(c ) Fourth year
Capacity 50 barrels per year
Fixed cost Rs.200 million
Variable cost (50 X 10 million) Rs.500 million
Less: Release of working capital Rs. 100 million
Total Rs.600 million
Calculation of present value of cash outflows:
Payment time Cash flow PV factor at Present value
(Million Rs) 14 percent (million Rs)
Immediate 450 1.000 450.00
1 - 3 year 700 2.322 1625.40
4 th year 600 0.592 355.20
2430.00
2.Gun Carriage Factory
(a) Potential loss due to loss to existing production
(i) Number of chassis 7,000
(ii) Contribution margin per chassis Rs.20, 000
(iii) Existing contribution (7,000 X 20,000) Rs.140 million
(b) Cost of Gun Carriage
(i) Variable cost (50 X 5 million) Rs.250 million
(ii) Additional fixed cost Rs.150 million
© Assembling cost (50 X 2 million) Rs.100 million
(d) Testing/Proofing costs (50 X 1 million) Rs. 50 million
Total recurring cost (a+b+c+d) Rs. 690 million
Calculation of Present Value
(i) Immediate expenditure (cost of retooling): rs.50 million
(ii) Expenditure for years (1-4): Rs.690 million
Year Cash flow PV factor at Total PV
(Million Rs) 14 percent (million Rs)
0 50.00 1.0000 50.000
1 - 4 690.00 2.9137 2010.453
2060.453