Recommended
Recommended
More Related Content
Viewers also liked
Viewers also liked (20)
Similar to Aasman ordinance factory3
Similar to Aasman ordinance factory3 (15)
Recently uploaded
Recently uploaded (20)
Aasman ordinance factory3
- 1. Aasman Ordnance Factory Capital Budgeting project
- 2. AOF: The company Arms & Ammo Manufacturer Deal with Ministry of Defense for 5 years Customers Indian Defense forces Para-Military Private firms Will manufacture bullets for AK-47, AK-56 INSAS Rifle SLR
- 3. The Deal: Ministry of Defense The order size is fixed for the span of 5 years The selling price is fixed by the Govt Some output for private players Government would buy back the project after 5 years Terms fixed like salvage value of machinery building etc
- 4. Setting up the Project Factory to be set up in Dehradoon Manufacturing process to begin and start delivering within a year Demand for 5 years already estimated Initially to manufacture only bullets for various rifles like AK-47,56.
- 5. Future Prospects AOF plans to expand slowly to cater for all the following fields of defense Ammunition & Explosives Weapons, Vehicles and Equipment Materials and Components Armoured Vehicles Ordnance Equipment Group of Factories
- 6. Capital Structure Breakup of the requirement capital Raised through Equity, Debentures & Loan Break-up of the capital Amt in INR Capital Structure Requirement 50000000 Equity 30000000 13% Debentures 15000000 18% Bank Loan 5000000 Total 50000000
- 7. Financial Details: Requirements Project Requirements Land Building Machines Depreciation Method 20000000 lifetime 10 years : written down depreciation at 6500000 15% lifetime 5 years : straight line 15000000 depreciation Terminal value 20000000 3000000 0 Vehicles lifetime 5 years : written 5000000 down at 15% 3000000 Office Equipments lifetime 5 years : written 1000000 down at 20% 400000 Working capital 2500000 Total 50000000
- 8. WACC Weighted Average Cost of Capital Cost of equity by CAPM model Capital Structure Capital Structure weights Rate(K) Effective rate (w*k) Requirement 50000000 Equity 30000000 0.6 13.4 8.04 13% Debentures 15000000 0.3 8.45 2.535 18% Bank Loan 5000000 0.1 11.7 1.17 Total WACC 50000000 11.745 %
- 9. Calculations: Depreciation Years 1 2 3 4 5 3000000 3000000 3000000 3000000 3000000 Vehicles (wd@ 15%) 750000 637500 541875 460593.75 391504.6875 Building (wd @15%) 975000 828750 704437.5 598771.875 508956.0938 Office equipments (wd @ 20%) 200000 160000 128000 102400 81920 Total Depreciation 4925000 4626250 4374312.5 4161765.625 3982380.781 Depreciation Machines (straight line)
- 10. Calculations: Capital Gains Tax Capital Gain/loss Office Equipmenmt Building Vehicles Land 2884084.5 2218526.6 20000000 327680 25430291 3000000 3000000 20000000 400000 26400000 Capital Gain/loss 115915.46 781473.44 0 72320 969708.90 Net Capital Gain 969708.90 Capital Gain Tax 339398.11 Book Value after 5yrs Sales Value Net Inflow Total 26060601.8
- 11. Calculations: Interest Interest given on bank loan and debentures Year 1 2 3 4 5 bank 18% 900000 900000 900000 900000 900000 Debenture @ 13% 1950000 1950000 1950000 1950000 1950000 Total Interest 2850000 2850000 2850000 2850000 2850000
- 12. Operating Variables The sale price has been fixed by the ministry of defense in the deal. The variable cost is calculated as 60% of the sales price. Fixed price includes all expenses which tend to rise at the rate of 15% yearly. Particulars INR Sale price per Bullet (Rs/unit) 50 Variable cost per Bullet (Rs/unit) 30 Fixed Cost (increase at 15% yearly) Discount rate 2000000 12%
- 13. Income statement Income statement Years 1 2 3 4 5 Bullets produced 1100000 1210000 1331000 1464100 1610510 Bullets sold 1070000 1210000 1331000 1464100 1610510 Sales 53500000 60500000 66550000 73205000 80525500 less variable 33000000 36300000 39930000 43923000 48315300 Contribution 20500000 24200000 26620000 29282000 32210200 less fixed cost 2000000 2300000 2645000 3041750 3498012.5 18500000 21900000 23975000 26240250 28712187.5 4925000 4626250 4374312.5 4161765.625 3982380.781 13575000 17273750 19600688 22078484.38 24729806.72 2850000 2850000 2850000 2850000 2850000 10725000 14423750 16750688 19228484.38 21879806.72 less tax 3753750 5048312.5 5862740.6 6729969.531 7657932.352 Net Income 6971250 9375437.5 10887947 12498514.84 14221874.37 EBITDA less depreciation EBIT less interest EBT
- 14. Cash Flows & Calculations CASH FLOW Years 0 1 2 3 4 5 6971250 9375437.5 10887946.8 12498514.8 14221874.3 add Terminal Value 0 0 0 0 26060601.8 add Working Capital 0 0 0 0 2,500,000 add depreciation 4925000 4626250 4374312.5 4161765.62 3982380.78 (50000000) 11896250 14001687.5 15262259.3 16660280.4 46764857.0 PV@12% 10621652 11162059.5 10863374.7 10587909.4 26535635.7 Total PV 69770631 NPV 19770631 Net Income Cash inflow IRR PI 24% 1.3954126
- 15. Project Analysis Results of evaluation carried out Initial Investment 50000000.0 Total PV @ 12% 69770631 NPV 19770631 IRR Profitability Index (PI) WACC 24% 1.3954126 11.75%
- 16. Decision making Indicator Value Evaluation Decision NPV 19770631 Positive Accept It IRR 24% IRR > WACC Accept It Profitability Index (PI) 1.39 PI > 1 Accept It
- 17. Thank You!