Expansion plc has an empty department in one of its factories that could be used to...

 

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Expansion plc has an empty department in one of its factories that could be used to expand the production of current products or produce new products. Four proposals have been submitted in relation to using this department. Each proposal would fully use the empty department but only one of the proposals can be accepted. The following information was obtained for the proposals: Cash flows Proposal 1 (Rs.000s) Proposal 2 Proposal 3 Proposal 4 Year 0 -Rs.120 -Rs.95 -Rs.80 -Rs.160 Year 1 Rs.80 Rs.10 Rs.30 Rs.30 Year 2 Rs.60 Rs.40 Rs.40 Rs.50 Year 3 Rs.40 Rs.40 Rs.30 Rs.90 Year 4 Rs.20 Rs.60 Rs.30 Rs.80 Year 5 -Rs.40 Rs.50 Rs.20 Rs.60 Residual Rs.0 Rs.5 Rs.0 Rs.40 value The cash flows for year 5 include, where applicable, the sale of the fixed assets purchased (year 0) at residual value. The company's cost of capital is 11%. Expansion plc has an empty department in one of its factories that could be used to expand the production of current products or produce new products. Four proposals have been submitted in relation to using this department. Each proposal would fully use the empty department but only one of the proposals can be accepted. The following information was obtained for the proposals: Cash flows Proposal 1 (Rs.000s) Proposal 2 Proposal 3 Proposal 4 Year 0 -Rs.120 -Rs.95 -Rs.80 -Rs.160 Year 1 Rs.80 Rs.10 Rs.30 Rs.30 Year 2 Rs.60 Rs.40 Rs.40 Rs.50 Year 3 Rs.40 Rs.40 Rs.30 Rs.90 Year 4 Rs.20 Rs.60 Rs.30 Rs.80 Year 5 -Rs.40 Rs.50 Rs.20 Rs.60 Residual Rs.0 Rs.5 Rs.0 Rs.40 value The cash flows for year 5 include, where applicable, the sale of the fixed assets purchased (year 0) at residual value. The company's cost of capital is 11%.