Case lets –

1) Future limited is considering a capital project for which the following information is available.
(a) the investment outlay on the project will be 200 lacs. This will consist of 150 lacs on plant and
machinery and 50 lacs on working capital. The entire outlay will be incurred at the beginning. The
WC is expected to grow at 20% for the first two years and will then be constant (b) the life of the
project is 4 years. at the end of 4 years, fixed assets will fetch a salvage value of 60 lacs, whereas
the WC will be liquidated at BV. (c) The project is expected to increase the revenues of the firm
by 250 lacs per year. The increase in costs due to the project is expected to be 100 lacs per year
(This includes all items of cost other than depreciation and taxes). The tax rate is 30%. (d) Plant
and machinery will be depreciated at 25% WDV method. Estimate the post-tax cash flows of the
project and its NPV if the required return by investors is 10%

2) After extensive medical and marketing research, Pill Co. believes it can penetrate the pain and
reliever market. It is considering two alternative products. The first is a medication for headache
pain. The second is a pill for headache and arthritis pain. Both products would be introduced at a
price of Rs.7.75 per package. The headache only medication projected to sell 3.2 lacs packages a
year whereas the headache and arthritis remedy would sell 4.9 lac packages a year. Cash costs of
production in the first year are expected to be Rs.3.80 per package for the headache only brand.
Production costs are expected to be Rs.4.35 for the headache and arthritis pill. Either product
requires an investment. The headache only pill could be produced using equipment costing 25 lacs,
with the equipment life of 3 years and no resale value. For the other product, an investment of 34
lac is required, with the equipment life of 3 years and a salvage value of 1 lac at the end.
Depreciation is SL, corporate tax rate is 34% and the discount rate is 7%. Which pain reliever
should the firm produce if the PI method is being used?

3) With the growing popularity of casual surf print clothing, two recent MBA graduates decided
to broaden this casual surf concept to encompass a “surf lifestyle for the home”. With limited
capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They
project unit sales of these lamps to be 7000 in the first year, with growth of 8% each year for the
next 5 years. production of these lamps will require Rs.35000 in NWC to start. Total fixed costs
are Rs.95000 per year, variable production costs are Rs.20 per unit and the units are priced at Rs.48
each. The equipment needed to begin production will cost Rs.175000. the equipment will be
depreciated using the straight-line method over a five-year life and is not expected to have a
salvage value. The effective tax rate is 34% and the required rate of return is 25%. What is the
NPV of this project?