Page 428 - Corporate Finance PDF Final new link

NPP

428 Corporate Finance BRILLIANT’S

4 1,50,000 0.572 85,800
5 1,25,000 0.497 62,125
* 2,00,000 0.497 99,400
5,55,315
Less : Outflows 6,40,000
NPV (–) 84,685

* Indicating salvage value and working capital released.
Decision: As NPV is negative, the machine should not be purchased.
Note: As the installation charges form a part of the cost of machine itself, the benefits available
on the basis of cost of machine viz, depreciation and investment allowance will be available on
the cost after considering the installation charges.

Illustration 5.1.10
The following details relate to the two machines X and Y:
{ZåZ{b{IV {ddaU Xmo ‘erÝg X VWm Y go g§~§{YV h¡… (Amount in `)
Particulars Machine X Machine Y
({ddaU) (‘erZ X) (‘erZ Y)

Cost / H$m°ñQ> 56,125 56,125
Estimated life / AZw‘m{ZV OrdZ 5 years 5 years
Estimated Salvage Value / AZw‘m{ZV gmëdoO d¡ë¶y 3,000 3,000
Annual Income After Tax and Depreciation:
dm{f©H$ Am¶ Q>¡³g Am¡a S>o{à{eEeZ Ho$ ~mX…
Year/df© I 3,375 11,375
Year/df© II 5,375 9,375
Year/df© III 7,375 7,375
Year/df© IV 9,375 5,375

Year/df© V 11,375 3,375
Overhauling charges at the end of 3rd year is ` 25,000 in case of Machine X. Depreciation has
been charged at Straight Line Method. Discount rate is 10% for five years are:
‘erZ X H$s pñW{V ‘| Vrgao df© Ho$ A§V ‘| Amodahm°qbJ MmO}g < 25,000 h¡& S>o{à{eEeZ ñQ´>oQ> bmBZ ‘oWS> na
bJm¶m J¶m h¡& {S>ñH$mC§Q> aoQ> nm§M dfm] Ho$ {bE 10% h¡…

Year / df© I II III IV V

Approximate P.V.F. / P.V.F. bJ^J .909 .826 .751 .683 .621
Using Present Value Method, suggest which machine should be chosen?
àoO|Q> d¡ë¶y ‘oWS> H$m Cn¶moJ H$aHo$ gwPmd Xr{OE {H$ H$m¡Z-gr ‘erZ H$m MwZmd H$aZm Mm{hE?