Question
Forward planning Limited is considering whether to invest in a project which would entail immediate expenditure on capital equipment of Rs.40, 000. Expected from sales
Forward planning Limited is considering whether to invest in a project which would entail immediate expenditure on capital equipment of Rs.40, 000. Expected from sales from the projects are as follows.
Probability Sales volume
0.10 2000
0.25 6000
0.40 8000
0.15 10000
0.10 14000
Once sales are established at a certain volume in the first year, they will continue at the same volume in subsequent years.
The unit selling price will be Rs. 10, the unit variable cost Rs. 6 and the additional noncash fixed costs will be Rs. 22000, project would have a life of 6 years after which the equipment would be sold as scrap value of Rs. 1000. Dismantling cost of the project would be Rs 8000.
You are required to find (1) Net Present Value of Forward Planning Ltd (2) Profitability Index (3) Minimum volume of sales per annum required to justify the project. (4) Decision Making under the above criteria, Cost of capital of the company is 10%. Discount factor of Re.1 per annum for 6 years at 10% is 4.355 and the discount factor of Re. 1 at the end of 6th year at 10% is 0.5645
(SUBJECT: CORPORATE FINANCE)
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