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RTP -3.8 Shut Down vs Continue Decision - Long-Term Evaluation AB Ltd has two divisions A and B. Division A manufactures a product 'AAA' for industrial use whereas Division B is manufactures the Containers and stores Product 'AAA' by using protective materials 'BBB'. AB Ltd is exploring the possibility of closing down the Division B and outsource the work to an outside Company X Ltd. The details of expenses of Division B during the previous year is as given below: Particulars For Manufacturing Container () For Storing Product AAA (3) Direct Material 6,35,000 Cost of Protective Material BBB 1,75,000 Direct Labour 2,50,000 1,20,000 Maintenance of Machine 96,000 Depreciation of Machine 44,000 Rent of Warehouse 1,25,000 Manufacturing Overheads 1,70,000 Administrative Overheads apportioned to Division B 2,40,000 60,000 2. X Ltd after full assessment of requirement offered to manufacture the Containers at a cost of 12,00,000 per annum on a Contract Basis and store the Product 'AAA' at a cost of 5,00,000 per annum. 3. The Stock of Protective Materials costing 4,25,000 with Division B, if disposed off, will fetch only 60% of its value. 4. In case of closure of Manufacturing Department of Division B, the terminal benefits to be given to Employees who can be transferred to Division A is estimated to be 2,00,000 whereas the same for Stores is 1,00,000. 5. In case of closure of B, 75% of the Administrative Overheads of B will be curtailed. Old Machine of Division B, if disposed off, would fetch 1,50,000. . You are required to evaluate the following proposals on the basis of 5 years term, taking cost of capital 12% per annum: Proposal 1: Closing Division B and manufacturing & storing may be given to X Ltd. Proposal 2: Continue Division B for manufacturing & storing may be given to X Ltd. Proposal 3: Continue Division for storing only and manufacturing may be given to X Ltd