Corporate Fin Mgt NDLM.PDF

The estimated returns Machine A are as follows.

First year Rs.0.50 Lakhs

Second year Rs.0.50 Lakhs

Third year Rs.0.60 Lakhs

Forth year Rs.0.60 Lakhs

Fifth year Rs.0.50 Lakhs

The details of Machine ‘B’ are as follows:

ÿ Initial cost of Machine ‘B’ Rs.5.00 Lakhs

ÿ O & M expenses

• First year Rs.0.20 Lakhs


• Second year Rs.0.20 Lakhs


• Third year Rs.0.30 Lakhs


• Forth year Rs.0.35 Lakhs


• Fifth year Rs.0.40 Lakhs


• Sixth Year Rs.0.45 Lakhs

The life span of Machine 'B' is 6 years. The salvage value at the end of the 6th

year is Rs.0.80 Lakhs.

The estimated returns on machine ‘B’ are as follows.

I Year 0.70 Lakhs

II Year 0.70 Lakhs

III Year 0.65 Lakhs

IV Year 0.60 Lakhs

V Year 0.55 Lakhs

VI Year 0.50 Lakhs.

Apply DCFT for a purchase decision.

3. The Tasks: IRR
   Groups III and IV

Calculation of IRR to assess the viability of the project.

A farmer intends to make investment of Rs.20, 000 in a project involving

Construction of a small shed, purchase of tools and equipments, and installation

of oil ghani (crushing machine) with 2 HP (4 bull expeller) motor, including

fitting charges. The oil ghani has a life of 10 years, at the end of which its salvage

value will be Rs.1,000. His opportunity cost is 18%. For each year, the farmer’s

estimated earnings and costs associated with the project will be as follows :