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    Change in Maintenance Cost (Rs. Lakhs)

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    gopi11789
    The document calculates and compares the costs associated with existing and proposed machinery. It finds that material costs would increase by Rs. 14.25 crore with the proposed machinery. Labour costs would save Rs. 1.716 crore in the first year, increasing at 10% inflation annually. Maintenance costs would save Rs. 15 crore annually for the first two years and Rs. 30 crore annually for years 3-5. Insurance costs would increase initially but then decrease over time. The net present value of the cash flows was calculated to be positive, indicating the proposed replacement of machinery is recommended.

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    Change in Maintenance Cost (Rs. Lakhs)

    Uploaded by

    gopi11789
    45 views4 pages
    The document calculates and compares the costs associated with existing and proposed machinery. It finds that material costs would increase by Rs. 14.25 crore with the proposed machinery. Labour costs would save Rs. 1.716 crore in the first year, increasing at 10% inflation annually. Maintenance costs would save Rs. 15 crore annually for the first two years and Rs. 30 crore annually for years 3-5. Insurance costs would increase initially but then decrease over time. The net present value of the cash flows was calculated to be positive, indicating the proposed replacement of machinery is recommended.

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    The document calculates and compares the costs associated with existing and proposed machinery. It finds that material costs would increase by Rs. 14.25 crore with the proposed machinery. Labour costs would save Rs. 1.716 crore in the first year, increasing at 10% inflation annually. Maintenance costs would save Rs. 15 crore annually for the first two years and Rs. 30 crore annually for years 3-5. Insurance costs would increase initially but then decrease over time. The net present value of the cash flows was calculated to be positive, indicating the proposed replacement of machinery is recommended.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    45 views4 pages

    Change in Maintenance Cost (Rs. Lakhs)

    Uploaded by

    gopi11789
    The document calculates and compares the costs associated with existing and proposed machinery. It finds that material costs would increase by Rs. 14.25 crore with the proposed machinery. Labour costs would save Rs. 1.716 crore in the first year, increasing at 10% inflation annually. Maintenance costs would save Rs. 15 crore annually for the first two years and Rs. 30 crore annually for years 3-5. Insurance costs would increase initially but then decrease over time. The net present value of the cash flows was calculated to be positive, indicating the proposed replacement of machinery is recommended.

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    Attribution Non-Commercial (BY-NC)
    Download as XLSX, PDF, TXT or read online from Scribd
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    Calculation of Change in Various Costs

    Change in material cost


    Present Material Cost Rs. 27,000,000
    proposed material cost Rs. 41,250,000
    Change in Cost Rs. 14,250,000 Increased

    Change in Labour cost


    present labour cost 2298000
    proposed labour cost 582000
    change in first year 1716000 Saving

    considering inflation @10%


    Years 1st year 2nd year 3rd year 4th year 5th year
    Saving 1716000 1887600 2076360 2283996 2512396

    Change in Maintenance cost (Rs. Lakhs)


    Year 1 2 3 4 5
    Savings 22.50 -7.50 22.5 -7.50 67.5-37.5 67.5-37.5 67.5-37.5
    15 15 30 30 30

    Change in Insurance cost(Rs. Lakhs)


    Year 1 2 3 4 5
    increase 6.00-2.10 5.40 – 1.89 4.86 – 1.70 4.37-1.53 3.93-1.38
    3.9 3.51 3.16 2.84 2.55

    Depreciation (Rs.Lakhs)
    Year 1 2 3 4 5
    Dep.(old) 28.8 28.8 0 0 0
    Dep.(new) 54 54 54 54 54
    increase 25.2 25.2 54 54 54

    CASH OUTFLOW
    Purchase of new machines 300
    Working capital 50
    Cost of lay off 9.21
    Total 359.21
    Less sell of machines 91.2 268.01

    net profit due to sell of machine


    Sale 91.2
    less Book value 57.6
    Profit 33.6
    Tax 11.088 at 33%

    CASH INFLOW FROM OPERATION (Rs. Lakhs)

    YEAR 1 2 3 4 5
    sales 300 300 300 300 300
    savings in labour 17.16 18.88 20.76 22.84 25.124
    saving in mainatinance 15 15 30 30 30
    savings in utilities 2.5 2.5 2.5 2.5 2.5
    TOTAL savings 334.66 336.38 353.26 355.34 357.624
    increase in material cost 142.5 142.5 142.5 142.5 142.5
    increase in depriciation 25.2 25.2 54 54 54
    increase in insurance 3.9 3.51 3.16 2.84 2.55
    TOTAL increase 171.6 171.21 199.66 199.34 199.05
    EBT 163.06 165.17 153.6 156 158.574
    TAX 57.071 57.8095 53.76 54.6 55.5009
    EAT 105.989 107.3605 99.84 101.4 103.0731
    Add Depriciation 25.2 25.2 54 54 54
    CASH inflow 131.189 132.5605 153.84 155.4 157.0731

    Discounted cash flow analysis


    period PVF Cash Flow Present Value
    net investment 0 1 268.01 268.01 less
    tax on sell of machine 1 0.833 11.088 9.236304
    tax saving on layoff cost 1 0.833 3.2235 2.6851755
    cash inflow year1 1 0.833 131.189 109.280437
    cash inflow year2 2 0.694 132.5605 91.996987
    cash inflow year3 3 0.579 153.84 89.07336
    cash inflow year4 4 0.482 155.4 74.9028
    cash inflow year5 5 0.402 157.0731 63.1433862
    sale of scrap and WC 5 0.402 80 32.16 salvage value Rs. 10 lakh
    NET PRESENT VALUE(NPV) 185.9958417

    As NPV (on increment basis) of the replacement is positive, the replace


    recommended.
    Existing requirements 3,000,000
    Proposed Requirements 5,000,000 Selling Price Rs. 15
    existing wastage 0.6
    proposed wastage 0.55

    existing labors cost proposed labours


    Unskilled 63000
    Skilled 99000 42000
    Supervisor 19500
    Maintenance 10000 6500

    Maintenance cost for first five years is Rs.22.5 lakh per year
    Rs.67.5 lakh per year for year 6 to 8.
    Proposed
    Maintenance cost : years 1-2 Rs.7.5 Lakh per year, Year 3-5 Rs.37.5 lakh per year

    Insurance cost/premium – 2% of the original cost for year 1 and discounted by 10per cent every year.
    proposed
    v. Insurance cost/premium – 2% of the original cost for year 1 and discounted by 10per cent every year

    depreciate all machines in 5 years


    salvage value Rs. 10 lakh per machine.

    ent is positive, the replacement is

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