Total Present Value Million Rs.
Barrel factory 2430.600
Gun carriage 2060.453
449.053
Recommendations
- Proposal 1 related to import of guns is cheaper.
- The following additional points may, however, be considered before taking a final
decision on the subject.
(a) There is an element of uncertainty associated with import of weapons from ‘Mitra
Desh’. The geopolitical environment expected in the next three to four years and its
likely effect on the sale of guns needs to be evaluated.
(b)Proposal 2 involves closing down an existing production of chassis for Malaysia.
Though the financial effects of this action have been evaluated, the overall effect that it
may have on further trade relations with Malaysia needs to be evaluated.
( c) There will still be a residual life of the machines set up for the barrel factory after
completion of production of 200 guns barrels. Additional orders for guns by the Indian
Army for exports may make this proposal attractive.
Case Study No.2 - Helicopters
Pharmax has long been regarded as a well managed company with a turnover of Rs.380
crores. It engages mainly in production of bulk drugs, pharmaceuticals, vitamins,
hormones and few others very high value products. The company is located in a remote
hilly area because of availability of raw materials in abundance from a nearby region.
Statement of the Problem
The company has been hiring helicopters (as it is not possible to use trucks or railway
wagons because of hilly terrain from ‘Pawan Hans’) for transportation of raw materials,
finished products as well as for some other purposes. Two years ago they had their own
helipad which then cost them Rs.1 million. The total hiring charges are Rs.60, 000 per
hour, which included running and maintenance. Records of past two years show that on
an overage, helicopters had been hired for 20 hours a month. However, as per contract
with ‘Pawan Hans’, the company had to pay for a minimum of 30 hours a month.
Now there is an offer from Paris Aircraft Company (a French company) of a new
helicopter for FFr 12 million with a useful life of 8 years. The French company has
assured Pharmax that the salvage value of the helicopter will easily be FFr 1.2 million (10