THe MBA intern from a reputed institute is given the task of analyzing two mutually exclusive…

THe MBA intern from a reputed institute is given the task of analyzing two mutually exclusive projects* proposals at Headquarters of H.E.C. Ltd (A avy engineering company). It liad two plants: one at Ranchi (referred as Plant R): the other at Bokaro (referred as Plant B). The plant managers of the two plants had submitted proposals related to the expansion of then respective plants. The proposals provided the incremental benefits in terms of cash flow projections from the expansion of their respective plants. However. H.E.C. Ltd. could take up only one of die two projects for expansion currently as with expanding only one of die two projects, it will be able to meet die demand for heavy machinery. THe cash flow projections of the two proposals is provided in Table 1 The initial outlay for Plant R expansion would be 2200 million and for Plant B would be Rs. 410 million. The benefit in terms of cash flows for Plant R would be Rs. 150 million starting from Year 1 and will grow at a growth rate of 5% till perpetuity and for Plant B it will be Rs. 250 million also growing at a rate of 5% till perpetuity from Year 1 onwards. 1 Plant T=0 T=1 till perpetuity with growth rate of g=5% 1 Plant R -Rs. 200 Rs. 150 Plant B – Rs. 410 Rs. 250