LIVE SUM

1. NARMADA INFRASTRUCTURE
CONSTRUCTION ENTERPRISE LIMITED
An L&T Project
1723042 YASH NIRMALE
1723072 SANSKRITI
1723104 ASHUTOSH DEB
1723153 K.SHARON LAASYA

2. Calculation of cost of capital
Source Amount Weight
share capital 641263247 0.73
loan 232142857 0.27
total 873406104 1
cost of equity hare
beta 1.30
risk free rate 6.39%
market return 11.10%
rf+beta(rm-rf)
capm 13%
interst (1-tax)
interest 15%
tax rate 25%
Cost of loan 11%
WACC 12%

3. PROBABILITY APPROCH
Assumption
The project life cycle for the project after the completion of the project was 5 years so it has
been assumed that the probability of getting will be according to the product life cycle
 Year1- 0.1
 Year 2 -0.2
 year 3 – 0.6
 year 4- 0.2
 year 5- 0.1
Investment =₹ 87,34,06,104.00
Discounted cashflow= ₹ 31,84,26,533.24
Standard deviation approach
year cashflow X-x (X-x) Calculation
1
₹
28,82,33,500.00
₹
7,69,14,893.6
0
₹
5,91,59,00,85,74,99,32
0
0.
1
₹
59,15,90,08,57,49,932
year profit afte tax depreciation cashflow Probability
Discounting
factor
@12%
Discountedcash
flow
investment
2009
₹
16,94,93,790.00
₹
11,87,39,710.00
₹
28,82,33,500.00 0.1
₹
2,88,23,350.00 0.892857
₹
2,57,35,129.81
2010 ₹ 22,73,14,994.00
₹
12,71,36,969.00
₹
35,44,51,963.00 0.2
₹
7,08,90,392.60 0.797194
₹
5,65,13,395.64
2011 ₹ 25,97,62,498.00
₹
11,78,62,193.00
₹
37,76,24,691.00 0.6
₹
22,65,74,814.60 0.71178
₹
16,12,71,421.54
2012 ₹ 30,20,95,217.00
₹
11,29,67,843.00
₹
41,50,63,060.00 0.2
₹
8,30,12,612.00 0.635518
₹
5,27,56,009.15
2013 ₹ 30,33,39,471.00
₹
8,70,29,283.00
₹
39,03,68,754.00 0.1
₹
3,90,36,875.40 0.567427
₹
2,21,50,577.10
₹
1,82,57,41,968.00
₹
31,84,26,533.24

4. 2
₹
35,44,51,963.00
₹
1,06,96,430.6
0
₹
11,44,13,62,75,80,617
0.
2 ₹ 2,28,82,72,55,16,123
3
₹
37,76,24,691.00
₹ -
1,24,76,297.4
0
₹
15,56,57,99,68,13,246
0.
6 ₹ 9,33,94,79,80,87,948
4
₹
41,50,63,060.00
₹ -
4,99,14,666.4
0
₹
2,49,14,73,92,18,23,29
0
0.
2
₹
49,82,94,78,43,64,658
5
₹
39,03,68,754.00
₹ -
2,52,20,360.4
0
₹
63,60,66,57,87,05,887
0.
1 ₹ 6,36,06,65,78,70,589
₹
1,82,57,41,968.0
0
₹
9,31,35,12,98,24,22,36
0
₹
1,26,97,69,05,15,89,25
0
Conclusion –
 If probability is not considered
Under-root of ₹ ₹ 9,31,35,12,98,24,22,360 = ₹9,65,06,543.72
 If probability is given
Under-root of ₹ 1,26,97,69,05,15,89,250= ₹ 3,56,33,818.9307
Investment = 87,34,06,104.00
Risk adjusted discount approach

5. RADR = risk free rate of interest + risk premium
6.39+3.91= 10.30
Investment = 87,34,06,104.00 and RADR NPV = ₹4,80,19,003.55
Conclusion – company should go for the project because of positive NPV
Sensitivity
Calculation of cashflows
It has been assumed that the original cashflow is most likely and 30 % increase in weightage
is optimistic and 30 % decrease is pessimistic.
Assumption -
Calculation in different situations when cost of capital is 12%
year cashflow
RADR discount
factor discounted cashflow
1
₹
28,82,33,500.00 0.906618314
₹
26,13,17,769.72
2
₹
35,44,51,963.00 0.821956767
₹
29,13,44,189.46
3
₹
37,76,24,691.00 0.745201058
₹
28,14,06,319.17
4
₹
41,50,63,060.00 0.675612926
₹
28,04,21,968.59
5
₹
39,03,68,754.00 0.612523052
₹
23,91,09,860.60
₹
1,35,36,00,107.55
year
cashflowmost
likely Weights
optimistic (+30%
weights)
pessimistic (-
30%weights)
1
₹
28,82,33,500.00 0.84212802 1.09 315548358.5 0.589489614
₹
16,99,10,654.60
2
₹
35,44,51,963.00 0.805858676 1.05 371329646.5 0.564101073
₹
19,99,46,732.72
3
₹
37,76,24,691.00 0.793166451 1.03 389375006.7 0.555216516
₹
20,96,63,465.15
4
₹
41,50,63,060.00 0.772660613 1.00 416913741.8 0.540862429
₹
22,44,92,014.83
5
₹
39,03,68,754.00 0.786186241 1.02 398973306.1 0.550330368
₹
21,48,31,780.19

6. year
cashflowmost
likely
discounted
cashflow
cash flow
optimistic
discounted
cashflow
cash flow
pessimistic
discounted
cashflow
1
₹
28,82,33,500.00
₹
25,73,51,339.29
₹
31,55,48,358.54
₹
28,17,39,605.84
₹
16,99,10,654.60
₹
15,17,05,941.60
2
₹
35,44,51,963.00
₹
28,25,66,934.79
₹
37,13,29,646.48
₹
29,60,21,720.73
₹
19,99,46,732.72
₹
15,93,96,311.16
3
₹
37,76,24,691.00
₹
26,87,85,796.14
₹
38,93,75,006.71
₹
27,71,49,438.77
₹
20,96,63,465.15
₹
14,92,34,313.18
4
₹
41,50,63,060.00
₹
26,37,80,078.31
₹
41,69,13,741.83
₹
26,49,56,220.07
₹
22,44,92,014.83
₹
14,26,68,733.88
5
₹
39,03,68,754.00
₹
22,15,05,714.65
₹
39,89,73,306.07
₹
22,63,88,168.58
₹
21,48,31,780.19
₹
12,19,01,321.54
₹
1,29,39,89,863.18 ₹ 1,34,62,55,153.98
₹
72,49,06,621.37
NPV for the following events are
 Most-likely-₹ 1,29,39,89,863.18 -₹ 87,34,06,104.00=₹ 42,05,83,759.18
 Optimistic ₹ 1,34,62,55,153.98-₹ 87,34,06,104.00=₹ 47,28,49,049.98
 Pessimistic ₹ 72,49,06,621.37 -₹ 87,34,06,104.00=₹ -14,84,99,482.63
Certainty equilantent approach
cashflow
Discount
factor 2
Discount
factor2
risky cash
flow
risk free
cash flow
1 288233500 0.90662 0.94073 261317769.8 271150987.8
2 354451963 0.82196 0.88498 291344189.6 313682909
3 377624691 0.7452 0.83253 281406319.3 314384111.5
4 415063060 0.67561 0.78319 280421968.4 325073094.5
5 390368754 0.61252 0.73677 239109860.6 287613141.6
1825741968 1353600108 1511904244
CEC 1.116950446
Conclusion – company should go for the project because it has CEC factor greater then one

7. Decision tree
Three case are considered
Case 1 – In this case the addition capital is invested in 6th year for the expansion which and it
involved an investment of ₹ 3,79,00,00,000.00 and which will provide then additional cash
flow for 7 years
Case 2 – in this case no expansion is done was opted
Case 3- in this case project was not taken into.
particular Year Case-1 Case-2
Case-
3
initial
investment
₹
87,34,06,104.00
₹
87,34,06,104.00
₹
-
additional
investment
₹
3,79,00,00,000.00
₹
-
₹
-
cashflows
1.00
₹
28,82,33,500.00
₹
25,73,51,339.29
₹
28,82,33,500.00
₹
25,73,51,339.29 0
2.00
₹
35,44,51,963.00
₹
28,25,66,934.79
₹
35,44,51,963.00
₹
28,25,66,934.79 0
3.00
₹
37,76,24,691.00
₹
26,87,85,796.14
₹
37,76,24,691.00
₹
26,87,85,796.14 0
4.00
₹
41,50,63,060.00
₹
26,37,80,078.31
₹
41,50,63,060.00
₹
26,37,80,078.31 0
5.00
₹
39,03,68,754.00
₹
22,15,05,714.65
₹
39,03,68,754.00
₹
22,15,05,714.65 0
Additional
cashflows
1.00 6.00
₹
51,88,20,300.00
₹
46,32,32,410.71
₹
1,92,01,31,949.26
0
2.00 7.00
₹
63,80,13,533.40
₹
50,86,20,482.62 0
3.00 8.00
₹
67,97,24,443.80
₹
48,38,14,433.05 0
4.00 9.00
₹
74,71,13,508.00
₹
47,48,04,140.95 0
5.00 10.00
₹
70,26,63,757.20
₹
39,87,10,286.38 0
6.00 11.00
₹
93,38,76,540.00
₹
47,31,30,918.50 0
7.00 12.00
₹
1,14,84,24,360.12
₹
51,94,88,858.17 0
NPV
₹
1,82,22,53,340.31 ₹
1,29,39,89,863.18

8. NPV in different cases are
1. ₹ 1,82,22,53,340.31
2. ₹ 1,29,39,89,863.18
3. 0
Conclusion – the company should go for the expansion project because it has a greater NPV
from the other cases