Saswat Dairy Ltd. (SDL) is planning to buy dairy plant costing ₹400 lakh. Milk Board provides 10% subsidy on the capital cost. It can process milk to produce cheese with the capacity of 1,800 tonnes per annum. The sellin

Working notes 1. Initial outflow ₹ (in lakh) Initial Cost 400 Less: Subsidy received @10% 40 Cost of Purchase 360 Add: Working capital 100 Total Initial cash outflow 460 2. Sales price per tonne Sales price per kg = ₹50 1 tonne = 1000 kg Sales value of 1 tonne = ₹50,000 Or ₹0.5 lakh 3. Depreciation Net Cost 360 Less: Scrap value 50 310 Depreciation = 310/8 = 38.75 lakh Note: It is assumed that Assessee is entitled to take depreciation only on cost incurred by it. Alternatively Depreciation may be calculated on total cost less scrap value. (a) Cash Inflows of the project Years 1 2 3 4 to 8 Capacity utilization 60% 70% 80% 90% Production-Tonne 1080 1260 1440 1620 Sales value @ 0.5 lakh per tonne 540 630 720 810 Less: Variable cost @ 40% 216 252 288 324 Less: Fixed cost 300 300 300 300 Less: Depreciation 38.75 38.75 38.75 38.75 PBT -14.75 39.25 93.25 147.25 Less: Tax @ 35% 0 13.7375 32.6375 51.5375 PAT -14.75 25.5125 60.6125 95.7125 Add: Depreciation 38.75 38.75 38.75 38.75 CFAT (PAT + Depreciation) 24 64.2625 99.3625 134.4625 Note: If bought forward loss of year one is assumed to be set off in year 2 then tax expenses will be [35% x (39.25-14.75)] i.e. 8.575. Accordingly cash inflow will be increased due to less tax expenses.