(i) Cost of dollar:
D. Present rate: Rs.35/$After one year: Rs.36/$
After two years Rs.37/$
(ii) Cost of capital: 14 percent
Proposal Number 2
- The gun can be manufactured in India. The production will be spread over tow
different plants, one for the barrels and the other for the gun carriage. Presently,
there are no facilities for manufacture of barrels, and thus a new plant will have to
be installed. For the gun carriage an existing plant can be used. However, this
plant is already working at full capacity and is engaged in manufacture of chassis
for commercial vehicles for Malaysia. If the proposal production of gun carriages
is to take place in the plant, the production of chassis will have to be stopped. - Some additional information is as given blow:
(a) For Barrel Factory(i) Cost of new machinery Rs.300 million
(Machine will have a life of 7 years and a
capacity to produce 50 barrels per year.
The machine will have an insignificant resale
Value after seven years of operation)
(ii) Production set-up costs Rs.50 million
(iii) Working capital requirement to manufacture Rs.100 million
barrels
(iv) Fixed overheads per year Rs.200 million
(v) Variable costs per gun Rs.10 million
(vi) Cost of project survey already incurred Rs.30 million(b) For Gun Carriage Factory(i) Cost of retooling Rs.50 million
(ii) Capacity 50 carriages per year
(iii) Number of chassis currently produced 7,000
(iv) Contribution margin Rs. 20,000 per chassis
(v) Existing fixed costs Rs. 50 million
(vi) Variable costs Rs. 5 million per gun carriage
(vii) Additional fixed costs per year Rs.150 million
(viii) Assembling costs Rs.20 million per gun
(ix) Testing and proofing costs Rs.1 million per gun