Capital Budgeting Decision Problem, Finance, Financial Management

Assignment Help:
SCL Ltd., a highly profitable company, is engaged in the manufacture of power intensive products. As part of its diversification plans, the company proposes to put up a windmill to generate electricity. The details of the scheme are as follows:

1. Cost of the windmill Rs. 300 lakhs
2. Cost of Land Rs. 15 lakhs
3. Subsidy from state Government to be received at the end of first year
Rs. 15 Lakhs
4. Cost of electricity will be Rs. 2.25 per unit in Year 1.
This will increase by Rs. 0.25 per unit every year till year 7.
After that it will increase by Rs. 0.50 per unit.
5. Maintenance cost will be Rs. 4 Lakhs in year 1 and the same will increase by Rs. 2 lakhs every year.
6. Estimated life 10 Years.
7. Cost of Capital 15%.
8. Residual value of windmill will be Nil. However, land value will to up to Rs. 60 lakhs at the end of year 10.
9. Depreciation will be 100% of the cost of Windmill in Year 1 and the same will be allowed for tax purposes.
10. As windmills are expected to work based on wind velocity, the efficiency is expected to be an average 30%. Gross electricity generated at this level will be 25 Lakhs units per annum. 4% of this electricity will be committed free to the state electricity board as per the agreement.
11. Tax Rate 50%.
From the above information you are required to calculate NPV (Ignore tax on capital profits. Also list down 2 non-financial factors that should be considered before taking decision. (Nov 1995)

Related Discussions:- Capital Budgeting Decision Problem, Finance

Sensex, What is Financial index & commodity index? Method of index uses in ...

What is Financial index & commodity index? Method of index uses in calculation? Weighted average method? How to calculate index?

Highest earnings-per-share, McGovern Company is comparing two disimilar cap...

McGovern Company is comparing two disimilar capital structures - an all-equity plan (Plan I) and a levered plan (Plan II).  Under Plan I, the Company would have 700,000 shares of s

Explain why warrants are rarely exercised, Explain why warrants are rarely ...

Explain why warrants are rarely exercised unless the time to maturity is small? Warrants are seldom exercised till the time to expiration is small because the market price of the

Calculate, #questiBabar Corporation''s present capital structure, which is ...

#questiBabar Corporation''s present capital structure, which is also its target capital structure I, is 40% debt and 60% common equity. Next year''s net income is projected to be R

Step-up (step down) notes, These types of securities have more ...

These types of securities have more than one coupon rate and each subsequent coupon rate is higher (or lower) than the previous coupon rate. For

Determine the motivation foreign firm - high - tech u.s firm, Currently, ma...

Currently, many foreign firms from both developed and developing countries obtained high-tech U.S. firms. What might have motivated these firms to obtain U.S. firms? Answer: Se

Describe the benefits of wealth maximisation criterion, Describe the benefi...

Describe the benefits of Wealth maximisation criterion Value of an asset must be viewed in terms of the benefits it can produce. Worth of a course of action can similarly be ju

Margin and marking to market, The collaterals used in the repo market...

The collaterals used in the repo market are high quality securities; but they are also not free from credit risk. In our earlier example, we see the dealer borrow

Charge for depreciation and amortization, Talbot Enterprises recently repor...

Talbot Enterprises recently reported an EBITDA of $8 million and net income of $2.4 million. It had $2.0 million of interest expense, and its corporate tax rate was 40%. What was i

Asymmetric cash matching, When a set of predetermined liabilities are given...

When a set of predetermined liabilities are given, the investor must construct a non-callable bond portfolio of homogeneous ratings by considering certain characteris

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd