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

financial crisis, Hedge funds are short two types of funding options. Desc...

Hedge funds are short two types of funding options. Describe in detail what these options are.   Describe why these options become more valuable during a financial crisis.   During

Describe puttable-convertible-foreign bonds and eurobonds, Describe the Put...

Describe the Puttable, Convertible, Foreign and Eurobonds. With puttable bonds the release date is under control of the holder (that is the opposed of the callable bond case)

What are the difficulties of capital budgeting, Q. What are the Difficultie...

Q. What are the Difficulties of Capital Budgeting? 1. Measurement Problems: - Identifying as well as measuring the costs and benefits of a capital expenditure proposals tend to

Determine the expected net present, Karl Robinson is about to make his firs...

Karl Robinson is about to make his first major decision as president and chief executive officer of Conway Control & Instrument Corporation, a manufacturer of electronic test instr

What is acquisition, Acquisition (takeover) or merger A merger is the s...

Acquisition (takeover) or merger A merger is the synergy or combination of two companies which are roughly equal in size by consensus of two organisations. A takeover is where

Cost of capital, The Nu-Nu Brothers Inc. (NNBI) has the following capital s...

The Nu-Nu Brothers Inc. (NNBI) has the following capital structure, which it considers to be optional: Debt 25% Preferred Stock 15% Common Equity 60% NNBI''''s expected net income

Rating methodologies of a debt instrument, The key parameters t...

The key parameters taken into account while rating a debt instrument are as follows: 1. Industry Evaluation - This involves an evaluation of the

Sensitivity analysis, Sensitivity Analysis A test of an organizations p...

Sensitivity Analysis A test of an organizations performance projections based on varying the key assumptions which is used for forecast performance.

Constructing synthetic swaps, (a) Prior to FAS 133 if companies qualified ...

(a) Prior to FAS 133 if companies qualified for hedge accounting their hedges were assumed to be perfect-no valuation or testing required. Currently under FAS 133 risk managers se

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