Premacular Retrohialoidea
1- Tratamiento Médico:
Forfeiting is beneficial both to the exporter and banker. The major advantages are discussed below:
1. Easy Liquidity: Forfeiting converts the deferred sale of an exporter into a cash sale. With inflow of funds from forfeiter, Exporters liquidity position improves.
2. Risk Avoidance: Forfeiting frees the exporter from cross - border / political or commercial risk associated with export receivables. The exporter “washes its hands off” the risk of the importer not meeting his obligations on the bills of exchange or promissory notes since forfeiting agency has no recourse to exporter. 3. Additional Source of Funds: Unlike in traditional post-shipment export finance, the exporter receives 100% of export receivables from the forfeiter (less, of course, the forfeiting cost). Forfeiting does not reduce the normal bank borrowing limits of the exports, which remain available to him. Thus, forfeiting is an additional source of funds - contributing to improved liquidity and cash flow.
4. Relieves Burden of Collection: Exporter is freed from cumbersome credit administration and problem of collecting the receivables. He can concentrate on quality in production, packaging and delivery. After forfeiting, he has no further involvement.
8. ABC Ltd. has just installed Machine ‘X’ at a cost of Rs.2,00,000. The machine has a five-year life with no residual value. The annual volume of production is estimated at 150,000 units, which can be sold at Rs.6 per unit. Annual operating costs are estimated at Rs.2, 00,000 (excluding depreciation) at this output level. Fixed cost is estimated at Rs.3 per unit for the same level of production.
ABC Ltd. has just come across another model called Machine “Y” capable of giving the same output at an annual operating cost of Rs.1,80,000/- (excluding depreciation). There will be no change in fixed costs. Capital cost of this machine is Rs.2,50,000 and the estimated life is for five years with NIL residual value. The company has an offer for sale of Machine “X” at Rs.1,00,000. But the cost of dismantling and removal will amount to Rs.30,000/-. As the company has not yet commenced operations, it wants to sell machine “X” and purchase Machine “Y”.
ABC Ltd. will be a zero tax company for seven years in view of several incentives and allowances available The cost of capital may be assumed at 14%.
P.V. factors for five years are
0.877, 0.769, 0.675, 0.592, 0.519, for first, second, third, fourth and fifth year respectively. (i) Advise whether the company should go for the replacement.
(ii) Will there be any change in your views, if machine ‘X’ has not been installed but the company is in the process of selecting one or the other machine ?
Support your views with necessary workings.
Ans:
(i) Replacement of machine X Increment Cash outflow
(i) Cash outflow on machine Y 2,50,000
Less: Cost of dismantling & removal
(Rs.1,00,000 - Rs.30,000) 70,000
Net Outflow 1,80,000
Incremental cash flow from machine Y
Annual cash flow from machine Y 2,70,000
Annual cash flow from machine X 2,50,000
Net incremental cash inflow 20,000
Present value of incremental cash inflow = Rs.20,000 x (0.877 + 0.675 + 0.592 + 0.519) = Rs.20,000 x 3.432 = Rs.68,640
NPV of machine Y = Rs.68,640 - Rs.1,80,000 = (-) Rs.1,11,360
Rs.2,00,000 spent on machine X is a sunk cost and hence it is not relevant for deciding the replacement. DECISION: Since NPV of machine Y is negative replacement is not advised.
If the company is in the process of selecting one of the two machines, the decision is to be made on the basis of independent evaluation of two machineries by comparing their Net Present Value.
(ii) Independent Evaluation of Machine X and Machine Y
Machine X Machine Y
Units Produced 1,50,000 1,50,000
Selling Price Per Unit 6 6
Sale value 9,00,000 9,00,000
LESS: Operating Cost 2,00,000 1,80,000
Contribution 7,00,000 7,20,000
LESS: Fixed Cost 4,50,000 4,50,000
Annual cash flow 2,50,000 2,70,000
Present value of cash flow for 5 years 8,58,000 9,26,640
Cash outflow 2,00,000 2,50,000
Net Present Value 6,58,000 6,76,640
As the NPV of Machine Y is higher than that of machine X, Machine Y should be chosen.
NOTE: As the company is a zero tax company for seven years (machine life in both cases is only 5 years). Depreciation and the tax effect on the same are not relevant for consideration.
OR
Q: A company makes a single product with sale price of Rs.30/- and a marginal cost of Rs.18/-. Fixed cost are Rs.1,80,000/- p.a.
Calculate:
(i) Number of units requires to break-even (ii) Sales at break-even-point
(iii) Number of units required to be sold to achieve a profit of Rs.60,000/- p.a. (iv) C/S ratio
(v) What level of sales will achieve a profit of Rs.60,000/- p.a.
(vi) Because of increase in cost, the marginal cost is expected to rise to Rs.19.50 per unit and fixed cost to Rs.2,10,000/- p.a. If the selling price cannot be increased what would be the numbered of units required to maintain a profit of Rs.60,000/-.
Ans:
Contribution = Selling Price - Marginal Cost = Rs.30 - Rs.18 = Rs.12
(i) No. of units required to break even = Rs.1,80,000 / 12 = Rs.1,50,000 (ii) Sales at break-even-point = 15,000 x 30 = Rs.4,50,000
(iii) No. of units required to be sold to achieve profit of Rs.60,000 p.a. 60,000 + 1,80,000 / 12 = 2,40,000 / 12 = 20,000 units
(iv) CS Ratio = Per unit contribution x 100 / Per unit selling price = 12 x 100 / 30 = 40%
(v) Level of sales to achieve profit of Rs.60,000 p.a. = 20,000 x 30 = Rs.6,00,000