Gurgaon Chemicals supplies chemicals and dyes to various units in and around Delhi NCR$.$ The onsite

delivery of chemicals and dyes every month is $2,000$ units. The unit sale price is Rs$\mathrm{.}100.$ The cost per

unit is Rs$\mathrm{.}50.$ It is using a tempo which can carry a maximum of $80$ units. The total distance covered

in one trip is $400$ kms$.$ The cost of diesel in the Delhi NCR is Rs$.55\mathrm{.}5$ per liter. The average

consumption of diesel is $8$ kms per liter.

Due to increase in demand for dyes for industrial use, Gurgaon Chemicals has an opportunity to

make and deliver $2,500$ units per month. To cater to the increased demand, the company is

contemplating buying a mini truck with a capacity to carry $165$ units. The required mini truck is

available from Eicher for Rs$\mathrm{.}14,00,000.$ The tempo being currently used has a book value of

Rs$\mathrm{.}6,00,000.$ It can be sold for Rs$\mathrm{.}4,00,000.$ The annual salary of the tempo driver is Rs$\mathrm{.}6,000$ per

month. If the mini truck is acquired, the company would have to increase his monthly salary to

Rs$\mathrm{.}8,000.$ The consumption of diesel by the truck would become average of $5$ kms per liter. The

annual maintenance cost of the mini truck would be Rs$\mathrm{.}8,500$ compared to Rs$\mathrm{.}6,200$ maintenance

cost of the tempo. The company uses straight$-$line method of depreciation for taxation purposes.

The tempo has a remaining useful life of $5$ years. The applicable tax rate is $35\%.$ Assume that loss

on sale of existing machine can be claimed as short$-$term capital loss in the current year itself.

Nitin Jain, the CEO of the company, has approached you to examine the financial viability of the

proposal to replace the tempo by the mini truck and make appropriate recommendations in this

regard. Assume a required rate of return of $14$ per cent.