Sundaram Mechanics Ltd$.($SML$)$ is considering to replace an existing machine for which two suppliers have given quotes. Supplier A has proposed a machine costing Rs$.90$ Lakh that uses the existing boiler while Supplier B has quoted for the machine for Rs$.75$ Lakh but that required modification in the existing energy supply system costing Rs$.15$ Lakh. The modification expenses are not to be capitalized. The machines have a useful life of $5$ years and can be sold at $20\%$ and $10\%$ of the original value respectively for Suppliers A and B$.$ The additional working capital requirement expressed as a percentage of revenue are $20\%$ and $25\%$ respectively because of the larger requirement of fuel for the machine from supplier B$.$ The details are condensed below:

a$.$ What is the differential cash outflow at the beginning $($year $0)$ of the project $($Machine A $$ Machine B$)$ for the machines?

b$.$ What is the differential FCF $($Machine A $$ Machine B$)$ for year two?

c$.$ What is the differential capital gains$/$loss tax $($Machine A $$ Machine B$)$ on the salvage value differential for the machines in year five?

d$.$ What is the total differential FCF $($Machine A $$ Machine B$)$ for the terminal year?

e$.$ What is the differential NPV $($Machine A $$ Machine B$)$ of the machines? Which supplier would Sundaram prefer?

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Particulars Supplier A (Rs. Lakh) Supplier B (Rs. Lakh) Price of Machine 90 75 Revenue per year 100 115 Operating Cost (excluding 75 80 depreciation) Working Capital 20% 25% (% of Revenue) Salvage Value 20% 10% (% of Price) Particulars Supplier A (Rs. Lakh) Supplier B (Rs. Lakh) Price of Machine 90 75 Revenue per year 100 115 Operating Cost (excluding 75 80 depreciation) Working Capital 20% 25% (% of Revenue) Salvage Value 20% 10% (% of Price)