Question
Metaland is a major manufacturer of light commercial vehicles. It has a very strong R&D center which has developed very successful models in the last
Metaland is a major manufacturer of light commercial vehicles. It has a very strong R&D center which has developed very successful models in the last fifteen years. However, two models developed by it in the last few years have not done well and were prematurely withdrawn from the market. The engineers at its R&D centre have recently developed a prototype for a new light commercial vehicle that would have a capacity of 4 tons. After a lengthy discussion, the board of directors of Metaland decided to carefully evaluate the financial worthwhileness of manufacturing this model which they have labeled Meta 4. Till this point Rs. 50 Mn has been invested in R&D. You have been recently hired as the executive assistant to Vijay Mathur, Managing Director of Metaland. Vijay Mathur has entrusted you with the task of evaluating the project. Meta 4 would be produced in the existing factory which has enough space for one more product. Meta 4 will require plant and machinery that will cost Rs.500 million. You can assume that the outlay on plant and machinery will be incurred over a period of one year. For the sake of simplicity assume that 50 percent will be incurred right in the beginning (end of the 0th Year) and the balance 50 percent will be incurred after 1 year (end of the 1st Year). The plant will commence operation after one year. Meta 4 project will require Rs.250 million toward gross working capital. You can assume that gross working capital investment will occur after 1 year (end of the 1st Year). The proposed scheme of financing is as follow
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