Mathangi Ltd. is a News broadcasting channel having its broadcasting Centre in Chennai. There are total 200 employees in the organisation including…

Mathangi Ltd. is a News broadcasting channel having its broadcasting Centre in Chennai. There are total 200 employees in the organisation including top management. As a part of employee benefit expenses, the company serves tea to its employees, which is outsourced from a third-party. The company offers tea three times a day to each of its employees. The third-party charges 10for each cup of tea. The company works for 200 days in a year. Looking at the substantial amount of expenditure on tea, the finance department has proposed to the management an installation of a master tea vending machine from Nirmal Ltd which will cost - 5,00,000 with a useful life of five years. Upon purchasing the machine, the company will have to incur annual maintenance which will require a payment of 25,000 every year. The machine would require electricity consumption of 500 units p.m. and current incremental cost of electricity for the company is 24 per unit. Apart from these running costs, the company will have to incur - 8,00,000 for consumables like milk, tea powder, paper cup, sugar etc. The company is in the 25% tax bracket. Straight line method of depreciation is allowed for the purpose of taxation. Nirmal Ltd sells 100 master tea vending machines. Variable cost is 4,50,000 per machine and fixed operating cost is 25,00,000. Capital Structure of Mathangi Ltd and Nirmal Ltd consists of the following Particulars Mathangi Ltd. Nirmal Ltd. Equity Share Capital (Face value 10 each) 40,00,000 40,00,000 Reserves & Surplus 25,00,000 50,00,000 12% Preference Share Capital 12,00,000 Nil 15% Debentures 20,00,000 40,00,000 Risk free rate of return = 5%, Market return = 10%, Beta of the Mathangi Ltd. = 1.9 You are required to answer the following five questions based on the above details: