Nova Green Mobility Ltd., a well-established and profitable manufacturer of electrical components, is evaluating a proposal to enter the…

CA Intermediate · Financial Management and Strategic Management · MTP · September 2026
Nova Green Mobility Ltd., a well-established and profitable manufacturer of electrical components, is evaluating a proposal to enter the electric-vehicle (EV) charging equipment business by setting up a new plant to manufacture smart EV charging stations. The project calls for a capital outlay of ₹ 1,000 lakhs and working capital of ₹ 150 lakhs. The plant is designed for an annual production capacity of 3 lakh units, and over the project's five-year life, capacity utilisation is projected as follows: Year 1 2 3 4 5 Capacity Utilisation (%) 50 65 80 100 100 Each charging unit is expected to sell at an average price of ₹ 600, yielding a contribution margin of 60%. Annual fixed costs (excluding depreciation) are estimated at ₹ 500 lakhs from the third year onwards, and at ₹ 200 lakhs and ₹ 350 lakhs in the first and second years respectively. The capital asset is expected to fetch a scrap value of ₹ 200 lakhs at the end of the fifth year, and depreciation for income-tax purposes is charged on the written-down-value method at 40% p.a. The applicable income-tax rate is 30%, and the cost of capital is 12%. A further ₹ 200 lakhs of working capital will need to be invested at the end of the third year, and no capital gains tax is applicable to the transaction. You are required to compute the Net Present Value (NPV) of the project. Nova Green Mobility Ltd. is preparing to present the proposal to Secure Venture Capital Firm, which invests in a project only if it adds more than ₹ 100 lakhs to shareholder wealth. Assess whether Nova Green Mobility Ltd. would qualify for funding from Secure Venture Capital Firm on this basis.

Suggested Answer and Working Notes:

Statement Showing Computation of Cash Flow After Tax (CFAT) Particulars Year 1 Year 2 Year 3 Year 4 Year 5 Capacity Utilisation 50% 65% 80% 100% 100% Units Produced 1,50,000 1,95,000 2,40,000 3,00,000 3,00,000 Contribution per Unit (₹ 600 × 60%) 360 360 360 360 360 Total Contribution (₹) 5,40,00,000 7,02,00,000 8,64,00,000 10,80,00,000 10,80,00,000 Less: Fixed Cost (₹) 2,00,00,000 3,50,00,000 5,00,00,000 5,00,00,000 5,00,00,000 Less: Depreciation (₹) (W.N.) 4,00,00,000 2,40,00,000 1,44,00,000 86,40,000 51,84,000 Profit Before Tax (₹) (60,00,000) 1,12,00,000 2,20,00,000 4,93,60,000 5,28,16,000 Less: Tax @ 30% (₹) (18,00,000) 33,60,000 66,00,000 1,48,08,000 1,58,44,800 Profit After Tax (₹) (42,00,000) 78,40,000 1,54,00,000 3,45,52,000 3,69,71,200 Add: Depreciation (₹) 4,00,00,000 2,40,00,000 1,44,00,000 86,40,000 51,84,000 Cash Flow After Tax (₹) 3,58,00,000 3,18,40,000 2,98,00,000 4,31,92,000 4,21,55,200 Statement Showing Computation of Net Present Value Year Description Cash Flow (₹) PVF @12% Present Value (₹) 0 Initial Investment (10,00,00,000) 1.000 (10,00,00,000) 0 Working Capital Introduced (1,50,00,000) 1.000 (1,50,00,000) 3 Additional Working Capital (2,00,00,000) 0.7118 (1,42,36,000) 1 Cash Flow After Tax 3,58,00,000 0.8929 3,19,65,820 2 Cash Flow After Tax 3,18,40,000 0.7972 2,53,82,848 3 Cash Flow After Tax 2,98,00,000 0.7118 2,12,11,640 4 Cash Flow After Tax 4,31,92,000 0.6355 2,74,48,516 5 Cash Flow After Tax 4,21,55,200 0.5674 2,39,18,860 5 Working Capital Released 3,50,00,000 0.5674 1,98,59,000 5 Sale of Scrap 2,00,00,000 0.5674 1,13,48,000 Net Present Value 3,18,98,684 Working Note: Computation of Depreciation (WDV Method @ 40% p.a.) Year Opening WDV (₹) Depreciation @ 40% (₹) Closing WDV (₹) 1 10,00,00,000 4,00,00,000 6,00,00,000 2 6,00,00,000 2,40,00,000 3,60,00,000 3 3,60,00,000 1,44,00,000 2,16,00,000 4 2,16,00,000 86,40,000 1,29,60,000 5 1,29,60,000 51,84,000 77,76,000 The Net Present Value of the project works out to ₹ 3,18,98,684 (approximately ₹ 319 lakhs), which is positive and exceeds the ₹ 100 lakhs threshold set by Secure Venture Capital Firm. Nova Green Mobility Ltd. is therefore in a position to secure funding from Secure Venture Capital Firm for this project.

Topics: Part-A: Financial Management

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