MAFA Query

Learner

4016 Points Joined December 2009

Dear Shweta,

Per Annum Capacity of Each Machine – 1000 bottles

Let’s divide the year in 6 months of Winter & 6 months Summer Season i:e 500 bottles in each season. Hence Annual Production will be as under –

Summer = Capacity x 100% = 500 x 100% = 500 bottles

Winter = Capacity x 50% = 500 x 50% = 250 bottles

Total Production is 750 bottles.

Year	Particulars	Amount	PV Factor @ 10%	Present Value
0	Outflow Purchase of 1 Machine	Rs. 6,000	1	(6,000)
1 to 5	Inflow Tax Saving on Depreciation = Cost x Rate of Depreciation x Rate of Tax	6,000 x 20% x 40% ð 480	3.79 (Annuity For Year 1 to 5 @ 10%)	= 480 x 3.791 ð 1,820
1 to Infinite	Inflow Savings in Operation Expenditure (Net of Tax) = Production x Savings/Bottle x (1-Tax Rate)	750 x (3-1) x (1-40%) ð 900	PV factor of infinite/Perpetual annuity = 1/Rate = 1/.10 ð 10	= 900 x 10 ð 9,000
	NPV of 1 Machine			= (6,000) +1,820 +9,000 ð 4,820
	NPV of 2 Machines			= 4,820 x 2 ð 9,640