Prob_1Relevant Cash FlowsOption 1Option 2Option 3Revenues600,000600,000600,000Medical Supplies0.00.00.0Doctor Fees-72,500-217,500-15,000Managers Salary-25,000-48,0000.0Allocated Office Space Cost-10,000-10,000-10,000Depreciation on Equipment0.00.00.0Miscellaneous Expenses-15,000-10,0000.0Administrative Overheads-30,000-30,000-30,000Payment to House Inc.-360,000-100,000-440,000Additional Profit0.00.030,000

Net Cash Flow87,500184,500135,000

Relevant CostsOption 1Option 2Option 3Revenues600,000600,000600,000Medical Supplies-8,000-32,0000.0Doctor Fees-72,500-217,500-15,000Managers Salary-25,000-48,0000.0Allocated Office Space Cost-10,000-10,000-10,000Depreciation on Equipment-32,500-32,5000.0Miscellaneous Expenses-15,000-10,0000.0Administrative Overheads-30,000-30,000-30,000Payment to House Inc.-360,000-100,000-440,000Additional Profit0.00.030,000

Net Profit before Tax47,000120,000135,000

Prob_2Year12345Total Capacity100,000100,000100,000100,000100,000Utilized Capacity70%80%80%90%90%Per Unit Selling Price and Costs (Rs.)Selling Price 20.0021.0022.0523.1524.31Direct Material 5.005.205.415.625.85Direct Labor 4.004.164.334.504.68Variable Mfg. Overheads 2.002.082.162.252.34Fixed Mfg. Overheads2.002.082.162.252.34Variable Selling Expense 1.001.001.001.001.00Fixed Selling Expense 2.002.002.002.002.00012345Cost of New Equipment-800,0000.00.00.00.00.0Resale of Equipment Net of Tax0.00.00.00.00.050,000

Working Capital AR (Sales x Avg Coll. Period (=2/12))233,333.3346,666.6714,00053,28817,364Inventory (2 month DM cost)58,33311,0002,77312,2583,375AP (DM Cost x Avg. Pmt. Period (=1month))29,1675,5001,3876,1291,687Working Capital-262,500-52,167-15,387-59,417-19,052408,521.57

Average Annual Sales Vol.70,00080,00080,00090,00090,000Annual Sales Revenue1,400,0001,680,0001,764,0002,083,7252,187,911Operating CostsDirect Material -350,000-416,000-432,640-506,189-526,436Direct Labor -280,000-332,800-346,112-404,951-421,149Variable Mfg. Overheads -140,000-166,400-173,056-202,476-210,575Fixed Mfg. Overheads-140,000-166,400-173,056-202,476-210,575Variable Selling Expense -70,000-80,000-80,000-90,000-90,000Fixed Selling Expense -140,000-160,000-160,000-180,000-180,000Depreciation-160,000-160,000-160,000-160,000-160,000

PBT120,000198,400239,136337,634389,177Tax @ 30 %36,00059,52071,741101,290116,753PAT84,000138,880167,395236,344272,424

Cash FlowsAdd: Depreciation150,000150,000150,000150,000150,000

less: Erosion-10,000-10,000-10,000-10,000-10,000Cash Flows-1,062,500.00171,833.33263,493.33247,978.63357,292.21870,945.29NPV198,747.59IRR17.62%

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