2 0Unit3.
TavesBment Decision
Tnpostan ce of CapiAal Budgeing :
)Heavy Iavt
) Pemnen commitment of Funds
3)Long- tesm effect on þaof?labilfty
4)Tsesible in atuse.
eg' Iavt' = oo00 Cash Flow 20,0oo
Payback Pesiod Syeas/onths
2ok
laback Pesiod oxiginal Tnveslment
Cash flow.
S. LD favest Rs. 00000. The cash foflow is as ollOuss
Yeas Cash In{lou Cumuatfve cash floo
1
20000
()
So,o00 (+)
3
B0ooo ooooo
l'ayback Period 1L
Payback
Tayback Peaiod
Pesiod Ro
Rox a pe siod whtch requites
Calculale
82) ou lowo Rs. I0,000 gene xales cash fnflouo
Cash
a
F00O, 3009 oo
20oo n 4he 1st, 2n,
Sxd & th yeas
Ca sh | Cumulatfve
Ialo Cash flow
2000 2,000
2 sooo Goo0
3o00 9,000
2000
Pagback Pexiod
Pexîod 000
monthe
A B.
Ss) These axe tuwo psojects
yeas Paofect A
2,000
24000
3
Cost o paofcct is 3o,o00
’Paoect yeas
Cash
Toflow
Cumuative
Cashilow (C-CE)
lo000 l0000
2000o
2
30000
\Oo00 hen no
Same nvt',
C-Cf
axe qettfng
need of osiginal int
PaybackPexfod Cash Int low
3000o
io00O
leas Cash Cumulative
Toflow Cashlow
2000 2000
6000
24000 30,000.
Tayback Peaiod
1'hoject A fs secom mended.
Suy R-Hd i5 consi dosing Ahe puschase of a neus machine
tohich wsl casg outhe oþesaTons labous
Damsel pestoeaOmDe
shylock age aHeanative models.
Kollo wig ?afosnatfon , you Bequixed to poepae
paoftAabtty stetement ook out he back peiod ot cach macu
Damsel Shylock
Estrmaled Re d Mach. yeas)
Rs Rs.
Cost of Mach
Cost of Indisec nat: þa 3,0900o
12 000
5,00,000
Eslímated
Add Sauing In Scoap pa.
cost in M&ainance 20,000 39,oo0
pa. |4,000
Sufervision pa 2 4,00o 22,000
Estimated
<Tnploees not Savihq Rn, Cao:)
ised piaet oages
$2,000
wlage, pox emtloyee pa L200
200
200.
Taxation is do be aegaodod as so o xo?4( i_aose dep
{ox calewatfon of ax) ohich mode\ oould o ecommerd
13oftabil?ty Slatement
Paticaaxs Damsel
Cosi of Machioe Shylock
300000 S000oe
smalcdSauiogs 0,00o. 36,oOe
5coap 2000O 300o0
Wages Sox 1200 X|2o L20,0O0 240,000
Tolal Saui ngs(A) 2,00,oo0 2,40, oOo
Coss:
Cost o Tod Mat .q. 12,00o lo,000
CosB o Maitalnance pa. l4,00O 22O0O
cosi o Supexvísion 32000
Tolal Cosls (B) 50,00o
Pacit beicae Tax (A-B) 50,0oo 2,000o
Tax (@ 50} 45,000
Prof4 ARtes Tax 45000 L,oo, OO0.
Tayback Peiod Digina Tovi 3000Oo SOOOo0
Cash Ioloo. 1500o
Machfae A is 8ecommended
2
Aug
00. 15 t,00o
lS00+,500 2000t
Pas4 Annu
Int opening
Auesage
Iovestment (ARR)
frt Pac Aonual Avesaqe Retusns Rateo Hvesage
Taofeci
A
undestaken9 be
hould pzoject which \2 setusn
fs of
<atesequised the If
\O00
1000 1000
2000
3000
3000 2000
boject
A eass
taxes) de, Rnty (Afles Income Hethojected
Le
Expected
F20,0O0 Toyestments
PaofeciA
Rollouing: the Room
B psoject
A fos setusn ofsate avg he
Calculate S5)
Relusn of
Hccounting
Raie
ARR 1500
\0000
(RROr) Osiginal Tnvt Avg- AnnualProft X)90
aiginal
I500
XI00
29,00o
ARR Annual Aeeme XI00.
