Capital Budgeting Decision Problem, Finance, Financial Management

Assignment Help:
SCL Ltd., a highly profitable company, is engaged in the manufacture of power intensive products. As part of its diversification plans, the company proposes to put up a windmill to generate electricity. The details of the scheme are as follows:

1. Cost of the windmill Rs. 300 lakhs
2. Cost of Land Rs. 15 lakhs
3. Subsidy from state Government to be received at the end of first year
Rs. 15 Lakhs
4. Cost of electricity will be Rs. 2.25 per unit in Year 1.
This will increase by Rs. 0.25 per unit every year till year 7.
After that it will increase by Rs. 0.50 per unit.
5. Maintenance cost will be Rs. 4 Lakhs in year 1 and the same will increase by Rs. 2 lakhs every year.
6. Estimated life 10 Years.
7. Cost of Capital 15%.
8. Residual value of windmill will be Nil. However, land value will to up to Rs. 60 lakhs at the end of year 10.
9. Depreciation will be 100% of the cost of Windmill in Year 1 and the same will be allowed for tax purposes.
10. As windmills are expected to work based on wind velocity, the efficiency is expected to be an average 30%. Gross electricity generated at this level will be 25 Lakhs units per annum. 4% of this electricity will be committed free to the state electricity board as per the agreement.
11. Tax Rate 50%.
From the above information you are required to calculate NPV (Ignore tax on capital profits. Also list down 2 non-financial factors that should be considered before taking decision. (Nov 1995)

Related Discussions:- Capital Budgeting Decision Problem, Finance

What typ, how would you judge the potential profit of bajaj electronics on ...

how would you judge the potential profit of bajaj electronics on the first year of sales to booth plastics and give your views to increase the profit ?

Explain implement budget-financial delegations, 1: How will you inform your...

1: How will you inform your managers and supervisors about budgets, reporting requirements and financial delegations? 2: What mechanism you will implement to ensure that there a

Quarterly earnings studies, Quarterly Earnings Studies The Quarterly Ea...

Quarterly Earnings Studies The Quarterly Earnings Studies are a part of time-series analysis. These studies aim at predicting future returns for a stock based on publicly avail

Assignment, Discuss the applicability ofan operating cycle in a poultry bus...

Discuss the applicability ofan operating cycle in a poultry business(consider broilers)

Compare and contrast j''s current style of management, When J was promoted ...

When J was promoted to be the new Sales and Marketing Manager for Company L, after working there in different capacities over the last ten years, it was a popular choice between he

Explain the methods used to treat the obsolete stock, Explain the methods u...

Explain the methods used to treat the obsolete stock Review Inventory for obsolete items Make materials review board Include an obsolescence review in the closing p

Determine the types of users, Determine the Types of users Investors -loo...

Determine the Types of users Investors -look at the risk of their investment, future growth and profitability. Managers / employees-have access to more information and will want

State what is average cost, State what is Average cost Average cost rep...

State what is Average cost Average cost represents weighted average of the costs of each source of fundsemployed by enterprise, weights being the relative share of each source

Explain why warrants are rarely exercised, Explain why warrants are rarely ...

Explain why warrants are rarely exercised unless the time to maturity is small? Warrants are seldom exercised till the time to expiration is small because the market price of the

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd