The company ABC Pvt. Ltd plans to establish a philanthropy project in Australia to provide clean water to local communities. It will source water from various suppliers and sell to customers under long term agreements. The project requires an initial investment of $8.5 million. Calculations show the project has a NPV of $1.43 million, IRR of 15%, payback period of 0.22 years, and profitability index of 1.17. Based on these positive financial metrics and the project's ability to cover costs, ABC Pvt. Ltd should proceed with project financing.

1. Assessment 3
BUS5002

2. Introduction of Company
 A company ABC Pvt. Ltd has a business plan to establish a philanthrophy project
Australia. In this project the company is going to introduce the facilities of water
for the people living in Australia who faces problem related to water.
 The company is decided to improve and manage the water facilities in the
localities in Australia
 The main purpose of the company is to run this project by opting project
financing project.
 The company has an objective to fulfil the needs of the local community people
and provide them clean and pure water.

3. on the basis of the given information, the company has three types of agreements-
1. 550,000 cubic litre water per day at the rate of $0.020 per cubic litre to Sell AP water limited
Per annum increased = 10%
Expiration = 20 years
2. 600,000 cubic litre water per day at the rate of $0.030 per cubic litre to Sell NU water Pty. ltd
Per annum increased = 5%
Expiration = 20 years
3. 450000 cubic litre water per day at the rate of $0.025 per cubic litre to Sell call water Pty Ltd
per annum increased = 7%
expiration = 20 years
4. 1,600,000 cubic litre @ $0.012 per day cubic litre buy from Water Solutions
per annum increased = 3%
Expiration = 20 years

4. Cashflows Calculations
Buy water solution- 1,600,000 × 0.012 = 19200 litre per day
= 19200 × 365 = $7008000
Sell AP water limited- 550,000 × 0.020 = 11000 litre per day
= 11000 × 365 = $4015000
Sell call water Pty Ltd - 450,000 × 0.025 = 11250 litre per day
= 11250 × 365 = $4106250
Sell NU water Pty. Ltd- 600,000 × 0.030 = 18000 litre per day
= 18000 × 365 = $6570000

5. Total expenses incurred in the Project
Insurance cost- $150,000 per annum with an
increment of 5% per annum
Maintenance works- $600,000 per annum
increment of 10% per annum
Management fees- $350,000 per annum
10% increment per annum
Miscellaneous cost- fixed at $100,000 per annum

6. $ 8,50,00,000.00 Initial investment
$39,28,67,597.65 Annual cash inflows
3.50%interest-free rate
15%Expected market return
0.9BETA

7. NPV $ 1,43,46,070.15
IRR 15%
Payback period 0.22
Profitability index $ 1.17
CAPM 17.00%
WACC 12.50%

8. Pay-Back Period
 A payback period is said to be he total time take by the project or the
investment of the company to recoup or recovered. Or it is the time
required to reach at the break-even point.
 In simple words, a payback period is the number of years that is
needed to recover the cash and funds, invested by the company
(Lasher, 2016).
 The ideal payback period should always be one year or less than one
year. According to the calculations, the payback period of the
company ABC Ltd. Is 0.22.
 the company achieves the ideal payback period, that shows
company can recover its investment within one year.

9. Internal Rate of Return (IRR)
 The method that helps in computation of rate of return on
investments are said to be internal rate of return (Bora, 2015).
 On the basis of the calculations, the internal rate of return of the
company is 15% for the next 20 years.
 The company has 15% of IRR, which is considered a good rate on
returns.

10. Net Present Value
 Net Present Value is the present value of the cashflows at the
present rate of return of the project. In other words, the net present
value is the difference of cashflows present value and present value
of cashflows over a time period (Benamraoui, et al., 2016).
 The company ABC Pvt Ltd. Has the net present value of $
1,43,46,070.15
 If the difference of the cashflows are positive, then it shows that the
project is profitable.

11. Profitability Index
 Profitability Index is the technique of capital budgeting to evaluate
the company’ projects and investment for their profitability. It is the
measure of investments and projects profitability and attractiveness.
 The PI value more than 1, is considered as good and acceptable.
 on the basis of the calculations, the profitability index of the
company is 1.17.
 The PI value of the company shows that the company’s project is
attractive and acceptable (Brigham & Daves, 2018).

12. Capital Asset Pricing Model
 For calculating the expected returns from the company’s projects
and investments and to compute the risk involved in the project, the
Capital Asset Pricing Model is used.
 The company ABC ltd has the CAPM of 17% and the Beta for the
company’s projects are 0.9.
 The CAPM and Beta of the company’s investment shows that the as
compared to the market, investments are less volatile (Zhang,
2017).

13. Weighted Average Cost of Capital
 The weighted average cost capital shows the average of all the cost
of capital that a company covers. It measures the total cost that a
company has to bear against the funds and capital that raised from
the different sources (Michalak, 2016).
 The company ABC Ltd. Has WACC of 12.50 %

14. Suitability of the Project and Decision Making
 On the basis of the given information and financial data and values, the company
ABC Ltd has a healthy and fair profitability index as well as positive cashflows
every year till the date of expiration of the project.
 ABC Ltd company is able to cover its entire cost of its project and investment
within one year of time period.
 Beta of the company is 0.9 which shows that the project of the company is less
risky or there is less risk associated with company’s project.
 At the end of the study and analysis, it can be concluded that, the company has
good take-off agreements. And, on the basis of all the financial values, the
company should go with the project finance scheme.
 The company has healthy financial strength and able to bear and cover the cost of
the project.

15. References
 Lasher, W. R. (2016). Practical financial management. Cengage Learning.
 Bora, B. (2015). Comparison between net present value and internal rate of
return. International journal of research in finance and marketing, 5(12), 61-71.
 Benamraoui, A., Jory, S. R., Boojihawon, D. R., & Madichie, N. O. (2016). Net
present value analysis and the wealth creation process: A case illustration. The
Accounting Educators' Journal, 26.
 Brigham, E. F., & Daves, P. R. (2018). Intermediate financial management.
Cengage Learning.
 Zhang, L. (2017). The investment CAPM. European Financial
Management, 23(4), 545-603.
 Michalak, A. (2016). The cost of capital in the effectiveness assessment of
financial management in a company. Oeconomia Copernicana, 7(2), 317-329.