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ABC & Co. is planning to target the economic demand which its current resources are not able to manage. So, they are in the process of preparation of a feasibility report to add a new machine in its existing portfolio. So that the excess demand can be targeted currently the company is producing 75000 units and the demand in the market is 130000 units. Each unit is being sold for Rs 90 per unit with 30% of CCGS and 25% is COE, the installation of the new machine COE would be 20%. This machine is available in the market at a cost of Rs 3,000,000/- with 4% installation 9% transportation 3% import duty. Expected useful life is 5yrs. fall under 3 yrs. property class with expected salvage value RS 40,000/-. working capital requirement Rs20,500/- and maximum production capacity is 74000 units. It is expected that the demand will increase @ 15%. Inflation is expected @ 5%. and will equally affect the sales, CCGS & COE. If both of the machine bought together a trade discount of 5% will be availed. Company pays 40% tax. The company has a cost of capital of 10%. You are required to calculate: 1. Initial Cash Outlay 2. Interim Cash Flow 3. Terminal Cash Flow for this replacement decision 4. Calculate the NPV, payback period of the project. What will be the company decision? MACRS Years 3 years 5 years 7 years 1 33.33% 20.00% 14.29% 2 44.45% 32.00% 24.49% 3 14.81% 19.20% 17.49% 4 7.41% 11.52% 12.49% 5 11.52% 8.93% 6 5.76% 8.92% 7 8.93% 8 4.46% 9 100.00% 100.00% 100.00%

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