27(6th ed)
28.57 %
Transaction A:
Profit decrease by 8,000 due to cash discount given to customer.
28.62 %
28.87 %
Capital Employed
Transaction C:
Capital Employed
Assumption:
Loss on sale of fixed assets: Cash received from sale of asset is remitted to
Cost of fixed asset 300,000 HO, that is why there is no impact on increase
Less: Accumulated depreciation of cash on net current asset.(Book) because,
(300,000 x 4/5) (240,000) Cash is normally hold at head office.
Transaction D:
26.67 %
Assumption:
Cash paid on purchase on asset is provided by
HO, that is why there is no impact on decrease
of cash on net current asset.(Book)
Required no. 2: Evaluation of 4 non - routine transactions are in the best interest of group:
Transaction
Year Cash Inflow Cash outflow Net Cash PV factor NPV
Flow 15%
Rs. 30 inflow cash is due to decrease in account receivable in year 01 and decrease of Rs 8
is due to cash discount given to customer.
Transaction
Year Cash Inflow Cash outflow Net Cash PV factor NPV
Flow 15%
Increase in contribution margin per year and Increase in stock in first year,resulting decrease
in cash
Transaction
Year Cash Inflow Cash outflow Net Cash PV factor NPV
Flow 15%
C - 35 - 35 1.0000 35.0000
1 (45) (45) 0.8696 (39.1320)
NPV (4.1320)
Sale of asset is made at the start of the year. On time line diagram the value of the year is zero
at the start of the year as well PV factor is 01. The profit reduce after one year that is why it
is taken at 0.8696 (discounted value)
Transaction
Year Cash Inflow Cash outflow Net Cash PV factor NPV
Flow 15%
CONCULSION:
Transaction A and B yeild positive NPV, therefore it will be undertaken
Transaction C and D yeild negative NPV, therefore it will be rejected.
375
(30) 345
780
1,125
375
40 415
1,500
(720) 780
1,195
375
1,200
(480) 720
1,095
375
,500+180) 1,680
ep (720 + 36) (756) 924
1,299
Solution of Ques. 20.18 (5th ed) + 20.19(6th ed)
Aromatic Plant:
Net Cash in flow, before tax (in M) 2.4 2.4 2.4 2.4
Less: Depreciation (6.4 / 4) (1.6) (1.6) (1.6) (1.6)
Summary:
Benefit obtain from Aromatic plant 2.4 2.4 2.4 2.4
Zomin Plant:
Net Cash in flow, before tax (in M) 2.6 2.2 1.5 1.0
Less: Depreciation (5.2 / 4) (1.3) (1.3) (1.3) (1.3)
9.6
(6.4)
3.2
(2.56)
0.64
Total
7.3
(5.2)
2.1
(2.08)
0.02
Aromatic
315,634