= Rs. 1,04,100 Statement showing evaluation of Machine A and B (Rs.) Particulars Cost of purchase Add: P.V. of running cost for 3 years Machine A Machine B 1.50.000 1,00.000 99.440 1.04,100 2.49,440 2.04.100 2.49.440 204,100 2.486 1,735 P.V. Cash outflow Equivalent Present value of annual Cash outflow = 1.00,338 = 1.17,637 Analysis: Since the annual Cash outflow of Machine B is highest Machine A can be purchased 37 Illustration : A particular project has a four-year life with yearly projected net profit of Rs. 10,000 after charging yearty Depreciation of Rs. 8,000 in order to write-off the capital cost of Rs. 32.000. Out of the Capital cost Rs. 20.000 is payable immediately (Year O) and balance in the next year (which will be the Year 1 for evaluation) Stock amounting to Rs. 6,000 (to be invested in Year O) will be required throughout the project and for Debtors a further sum of Rs. 8,000 will have to be invested in Year 1. The working capital will be recouped in Year 5. It is expected that the machinery will fetch residual value of Rs. 2,000 at the end of 4 year. Income Tax is payable @ 40% and the Depreciation equals the taxation writting down allowances of 25% per annum. Income Tax is paid after 9 months after the end of the year when profit is made. The residual value of Rs. 2,000 will also bear Tax @ 40%. Although the project is for 4 years, for computation of Tax and realisation of working capital, the computation will be required up to 5 years. Taking Discount factor of 10%, calculate NPV of the project and give your comments regarding its acceptability (NPV Factors @ 10% - Year 1-0.0091; Yr 2-0.8284 Yr. 3-0.7513; Yr.4-0.6830, Yr. 5-0.6200)