ABC and Co. is considering a proposal to replace one of its plants costing 60000 and having a written down value of 24000.
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Problem 1A cosmetic company is considering to introduce a new lotion. The manufacturingequipment will cost Rs.5,60,000. The expected life of the equipment is 8 years. Thecompany is thinking of selling the lotion in a single standard pack of 50 grams at Rs. 12each pack. It is estimated that variable cost per pack would be Rs. 6 and annual fixedcost Rs. 4,50,000. Fixed cost includes (straight line) depreciation of Rs. 70,000andallocated overheads of Rs. 30,000. The company expects to sell 1,00,000 packs of thelotion each year. Assume that tax is 45% and straight line depreciation is allowed for taxpurpose. Calculate the cash flows.Problem 2
ABC and Co. is considering a proposal to replace one of its plants costing Rs. 60,000 andhaving a written down value of Rs. 24,000. The remaining economic life of the plant is 4years after which it will have no salvage value. However, if sold today, it has a salvagevalue of Rs. 20,000. The new machine costing Rs. 1,30,000 is also expected to have alife of 4 years with a scrap value of Rs. 18,000. The new machine, due to itstechnological superiority, is expected to contribute additional annual benefit (beforedepreciation and tax) of Rs. 60,000. Find out the cash flows associated with this decision