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

Fund of hedge funds, Fund of hedge Funds The universe of Fund of Funds ...

Fund of hedge Funds The universe of Fund of Funds (FoFs), often referred to as Fund of Hedge Funds, continues to grow from Year 2000, both in absolute terms and as a relative c

Estimate sales price of gas, A proposal to extend the ABC Gas Company Ltd's...

A proposal to extend the ABC Gas Company Ltd's gas distribution network to the NOIDA industrial cluster, about 40 km east of Delhi, at distance of about 20 kms from the ABC's exist

Risk-free interest rate, Price an Asian call option with on a stock with th...

Price an Asian call option with on a stock with the initial stock price $50 and volatility 30$. The strike price of the option is $52. The time to maturity of the option is 3 month

Calculation of weighted average cost of capital, Calculation of weighted av...

Calculation of weighted average cost of capital (WACC) Market values Market value of equity = 5m × 4.50 = $22.5 million Market value of preference shares = 2.5m × .0762 =

Dual-indexed floaters, In dual indexed floaters the coupon rate is a ...

In dual indexed floaters the coupon rate is a fixed rate plus the difference between two reference rates. Purchasers of these securities typically make an assumpt

Working capital as a percentage of net sales, Q. Working Capital as a Perce...

Q. Working Capital as a Percentage of Net Sales? This approach to estimate the working capital requirement is based on the fact that the working capital for any firm is directl

This case has been framed in order to test the skill, Ask ques1. How would ...

Ask ques1. 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? 2. Suggestion rega

Type of hedge funds, What are the Types of Hedge Funds? Please provide me r...

What are the Types of Hedge Funds? Please provide me report on Types of Hedge Funds.

Show the working capital forecasting techniques, Q. Show the Working Capita...

Q. Show the Working Capital Forecasting Techniques? Working Capital Forecasting Techniques or else Computation Of Working Capital: - A number of processes are used to determine

Risks associated with short-term financing working capital, What are the ri...

What are the risks associated with using a large amount of short-term financing for working capital? Using a large amount of short-term financing in general allows funds to be

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