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Case Facts:
The Industrial Manufacture Ltd. has recently come up with more efficient drying equipment
& Pitamber Cement Company which is using a Old Drying Equipment in its Manufacturing
operations is forced to evaluate 3 following alternative
1.c Carry on with the same Old Equipment till its useful life
2.c Go for Overhauling of the old equipment
3.c Go for new equipment & sell the old equipment.
Company usually uses SLM of depreciation.
D$%  &'(  

Vc
Vc
Vc
Vc
Vc

Ynnual operating cost = Rs. 10 lakh

seful life = 12 yrs
Salvage Value = 10% of the Original cost at the end of useful life
Depreciation allowed = 25 % WDV
Time period of Delievery & Start up of Equipment from the date of Order = 12
months
Vc Installation cost = Rs. 15 lakh (Payable at the time of Start up )
Vc Equipment Cost = Rs 65 Lakh (50% payment at the time of order & 50% at the time
of start up )
%  &'(  

Vc
Vc
Vc
Vc
Vc
Vc

istorical cost = Rs 25 lakh

Installation cost = Rs 10 lakh
Ynnual Current Operating cost = Rs 28 lakh
Current selling price = Rs 4 lkah
Salvage value = Rs 2 lakh
Economic life = 8 yrs

 %  &'(  


Vc
Vc
Vc
Vc

Overhauling cost = Rs 25 lakhs

Exteded life after overhauling = 5 years
Ynnual Operating cost after overhauling = Rs 22 lakh
Salvage value = Rs 3 lakh

D

Vc Of the total operating Cost 80% is the cost of fuel. The general inflation rate is 6% per
annum while the fuel price could rise as much as 10% per annum
Vc The company intend to use Straight line method of depreciation however it would be
allowed 25% written down value depreciation for the purpose of depreciation. Ynd
c

the company pays corporate income tax at 35%.

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