A

REPORT
ON
FINANCING THE
PROJECT OF
METALLAIRE INDIA

SUBMITTED BY:
NIDHITA JAIN
INDEX:

 WEIGHTED AVERAGE COST OF CAPITAL.

 BUDGETING OF THE PROJECT.

 WORKING CAPITAL ASSESSMENT OF THE

PROJECT.

 ASSUMPTIONS & SUGGESTIONS.

 WEIGHTED AVERAGE COST OF CAPITAL:-

amt in (lacs).
YEARS I II III IV V
EQUITY 74.11 81.84 97.83 105.86 113.91
DEBT 107.88 122.49 161.89 177.41 193.71
TOTAL
CAPITAL 181.99 204.33 259.72 283.27 307.62
We 0.41 0.40 0.38 0.37 0.37
Wd 0.59 0.60 0.62 0.63 0.63
t 0.33 0.33 0.33 0.33 0.33
(1-t) 0.67 0.67 0.67 0.67 0.67
ke 0.1 0.1 0.1 0.1 0.1
kd 0.12 0.12 0.12 0.12 0.12
We*ke 0.04 0.04 0.04 0.04 0.04
Wd*kd(1-t) 0.05 0.05 0.05 0.05 0.05
ko 0.09 0.09 0.09 0.09 0.09

ANALYSIS:-

 Here I have assumed the cost of equity to be 10% as cost of equity denotes the cost which the

owner expects on the investment which he has made in the business and apart of it the cost of

debt is taken as 12% as it is the percentage of the interest payment of the total debt which the

business has taken.

 WACC is the weighted average cost of capital is the minimum required rate of return which

the business has to earn in ordre to complete its obligations on time.

  And WACC of this project has comes out to be 9%, as per the calculations shown above.

 Later in this report you will find that after applying this cost of capital as discounting rate it is

providing us positive net present value.

 Which shows that this project is profitable and in futur e is able to earn more returns to the

enterprenure.

CAPITAL BUDGETING FOR THE PROJECT OF

METALLAIRE INDIA

Capital Budgeting for the project

METALLAIRE INDIA
(amt in lacs)
years I II III IV V VI
-
188.4
initial outflow 2
subsequent inflow
2003. 2671. 4007. 4675. 5343.7 6870.
Sales 91 88 83 8 7 57
1764. 2401. 3581. 4197. 4798.1
less :- costs 41 75 31 72 9
270.1 426.5 478.0 545.5
contribution 239.5 3 2 8 8
172.7 204.4 303.8 353.9
less :- other costs 5 5 5 7 404.17
122.6 124.1
EBDIT 66.75 65.68 7 1 141.41
less:- dep 8.31 8.07 8.18 8.81 9.87
114.4
EBIT 58.44 57.61 9 115.3 131.54
less:- int 12.84 14.74 19.6 21.59 23.59
PBT 45.6 42.87 94.89 93.71 107.95
less:- tax 15.2 14.29 31.63 31.24 35.98
PAT 30.4 28.58 63.26 62.47 71.97
add:- dep 8.31 8.07 8.18 8.81 9.87
111.8
net cash flows 38.71 36.65 71.44 71.28 81.84 8

TERMINAL INFLOW 27.97

NET CASH 109.81

INFLOWS 38.71 36.65 71.44 71.28 01

DISCOUNTING @
9% 38.71 33.62 60.13 55.04 77.79
-
FINAL CASH 149.7
INFLOWS 1 33.62 60.13 55.04 77.79
NPV 76.88
IRR 17%

ANALYSIS:-

 The NPV of the project comes out to be positive that means the project is worth

taking the risk, or we can say that the project is capable enough to give back the

required returns to the owner of the project and aalso help the owner to pay back the

obligations set by the propriter.

 I can say this as I have calculated the NPV by taking the discount rate as 9%, or the

cost of capital to be 9%, and according to the projected figures the project is cable

enough to give returns upto 17%, which is very high and can enable the owner to pay

their debt obligation on time so they may not come under defaulters list.

 This project if financed by the bank, then will also generate goodwill to the bank as

being a part of the good project obviously adds reputation to the name.

 As assumption I have not included here the increase in working capital as it is a new

venture set by the owner so the working capital requirement of the project is very

high which hinders the further calculation.

 For this I have further calculated the operating cycle of the project which will

perfectly represent the working capital requirement of the project.

