5 YEARS

COST OF EQUIPMENT RS 500000 SCRAP VALALUE RS 30000 AND W.CAPITAL RS 4000
ANNUAL CASH FLOW WITH 10% PV FACTOR
YEAR PV FACTOR CASH INFLOW
1 0.909 250000
2 0.826 300000
3 0.751 375000
4 0.683 360000
5 0.621 225000
DEPn RS 100000 PA TAX RATE 40%
EVALUATE THE PROJECT

1] CALCULATION OF CASH OUTFLOW RS

COST OF THE EQUIPMENT 500000
ADD W.CAPITAL 40000
TOTAL CASH OUTFLOW 540000

II] CALCULATION OF CASH INFLOW

1
NETPROFIT BEFORE DEPn AND TAX 250000
LESS DEPn 100000
NET PROFIT BEFORE TAX 150000
LESS TAX @ 40% 60000
NET PROFIT AFTER TAX 90000
ADD DEPRECIATION 100000
CASH INFLOW 190000
P.V FACTOR @10% 0.909
DISCOUNTED CASH INFLOW 172710

III] TOTAL CASH INFLOW

[172710 +181720+199015+174848+108675
ADD SCRAP VALUE [30000*0.621]
ADD RECOVERY OF W.CAPITAL [40000 *O.621]
TOTAL

IV] NET CASH INFLOW

TOTAL CASH INFLOW
LESS CASH OUTFLOW
NET CASH INFLOW
Q3 XLTDCONSIDERING PURCHASE OF MACHINE NAMELY MACHINE LM AND PM COS
THE CASHFLOW AFTER TAX AS FOLLOWS
YEAR MACH LM MACH PM
1 30000 10000
2 40000 30000
3 50000 40000
4 30000 60000
5 40000 40000
DISCOUT RATE 10% AND PV FACTOR [0.909,0.826, 0.75
751,0.
EVALUATE THE INVESTMENT PRAPOSAL

1] CASH OUTFLOW
MACH LM MACH PM
COST [RS] 100000 10000

II] CASH INFLOW

MACHINE LM
YEAR CASH FLOW DIS FAC DIS CASH FLOW YEAR CASH FLOW DIS
1 30000 0.909 27270 1
2 40000 0.826 33040 2
3 50000 0.751 37550 3
4 30000 0.683 20490 4
5 40000 0.621 24840 5
TOTAL 190000 143190

STEP III] NET CASH INLOW

CASH INFLOW
LESS CASH OUT FLOW
NET PRESENT VALUE

MACHINE LM IS MORE PROFITABLE

Q4 X LTD PROVIDES FOLLOWING IFORMATION

PURCHASE OF EACH MACINE A AND B
WORKING CAPITAL
LIFE OF THE MACHINE
ESIMATED SCRAP VALUE
ACTUAL SALVAGE REALISED AT THE END OF LIFE
TAX RATE
DEPn
DISCOUNTED FACTOR
PBD AND TAX
MACHINE MACHINE P.V FACTOR
YEAR A [RS] B [RS] 10%
1 600000 300000 0.909
 2 600000 200000 0.826
3 600000 400000 0.751
4 600000 600000 0.683
5 600000 2400000 0.621
CALCULATE NPV AND MOST PROFITABLE MACHINE

ANS I CASH OUT FLOW

PARTICULARS MACHINE A RS] MACHINE B [RS]
COST OF THE MACHINE 1200000
ADD W.CPITAL 600000
TOTAL 1800000

II]CALCULATION OF CASH INFLOW [MACHINE A]

YEAR 1 2 3
NPBD &T 600000 600000 600000
LESS DEP [1200000-200000]/5 200000 200000 200000
NPBT 400000 400000 400000
LESS TAX @ 30% 120000 120000 120000
NPATAX 280000 280000 280000
ADD DEPn 200000 200000 200000
CASH INFLOW 480000 480000 480000
ADD W.CAPITAL REALEASE
ADD SCRAP VALUE OF MACHINE
LESS TAX ON PROFIT ON SALE OF MACHINE
[240000-200000] 40000*30%
480000 480000 480000
P.V FACTOR @10% 0.909 0.826 0.751
DISCOUNTED CASH FLOW 436320 396480 360480

III] CALCULATION OF NET PRESENT VALUE

DISCOUNTED CASH INFLOW
LESS CASH OUTFLOW
NET PRESENT VALUE

CALCULATION OF CASH INFLOW OF[ MACHINE B]

NPBD AND TAX 300000 200000 400000
LESS DEPn 200000 200000 200000
NPBTAX 100000 NIL 200000
LESS TAX @30% 30000 NIL 60000
NPAT 70000 NIL 140000
ADD DEPn 200000 200000 200000
CASH INFLOW 270000 200000 340000
ADD W.CAPITAL
ADD SCRAP VALUE
LESS TAX ON PROFIT ON SALE OF MACHINE
 CASH INFLOW 270000 200000 340000
DIS FACTOR @ 10% 0.909 0.826 0.751
DISCOUNTED CASH FLOW 245430 165200 255340

