solution q2

In first scenario our only cash inflow is

depreciation keeping other thing constant
Year
Net profit
Depreciation
Wc

1
0
20000
0

Cash flow

20000

n
i

12
7%

Using annuity total addition

Sum of all discounted cash flow or NPV
In scenario # 2
Depreciation
Saving
Direct material
Labour saving
area saving
Losses in year 1
oost of machine
i
n
YR

Profit before tax

Profit after tax
Profit after tax
plus depreciation
plus losses (non cash expence)
Working capital
Cash out flow 480000

-40000
135000
25000
3000
-140000
-480000
7%
12
1
-40000
135000
25000
3000
-140000
-17000
-17000

2
-40000
135000
25000
3000
0
123000
73800

-17000
40000
140000
0
163000

73800
40000
0
0
113800

Cash flow

($853,349.14)
152336.4
897684.5

NPV

745348.0653

discounte
d inflow
minus
outflow

So we should go for second scenario 2 a

The NPV is 158853 in scenario 1 and 417

2
0
20000
0

3
0
20000
0

4
0
20000
0

5
0
20000
0

6
0
20000
0

7
0
20000
0

8
0
20000
0

9
0
20000
0

10
0
20000
0

3
-40000
135000
25000
3000
0
123000
73800

4
-40000
135000
25000
3000
0
123000
73800

5
-40000
135000
25000
3000
0
123000
73800

6
-40000
135000
25000
3000
0
123000
73800

7
-40000
135000
25000
3000
0
123000
73800

8
-40000
135000
25000
3000
0
123000
73800

9
-40000
135000
25000
3000
0
123000
73800

10
-40000
135000
25000
3000
0
123000
73800

11
-40000
135000
25000
3000
0
123000
73800

73800
40000
0
0
113800

73800
40000
0
0
113800

73800
40000
0
0
113800

73800
40000
0
0
113800

73800
40000
0
0
113800

73800
40000
0
0
113800

73800
40000
0
0
113800

73800
40000
0
0
113800

73800
40000
0
0
113800

($158,853.73)
158853.73

417684.5139

o for second scenario 2 and that is replacement of 3 hand machine with auto matic

853 in scenario 1 and 417684 in scenario 2 so we should go for scenario 2

11
0
20000
0

12
-40000
135000
25000
3000
0
123000
73800
73800
40000
0
0
113800

12
0
20000
0