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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Help!!!! Capital budgeting - npv method
Replies (6)
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
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.
got it......thanks Sunitha
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