CALCULATION OF NET PRESENT VALUE

DISCOUNTED CASH INFLOW
LESS CASH OUTFLOW
NET PRESENT VALUE

CONCLUSION MACHINE B IS MORE PROFITABLE THAN MACHINE A

Q5 X LTD IS CONSIDERING REPLACING TWO OF THEIR OLD MACHINE WITH NEW MAC
OLD MACHINE CAN BE SOLD FOR RS 70000 WDV OF THE SAME RS 120000 REMAI
THE COST OF NEW MACHINE RS 450000 INSTALLATION CHARGES RS 30000 LIFE 8
BY PURCHASING NEW MACHINE IS EXPECTED ANNUAL SAVINGS RS 120000 TAX R
DISCOUNTED RATE 14% FOR 8 YEARS 4.639 P.V FACTOR FOR 8th YEAR 0.351
CALCULATE NET PRESENT VALUE AND YOUR CONCLUSION

ANS I] CALCULATION OF CASH OUTFLOW

PARTICULARS AMT [RS]
COST OF NEW MACHINE 450000
ADD INSTALLATION CHARGES 30000
480000
LESS SALE OLD MACHINE 70000
CASH OUTFLOW 410000

II] CALCULATION OF CASH INFLOW

PARTICULARS
ANNUAL SAVINGS [NPBD&T] 120000
DEPn OF NEW MACHINE [480000-40000]8 55000
LESS DEPn ON OLD MACHINE [120000/8] 15000 40000
NET PROFIT BEFOE TAX 80000
LESS TAX @ 40% 32000
NET PROFIT AFTER TAX 48000
ADD DEPRECIATION 40000
ANNUAL CASH INFLOW 88000

DISCOUNTED CASHFLOW FOR 8 YEARS @ 14% IS

4. 639 88000*4.639 408232
ADD DISCOUNTED SCRAP VALUE OF NEW MACHINE
[40000*.351] 14040
TOTAL CASH INFLOW 422272

III] CALCULATION OF NET PRESENT VALUE

 DISCOUNTED CASHINFLOW 422272
LESS CASH OUT FLOW 410000
NET PRESENT VALUE 12272

CONCLUSION SINCE NET PRESENT VALUE IS POSITIVE COMPANY SHOULD REPLACE OLD MAC

Q6 ABC LTD IS CONSIDERING TO SELECT A MACHINE OUT OF 2 MUTUALLY EXCLUSIV

COMPANY"S COST OF CAPITAL 12% AND TAX RATE 30% OTHER INFORMATIONS
PARTICULARS
COST OF MACHINE
LIFE
ANNUAL INCOME BEFORE DEPN AND TAX
NPV 12% 0.893 0.797 0.712 0.636

YOU ARE REQURIED TO CALCULATE

1] DISCOUNTED PAYBACK PERIOD
2] NET PRESENT VALUE
3] PROFITABILITY INDEX

STEP I CASH OUTFLOW MACH I

COST OF THE MACHINE 1500000
TOTAL 1500000

STEP II] CALCULATION OF CASH INFLOW [MACH I]

1
NPBD AND TAX 625000
LESS DEPn [1500000/5] 300000
NET PROFIT BEFORE TAX 325000
LESS TAX 30% 97500
NET PROFIT AFTER TAX 227500
ADD DEPRECIATION 300000
CASH INFLOW 527500
P.V FACTOR @12% 0.893
PV OF CASH FLOW 471058
CUM CASH INLOW 471058

CASH INFLOW OF MACHINE II

NPBD AND TAX 875000
LESS DEPn [2000000/5] 400000
NPBTAX 475000
LESS TAX 30% 142500
NPATAX 332500
ADD DEPn 400000
P.V OF CASH FLOW 732500
 PV FACTOR @12% 0.893
DIS CASH FLOW 654123
CUM DIS CASH INFLOW 654123

DISCOUNTED PAY BACK PERIOD

MACHINE I 3 + 232944/335490
3.69 YEARS 3 YEAR 8 MONTHS

MACHINE II] 3 +240534/465870

3.52 YEARS OR 3.6 MONTH

NET PRESENT VALUE [NPV] MACH 1

DISCOUNTED CASH INFLOW 1901639
LESS CASH OUT FLOW 1500000
NET PRESENT VALUE [NPV] 401 639

PROFITABILITY INDEX CASHINFLOW/CASHOUTFLOW

MACHINE I 1901639/1500000 = 1.268

MACHINE II 2640664/2000000 =1.320

Q7] ANAND HOSPITAL IS CONSIDERING PURCHASE A EQUIPM4ENT COSTING RS 80000

AND SALVAGE RS 6000 OPERATING COST RS 7500 ANNUALLY.IT IS EXPECTED SALES
PRESENTLY HOSPITAL IS OUTSOURCING THE WORK AND EARNING AFTER TAX RS 12
TAX RATE 40% COST OF CAPITAL 10%
WHICH IS 0.909, 0.826. 0.751, 0.683, 0.621. O.564, 0.513, 0.467
YOU ARE REQUIRED TO GIVE SUGGESTION FOR PURCHASE OR OUTSOURCING ?

