Q2. Tulsian Ltd. provides you the following information: Rs. 6,00,000 1. Purchase Price of each Machine 2. Working Capital Rs. 3,00,000 3. Useful Life of each machine 5 years Estimated Salvage Value at the end of useful life Rs. 1,00,000 Actual Salvage Value realised at the end of useful life Rs 1,20,000 Method of Depreciation 4. 5. 6. Straight line 7. Tax Rate 30% 8. Earning before depreciation & tax: Year 1 Year 2 Year 3 Year 4 Year 5 Machine 3,00,000 3,00,000 3,00,000 3,00,000 3,00,000 Machine X 1,00,000 2,00,000 3,00,000 12,00,000 Machine Y 5,00,000 4,00,000 3,00,000 2,00,000 Machine Z Suggest which machine should the company go for on the basis of: A. NPV method (Cost of Capital for the purpose is 10%) B. IRR method C. Profitability Index method (Cost of Capital for the purpose is 10%)
Q2. Tulsian Ltd. provides you the following information: Rs. 6,00,000 1. Purchase Price of each Machine 2. Working Capital Rs. 3,00,000 3. Useful Life of each machine 5 years Estimated Salvage Value at the end of useful life Rs. 1,00,000 Actual Salvage Value realised at the end of useful life Rs 1,20,000 Method of Depreciation 4. 5. 6. Straight line 7. Tax Rate 30% 8. Earning before depreciation & tax: Year 1 Year 2 Year 3 Year 4 Year 5 Machine 3,00,000 3,00,000 3,00,000 3,00,000 3,00,000 Machine X 1,00,000 2,00,000 3,00,000 12,00,000 Machine Y 5,00,000 4,00,000 3,00,000 2,00,000 Machine Z Suggest which machine should the company go for on the basis of: A. NPV method (Cost of Capital for the purpose is 10%) B. IRR method C. Profitability Index method (Cost of Capital for the purpose is 10%)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Proper solutions to all the questions (A) (B) (C) and (D) with working notes
Transcribed Image Text:Q2.
Tulsian Ltd. provides you the following information:
Purchase Price of each Machine
1.
Rs. 6,00,000
2. Working Capital
Rs. 3,00,000
3.
Useful Life of each machine
5 years
Estimated Salvage Value at the end of useful life Rs. 1,00,000
Actual Salvage Value realised at the end of useful life Rs 1,20,000
Method of Depreciation
4.
5.
6.
Straight line
7.
Tax Rate
30%
8.
Earning before depreciation & tax:
Year 1
Year 2
Year 3
Year 4
Year 5
Machine
3,00,000
3,00,000
3,00,000
3,00,000
3,00,000
Machine X
1,00,000
2,00,000
3,00,000
12,00,000
Machine Y
5,00,000
4,00,000
3,00,000
2,00,000
Machine Z
Suggest which machine should the company go for on the basis of:
A. NPV method (Cost of Capital for the purpose is 10%)
B. IRR method
C. Profitability Index method (Cost of Capital for the purpose is 10%)
D. Discounted Payback Period Method (Cost of Capital for the purpose is
10%)
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