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Sona Limited is a leading manufacturer of automotive components. It supplies to the original equipment manufacturers as well as the replacement market. Its projects typically
Sona Limited is a leading manufacturer of automotive components. It supplies to the original equipment manufacturers as well as the replacement market. Its projects typically have a short life as it introduces new models periodically.
You have recently joined Sona Limited as a financial analyst reporting to Suresh Gopal, the CFO of the company. He has provided you the following information about three projects, and that are being considered by the Executive Committee of Sona Limited:
Project is an extension of an existing line. Its cash flow will decrease over time.
Project B involves a new product. Building its market will take some time and hence its cash flow will increase over time.
Project is concerned with sponsoring a pavilion at a Trade Fair. It will entail a cost initially which will be followed by a huge benefit for one year. However, in the year following that a substantial cost will be incurred to raze the pavilion.
The expected net cash flows of the three projects are as follows.
tableYearProject AProject BProject C
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