# Capital Budgeting

Added on  2019-09-22

7 Pages726 Words318 Views
Capital Budgeting
Table of ContentsAnswer 1..........................................................................................................................................3Answer 2..........................................................................................................................................6
Answer 1In the given case we have taken the following assumptions: It is assumed that the depreciation on the plant will be applicable in all cases. Thus, thesame has been ignored for the purpose of calculating the net cash outflow. We have considered the opportunity cost for the lease out amount. The same has beenconsidered for the purpose of calculating the net cash inflow.Initial amount that has been spent on consultancy has been ignored being the same hasalready been spent and cannot be rolled back if the project has not been accepted12345P.V.InflowSales Units390390390390390Sales Price\$1,500 \$1,590 \$1,685 \$1,787 \$1,894 Variable Cost\$675 \$716 \$758 \$804 \$852 Contribution\$825 \$875 \$927 \$983 \$1,042 Contribution in value\$321,750 \$341,055 \$361,518 \$383,209 \$406,202 Fixed Cost\$70,000 \$71,400 \$72,828 \$74,285 \$75,770 Profit\$251,750 \$269,655 \$288,690 \$308,925 \$330,432 Less: Depreciation\$(138,000)\$(138,000)\$(138,000)\$(138,000)\$(138,000)Less: Interest Cost onAdditional capital\$(65,813)\$(69,761)\$(73,947)\$(78,384)\$(83,087)Less: Opportunity Cost\$(112,125)\$(112,125)\$(112,125)\$(112,125)\$(112,125)\$(64,188)\$(50,231)\$(35,382)\$(19,584)\$(2,780)Less Tax\$17,973 \$14,065 \$9,907 \$5,483 \$778

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