Corporate Finance-NMIMS Solution-December 17
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Lakme India is planning to launch a new product as “Lakme fair Skin Natural Mousse – Hydrating”. The company is planning to import machinery costing Rs100 lacs from Japan. The expected life of the machinery will be 10 years. The selling price per unit will be Rs 1250 and variable cost per unit will be Rs850. Further the company will have to pay Rs25lacs as fixed cost per annum. The fixed cost includes Rs10 lacs as depreciation. The company expects to sale 150000 units of the produced per year. Tax rate applicable is 50 %. The management of the company wants to know the cash flow associated with the equipment, as the CEO of the company emphasis that it is necessary to evaluate capital budgeting decisions. Do you agree? Give reasons supporting your answer and determine the cash flow generated (that is profit after tax+ depreciation) by the equipment.
If you want to run your business smoothly, you should be capable enough to manage the working capital requirements of the business in an efficient manner. “Several companies like Dabur, Dell computers, Cadbury India realized the need of maintain an adequate level of working capital. Further they also have to identify the different types of working capital needed in their business at different points of time”. This is the statement of CEO of M-Mart Ltd who is interviewing you for the position of finance manager. Do you agree with the statement of the CEO? Give reasons and conclude the same in an effective manner.
Miss Kavvya is a successful entrepreneur of GEMS Pharma Ltd. The entrepreneur is looking to launch a new sunscreen cream in the market at a selling price of Rs275 per unit. The fixed cost determined for producing the product is Rs55700. The variable cost of producing the product is Rs165 per unit. Miss Kavvya wants to perform the cost volume profit analysis.
a) Discuss and explain the relevant tool, formula of CVP analysis applicable in the above mentioned case and how the cost will be broken down for performing such analysis.
b) If the sales are 800 units then what will be the profit generated by the business? What would be your advice, if the fixed cost is Rs95000 instead of Rs55700?