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This is Finance Question

RTP O Present Value of Benefit / Conclusion: Hence, Proposal 3 may be accepted, i.e. be contracted to X Ltd. A Company having its Head Office in New Delhi has three factories UP, MP and TN. The operations of the Factory in MP have 3.9 Profitability Analysis - Evaluation of Alternatives by closure of one division been unprofitable for a number of years. The leasehold of MP Factory will also expire by the end of the current year. costs. The projected profitability of the Factories for the coming year are: (in Lakhs) Factory's Machinery can be sold at a price higher than the WDV and the surplus funds will be sufficient to cover all termination Total 800 490 150 Particulars 40 Sales Variable Costs Fixed Costs: TN MP UP 100 300 400 75 195 220 30 80 Factory 5 15 30 50 Selling and Administration 25 15 25 65 HO Expenses apportioned 25 45 (25) 45 Profit / (Loss) The Company would however, like to continue to serve the customer's needs now being served by MP Factory, if it could do so economically . Accordingly, the following proposals were put forward for consideration based on a Selling Price of 3 250 p.u. Close down MP Factory and expand the operations of the TN Factory for which capacity exists there. This proposal will involve the following changes - (a) Sales Revenue of TN Factory will increase by 25%, (b) Fixed Costs of TN Factory will increase by 10%, (c) Fixed Selling and Administration of TN Factory will increase by 5%, (d) Variable Distribution Costs of the additional output will increase by * 4 per unit. 2. Close down MP Factory and expand operations in UP Factory subject to the following changes in the latter - (a) Sales Revenue will increase by 80 Lakhs, (b) Fixed Factory Costs will increase by 20%, (c) Fixed Selling and Administration Costs will increase by 10%, (d) Variable Distribution Costs in respect of the additional output will increase by 5 per unit. 3. Close down MP Factory and enter into long-term contract with an independent Manufacturer to serve the customers of MP Factory. This Manufacturer will pay a Royalty of 5 per unit to the Company. In that event, the Sales of the area served by the MP Factory will decrease by 25% 4. Close down MP Factory and discontinue serving the customers of that area. 1. Evaluate each of these proposals and advise the Management for improving the Company's profitability