ANS CALCULATION OF NET PRESENT VALUE OF OUT SOURCING

1 2 3
CASH INFLOW 12000 12000 12000
P.V FACTOR @10% 0.909 0.826 0.751
P. V OF CASH INFLOW 10908 9912 9012

CALCULATION OF CASH INFLOW IF EQUIPMENT PURCHASED

CASH INFLOW YEARLY
SALES 40000 1 2 3
LESS OP COST 75000 23200 23200 23200
NPBD 32500 0.909 0.826 0.751
LESS DEPn 21089 19163 17423
[80000-6000]/8 9250
NPBT 23250
LESS TAX 40% 9300
NPAT 13950
ADD DEPN 9250
CASH INFLOW 23200

CALCULATION OF NET PRESENT VALUE [NPV]

P.V DISCOUNTED CASH INFLOW

LESS CASH OUTFLOW
NET PRESENT VALUE

CONCLUSION OUTSOURCING IS MORE PROFITABLE THAN PURCHASING

 TH LIFE OF 5 YEARS
30000 AND W.CAPITAL RS 40000 WILL BE REALEASED AFTER 5 YEARS

OR CASH INFLOW [NPD&T]

2 3 4 5
300000 375000 360000 225000
100000 100000 100000 100000
200000 275000 260000 125000
80000 110000 104000 50000
120000 165000 156000 75000
100000 100000 100000 100000
220000 265000 256000 175000
0.826 0.751 0.683 0.621
181720 199015 174848 108675

836968
18630
24840
880438

880438
540000
340438
LY MACHINE LM AND PM COSTNG RS 100000 EACH

M MACH PM

M MACH PM

MACHINE PM
YEAR CASH FLOW DIS FAC DIS CASH FLOW
10000 0.909 9090
30000 0.826 24780
40000 0.751 30040
60000 0.683 40980
40000 0.621 24840
180000 129730

LM PM
143190 129730
100000 100000
43190 29730

RS
1200000
600000
5 YEARS
200000
240000
30%
SLM
10%
E A RS] MACHINE B [RS]
1200000
600000
1800000

4 5
600000 600000
200000 200000
400000 400000
120000 120000
280000 280000
200000 200000
480000 480000
600000
240000
12000]

480000 1308000
0.683 0.621
327840 812268 2333388

2333388
1800000
[NPV] 533388

600000 2400000
200000 200000
400000 2200000
120000 660000
280000 1540000
200000 200000
480000 1740000
600000
240000
[12000]
 480000 2568000
0.683 0.621
327840 1594728 2588538

2588538
1800000
788538

LD MACHINE WITH NEW MACHINE

THE SAME RS 120000 REMAINING LIFE 8 YEARS
ON CHARGES RS 30000 LIFE 8 YEARS AND SCRAP VALUE RS 40000
UAL SAVINGS RS 120000 TAX RATE 40%
CTOR FOR 8th YEAR 0.351
UR CONCLUSION

AMT [RS]
NY SHOULD REPLACE OLD MACHINE WITH NEW MACHINE

UT OF 2 MUTUALLY EXCLUSIVE MACHINES

30% OTHER INFORMATIONS
MACHINE 1 MACHINE II
1500000 2000000
5 YRS 5 YRS
625000 875000
0.567

MACH II
2000000
2000000

W [MACH I]
2 3 4 5
625000 625000 625000 625000
300000 300000 300000 300000
325000 325000 325000 325000
97500 97500 97500 97500
227500 227500 227500 227500
300000 300000 300000 300000
527500 527500 527500 527500
0.797 0.712 0.636 0.567
420418 375580 335490 299093
891476 1267056 1602546 1901639

875000 875000 875000 875000

400000 400000 400000 400000
475000 475000 475000 475000
142500 142500 142500 142500
332500 332500 332500 332500
400000 400000 400000 400000
732500 732500 732500 732500
 0.797 0.712 0. 636 0.567
583803 521540 465870 415328
1237926 1759466 2225336 2640664

[1500000-1267056]
RS 3 YEAR 8 MONTHS

[2000000-1759466]
RS OR 3.6 MONTH

MACH II
2640664
2000000
640664

SHOUTFLOW

1901639/1500000 = 1.268

2640664/2000000 =1.320

UIPM4ENT COSTING RS 80000 ILFE 8YEARS

NNUALLY.IT IS EXPECTED SALES RS 40000 PER YEAR
AND EARNING AFTER TAX RS 12000 PER YEAR

.513, 0.467
CHASE OR OUTSOURCING ?

4 5 6 7 8
12000 12000 12000 12000 12000
0.683 0.621 0.564 0.513 0.467
8196 7452 6768 6156 5604 64008

4 5 6 7 8
23200 23200 23200 23200 23200
0.683 0.621 0.564 0.513 0.467
15846 14407 13085 11902 10834 123749
 OUTSOURCING PURCHASING
64008 123479
NIL 80000
64008 43479

THAN PURCHASING