WORKING CAPITAL REQUIREMENT OF THE

PROJECT:-
 WORKING CAPITAL REQUIREMENT OF
THE PROJECT
amt in lacs.
ITEMS I II III IV V

Purchase of raw material(credit) 1680 2240 3360 3920 4480

Opening raw material stock 48 64 96 112
wastage 84 112 168 196 224
Closing raw material stock 48 64 96 112 128
Raw material consumed 1548 2112 3160 3708 4240
Depriciation 8.31 8.07 8.18 8.81 9.87
289.1 419.8 646.5 800.6
Manufacturing expenses 2 6 2 6 966.5
1845. 2539. 3814. 4517. 5216.
Total cost 43 93 7 47 37
Opening work in process stock 0 30 70 131 201
closing work in process stock 30 70 131 201 282
1815. 2499. 3753. 4447. 5135.
Cost of production 43 93 7 47 37
Opening finished goods stock 0 1105 1474 2211 2579
Closing finished goods stock 1437 1916 2874 3353 3832
378.4 1688. 2353. 3305. 3882.
Cost of goods sold 3 93 7 47 37
Selling,administrative&general 172.7 204.4 303.8 353.9 404.1
expenses 5 5 5 7 7
551.1 1893. 2657. 3659. 4286.
Cost of sales 8 38 55 44 54
 amt in lacs.
ITEMS I II III IV V

Raw material conversion period

(RMCP)
Raw material consumption 1548 2112 3160 3708 4240
Raw material consumption per day 5.53 7.54 11.29 13.24 15.14
Raw material inventory 48 64 96 112 128
Raw material inventory holding
days 9 8 9 8 8
Work in process conversion period
(WIPCP)
1815.4 2499.9 4447.4 5135.3
Cost of production* 3 3 3753.7 7 7
Cost of production per day 6.48 8.93 13.41 15.88 18.34
Work in process inventory 30 70 131 201 282
Work in process inventory holding
days 5 8 10 13 15
Finished goods conversion period
(FGCP)
1688.9 3305.4 3882.3
Cost of goods sold* 378.43 3 2353.7 7 7
Cost of goods sold per day 1.35 6.03 8.41 11.81 13.87
Finished goods inventory 1437 1916 2874 3353 3832
Finished goods inventory holding
days 1063 318 342 284 276
Debtor conversion period (DCP)
2003.9 2671.8 4007.8 5343.7
Credit sales (at cost) 1 8 3 4675.8 7
7.1568 9.5424 14.313 16.699 19.084
Sales per day 21 29 68 29 89
debtors 18.98 25.3 37.96 44.28 50.61
debtors outstanding days 3 3 3 3 3
Payment deferral period (PDP)
Credit purchases 1680 2240 3360 3920 4480
Purchases per day 6 8 12 14 16
Creditors 17.25 22.98 34.44 40.17 45.9
Creditors outstanding days 3 3 3 3 3
 all figures in
days
GROSS OPERATING
CYCLE

Inventory Conversion
Period
(RMCP+WIPCP+FGCP)
Raw Material (RMCP) 9 8 9 8 8
Work In Process
(WIPCP) 5 8 10 13 15
Finished Goods (FGCP) 1063 318 342 284 276

Debtors Conversion Period 3 3 3 3 3

Gross Operating Cycle 1079 337 363 308 303

Payment Deferal Period 3 3 3 3 3

NET OPERATING CYCLE 1076 334 360 305 300

ANALYSIS:-

 The days calculated for te conversion of raw material into a finished good and the

recovery of the bills comes out to be approximately 300 – 310 days that means that
 the business will be able to recover the money engaged in working capital in e this

period and also the no. of days will deplete as this is a new venture and as the time

passes the time passes the steps will be taken to improve this.

 But the time is taken to convert the work in process to finished good only and if we

see that the time taken in other activities is nominal and is favourable for the bank to

take decision.

 As we see here that the payment deferral period is very favourable for any creditor of

the business so as the bank.

ASSUMPTIONS:-

 The major assumption I have taken here is that the cost of equity is taken as 10%.

 And another important assumption taken by me here is that the growth rate of the

business is taken as 5% which is the expected growth rate of the economy to grow so

I have taken that only.

SUGGESTIONS:-
 I will recommend the bank to finance this project as according to my calculations I

presume this project to be profitable.

 And to be a part of this project is good for the bank, as this project pretends to be

profitable.