Determination of Relevant cash flows
.The data requirement for capital budgeting are cash flows, that is, outflows and inflows. Their computation.depends on me nature of the proposal. Capital projects can be categorized into (i) single proposal (jj) replacement situations and (hi) mutually exclusive .
Sine Proposal The cash outflows, comprising cash outlays required to carry out the proposed.capital expenditure are depicted in Format 10.I, while me computation of the cash inflows’ after taxes CF An is shown in Format 10.2. The computation is illustrated in Example 10.2 and Example 10.3.
ln fact. the NPV of the equipment is likely to be higher as tax advantage will accrue on the eligible depreciation of As 16,23,046. i.e. (Rs 21,64.062 – Rs 5.41.016) in future years
Commendation The company should install the equipment
Tenderloin The decision does not change, as NPV is positive.