Скачать или смотреть CA Final SFM(New) Dec. 2021 Q.6(b)

DD Ltd. a company based in India manufactures good quality of leather bags and sells to retail outlets in India and USA. The cost of quality leather in India is very high, the company is reviewing the proposal of importing of leather in bulk from USA supplier. The estimate of net US $ and Indian ` Currency Cash Flows in nominal terms for this proposal is given below:

Net Cash Flow (in Lakh)

Year 0 1 2 3
In US $ (25) 5 7 8
In ` 0 60 80 90
If not imported cost of leather to be purchased in India (in `) 400 450 500 600

Other information:
(i) DD Ltd. evaluates all investments by using discount rate of 9% p.a.
(ii) All US customers are invoiced in US $. US $ Cash flows converted into ` at the forward rate and discounted at Indian Rate.
(iii) Inflation in USA and India are expected to be 9% and 8% respectively.
(iv) The current exchange rate 1 US $ = ` 74
You are required to Calculate Net Present Value and recommend the decision. Present
value factor @ 9% are as under:
1 Year 2 Year 3 Year
0.917 0.842 0.772

Note: Calculation to be made up to 2 decimal points.