Vishal Engineering Case Solutio

VISHAL ENGINEERING ENTERPRISES CASE SOLUTION DATA GIVEN Total Assets Total Sales Growth Rate Cut? off rate Option 1 Purchase Price Pre Tax Benefits Depreciation Option 2 Lease Rental Maintenance Post Tax Cost of Borrowing Option3 Hire Purchase Instalment Interest rate Useful Life Analysis ? Option 1 ? Ownership and Operation Rupees in Lakhs Sr. No 1 2 3 4 5 6 7 8 Particulars Intial Cost Benefits Received Depreciation (WDV @ 25%) Tax Sheild On Depreciation (3 x . 35) Net Salvage value Post Tax Cash Flow (1+2+4+5) Discount Factor @ 12% Present Value (6/7) TOTAL NPV 0 ? 5. 000 1 18. 000 18. 750 6. 563 ? 75. 000 1. 000 ? 75. 000 24. 563 0. 893 27. 510 2 18. 000 14. 063 4. 922 22. 922 0. 797 28. 753 3 18. 000 10. 547 3. 691 21. 691 0. 712 30. 475 Year 4 18. 000 7. 910 2. 769 20. 769 0. 636 32. 680 222. 368 5 18. 000 5. 933 2. 076 20. 076 0. 567 35. 382 6 18. 000 4. 449 1. 557 19. 557 0. 507 38. 603 7 18. 000 3. 337 1. 168 19. 168 0. 452 42. 374 8 18. 000 2. 503 0. 876 6. 000 24. 876 0. 404 61. 592 270 Crores 256 Crores 23% 12% 75 Lakhs 18 Lakhs per year 25% WDV 14 Lakhs per year 1. 75 Lakhs per year 9. 50% 18. 75 Lakhs per year 12% 8 Years Analysis ? Option 2 ? Lease Contract Rupees in Lakhs Sr. Particulars No 1 Intial Cost 2 Depreciation (WDV @ 25%) Loss of Tax Sheild On Depreciation 3 (2 x . 35) 4 Lease Payment Tax Sheild On Lease Payment 5 (4 x . 35) 6 Loss of Slavage Value 7 Post Tax Cash Flow (1+3+4+5+6) 8 Discount Factor @ 9. 5% 9 Present Value (6/7) 10 TOTAL NPV ? Cash Flow 11 LRt(1? Tc) 12 Present value (11/8) 13 Present Value of lease 0 75. 000 1 18. 750 ? 6. 563 ? 14. 000 4. 900 75. 000 1. 000 75. 000 ? 14. 663 0. 913 ? 16. 055 ? 9. 00 ? 9. 965 2 14. 063 ? 4. 922 ? 14. 000 4. 900 ? 12. 022 0. 834 ? 14. 415 ? 9. 100 ? 10. 911 3 10. 547 ? 3. 691 ? 14. 000 4. 900 ? 9. 791 0. 762 ? 12. 855 ? 9. 100 ? 11. 948 Year 4 7. 910 ? 2. 769 ? 14. 000 4. 900 5 5. 933 ? 2. 076 ? 14. 000 4. 900 6 4. 449 ? 1. 557 ? 14. 000 4. 900 7 3. 337 ? 1. 168 ? 14. 000 4. 900 8 2. 503 ? 0. 876 ? 14. 000 4. 900 ? 6. 000 ? 7. 976 0. 484 ? 16. 485 ?7. 869 ? 6. 176 ? 4. 657 ? 3. 268 0. 696 0. 635 0. 580 0. 530 ? 11. 312 ? 9. 723 ? 8. 028 ? 6. 168 ? 20. 043 ? 9. 100 ? 9. 100 ? 9. 100 ? 9. 100 ? 9. 100 ? 3. 083 ? 14. 326 ? 15. 687 ? 17. 177 ? 18. 809 ? 111. 903 FOSSILS 1 VISHAL ENGINEERING ENTERPRISES CASE SOLUTION Analysis ? Option 3? Hire and Purchase Total Cost Interest Component Total Cost + interest = Hire Purchase Installment per year 75 Lakhs 72 Lakhs 147 18. 375 Lakhs Life Exp. 8 years Rupees in Lakhs Sr. No 1 2 3 4 5 6 7 8 9 10 11 12 Particulars Hire Purchase Installment Interest Component Principal Repayment 0 1 18. 375 16. 794 1. 581 ? 10. 916 ? 1. 581 18. 750 12. 188 ? 0. 310 0. 913 ? 0. 339 2 18. 375 14. 567 3. 808 ? 9. 469 ? 3. 08 14. 063 9. 141 ? 4. 136 0. 834 ? 4. 959 3 18. 375 12. 340 6. 035 ? 8. 021 ? 6. 035 10. 547 6. 855 ? 7. 200 0. 762 ? 9. 454 Year 4 18. 375 10. 113 8. 262 ? 6. 574 ? 8. 262 7. 910 5. 142 ? 9. 694 0. 696 ? 13. 936 ? 120. 137 5 18. 375 7. 887 10. 488 ? 5. 126 ? 10. 488 5. 933 3. 856 ? 11. 758 0. 635 ? 18. 511 6 18. 375 5. 660 12. 715 ? 3. 679 ? 12. 715 4. 449 2. 892 ? 13. 502 0. 580 ? 23. 274 7 18. 375 3. 433 14. 942 ? 2. 231 ? 14. 942 3. 337 2. 169 ? 15. 004 0. 530 ? 28. 321 8 18. 375 1. 206 17. 169 ? 0. 784 ? 17. 169 2. 503 1. 627 6. 000 ? 10. 26 0. 484 ? 21. 342 ?It(1? Tc) ?PRt Depriciation Dt(Tc) NSVn Total (4 to 8) ? 6 Discount Factor @ 9. 5% Present Value Present Value of Hire? Purchase 1. 000 Hence from the above we see that the cost of the Hire? Purchase option in Present value Term is more that that of the leasing option. So Vishal Enterprises should go for Leasing option instead of Hire Purchase. Also if the option of Purchasing and Owning the equipment is considered, it has a very favourable NPV and this can be considered as the best option for Vishal Enterprises. FOSSILS 2

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Vishal Engineering Case Solutio

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