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Discussion > Accounts > Cost Accounts >

Help!!!! Capital budgeting - npv method

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2nd Year Article

[ Scorecard : 94]
Posted On 02 March 2012 at 00:04 Report Abuse

In NPV method, if in a particular project a machine is used and it has a resale value of 10000 which is equal to its written down value at end of last year then what will be the terminal value as per this method???? I mean do we consider this value of 10000 while calculating the Present Value of Cash Inflows???


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sunitha balachandar
physics teacher St.paul school bangalore

[ Scorecard : 209]
Posted On 02 March 2012 at 10:26

Hi shobhit,

Can u  post the question in detail?





Shobhit Jain
2nd Year Article

[ Scorecard : 94]
Posted On 02 March 2012 at 13:53

Hi Sunitha

Following are the relevant details of the question.

X Ltd is considering an Investment Project of Rs1.5 Lakhs and it will have a scrap value of Rs 10000 at the end of 5 years. Transportation and installation charges are Rs 5000 and 25000 respectively. Also, a spare part inventory of Rs 10000 must be maintained (Scrap Value 60% of Initial cost after 5 years). The depreciation for 5 years is as follows: (Cost of Capital - 12%)

Year 1 - 72000, Year 2 - 43200, Year 3 - 32400, Year 4 - 21600, Year 5 - 800

Tax for 5 years - Year 1 - 11200, Year 2 - 22720, Year 3 - 27040, Year 4 - 31360, Year 5 - 39680




sunitha balachandar
physics teacher St.paul school bangalore

[ Scorecard : 209]
Posted On 02 March 2012 at 18:37

Hi ,

Where is the cash inflows?




Shobhit Jain
2nd Year Article

[ Scorecard : 94]
Posted On 02 March 2012 at 18:47

Hi

Expected annual revenue is Rs 170000 and Labour and material and Maintainence expenses are estimated to be Rs 15000, Rs 50000 & Rs 5000 respectively.




sunitha balachandar
physics teacher St.paul school bangalore

[ Scorecard : 209]
Posted On 04 March 2012 at 08:18

Hi,

The sale value is the cash inflow and it should be included in finding the terminal cash inflow.For tax purpose the STCG will be zero since(sale value=WDV).correct me if i am wrong.




Shobhit Jain
2nd Year Article

[ Scorecard : 94]
Posted On 04 March 2012 at 14:06

got it......thanks Sunitha

 

 



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