CA Test Series
Q-5 An existing profitable company, RMC World Ltd. is considering a new project for manufacture of home automation gadget involving a capital expenditure of Rs. 1000 Lakhs and working capital of Rs. 150 Lakhs. The capacity of the plants for an annual production of 3 lakh units and capacity utilization during 5 year life of the project is expected to be as indicated below: Year 1 2 Capacity Utilization (%) 50% 65% 3 4 80% 5 100% 100% The average price per unit of product is expected to be Rs.600 netting a contribution of 60 percent. The annual fixed costs, excluding depreciation, are estimated to be Rs.500 Lakhs per annum from the third year onwards. For the first and second year, it would be Rs. 200 lakhs and Rs. 350 lakhs respectively. Scrap value of the capital asset at the end of 5th year is Rs. 200 Lakhs. Depreciation on capital asset is provided on written down value basis @ 40% p.a. for income tax purpose. The rate of income tax may be taken at 30%. The cost of capital is 12%. At end of the third year an additional investment of Rs. 200 lakhs would be required for working capital. There is no capital gain tax applicable. COMPUTE the NPV of the project. RMC World Ltd. is about to make a presentation to Secure Venture Capital Firm. Secure Venture Capital Firms will invest in any project if the net addition to shareholder wealth from the project is above Rs. 100 lakhs. CATESTSERIES.ORG (6 marks)
in this question solution whle calculating cfat for 2 nd year they have not considered loss of previyous year and also while calculating npv the cfat of 1 st year is taken to be 35800000when it actually is 3400000000 could you plz explain
i have taken 3 plus 2 test series fm testt 3 question 5 is considered here