Anoua Paot 800ot 300o +200o+ \000 tlo00
20.
15000
2
ARR= 2000 3.34
|5,00o
RROT 2,000 lG-G4l.
30000
Puoiect A shd be undes\aken, as ft qives
RR RROI
hign
Rate s) Retun
Accouing Rate
Rate o Retusn on Rate oa Avg. 1nyt
CRROr)
Avg: Aonual Psoit
Avesage Iayt
go> Aconpany has too alHes nalfve proposak. The detafls
Pxoposad I
Automatic
Machine Machínd
CoGt oË Machine 2,20,oo0 R
Estfmaled Lfe G0,00o Rs
ESAimated sales pa \,50,0bo Rs
Cosii Mateals 50,00o Rs S0,00o
labo 12,000 RS Go,o0o
vaicble Ovesheds 24, Ooo Rs
29000 Rs.
Compute he pacff4 abi o 1he paoposals undes the
Paoftabilfty Stale ment
Cost o
Patculass
Machine
hofect -I
2,20,0o0 60,oO0
EsAfmaled LiRe s
Sales LA ,50, oo0 \,50,0O0..
Cost
Matesials 50,000 50,000
Laboux 12,000 Go,000
Vasiable ol 24.000 20,0o
Dehsicial?on 500
Tetal Cost B] L26,0oc 1,31,5o0
ARR 21-&e
RROT 10.90/. 20.83
)Dep Debaicfation Cost oB Asset - Scsap
Iße o Asset
2,20, O00- O
4S00 Rs.
:
Rae of Relugn
AnnuelPofi X \OO.
9 400O
[381%)
2
?-T ’ ARR =
12,50o
|41-64*
2
3)Rate o Reun on Osiginal Tovt
P-T Avg Annual Paofit
oiginal
2, 20, O00
1-M RROT = 1250o |20.831
60, Ooo
84) The follewing partieulas Telate to two machines pacduain
(dentical poducts.
Machine A
Pasticlaxs Machioe B
Oxiqiaal Cost 1,00, Oo0 R \,50,0oo Rs
lotktog LIRe
Jst year 20,000 UO,0O
Lnd yea 15,000 4S,O0o
40,00o 50,900
gea 24,00o
35,000
Tax Rate 50% 597.
(a)caleulate etun on înut
(b) Calcl ate sale uan aS5umfag 1hat machines
A B hale scsap value of RsOo,oo0 &
Rs. 20o00 espec. at he end of Gh
calcalaîon & pro4 Bos Machine A
Pxoft befoe Pooffi Aftex of AHea
Year De?.
Depaicilion Dep? (pAn Tax 5o»/e Tax (PAT)
g0,00O I8,000 12,0o0 G,oo0
2 \8,00o (3,000) (300o)
3 92,00o
35,0oo \8,00O.
22,00o
8,500
Depsiciatfon Cost of Machine- Scsap 335O0
of Machine.
1000Oo- 1000o
18,00o
ARR Avg. Ano ual Tof4
3350o
Goo
SOO00
RROT Avg Annual PzoA
Osiginal Inut
G,400 G1.
lo00 oo
Calcalalion of of?4 fox
fo Machine B.
PaofM Befoe
Dep 2 Tax Depoiciqtfon Tax sot
Yeas Dep? (PAD) Tax
CPBDT) PAT)
26,00O \4,00O
4G,0O0 26, O00 4,900 4500
So,000 26,000 12,0 o0 12,000
24,000 26,0o0 (2,000) (2000)
AL,00O 26,0O0. US,0oo 22,50O 92,509.
Depoiciatfon Cost o Machine- Scvap
LRTe of Machae.
5000o - 20,000
26,00o.
ARR Avg Aanual Proft
i500OO
800
5000 13-06
RROI Avq Anaual Pofr+
X \0O.
ooiginal Inv
q800
(50000 |G53