day1MagnumTech

MAGNUM TECHNOLOGIES LTD. Rs Million Total Outlay 50 Application Breakup Fixed Assets 30 Current Assets 20 Sources Break up Equity 15 Term Loan 20 Working Capital Finance 10 Trade Credit 5

10 50

6.67

1 2 3 4 5 6

50

Term Loan is repayable in 5 equal instalments of Rs 4 million each due at the end of every year. Retirement of working capital and trade credit at the end of project - fifth year end. Interest rates : Working Capital Term Loan % age 12 10

30 NWC 7 5 Margin Money for WC 8 35 Project Cost 9 10 11 12 13 14 15 16 17 18

Annual Revenues Operating Costs (Ex Depr.) Depreciation rate Net Salvage Value Fixed Assets Current Assets Tax Rate

60 42 15% WDV Method 5 20 30

19 20

Page 1

day1MagnumTech

Page 2

day1MagnumTech

EQUITY METHOD Equity Funds Revenues Operating Costs Depreciation Interest on WCF Interest on TL 0 -15 1 60.00 42.00 4.50 1.20 2.00 10.30 3.09 7.21 0.00 2 60.00 42.00 3.83 1.20 1.60 11.38 3.41 7.96 0.00 3 60.00 42.00 3.25 1.20 1.20 12.35 3.70 8.64 0.00 4 60.00 42.00 2.76 1.20 0.80 13.24 3.97 9.27 0.00 5 60.00 42.00 Book Value of FA 2.35 1.20 0.40 14.05 4.22 9.84 0.00 5.00 20.00 4.00 0.00 10.00 5.00

Profit before Tax Tax Profit after Tax Preference Dividend Net Salvage Value of Fixed Assets Net Salvage Value of Current Assets Repayment of Term Loan Redemption of Preference Capital Repayment of WCF Retirement of Trade Creditors Initial Investment -15 Operating Cash Inflows ( 9 + 4 - 10 ) Liquidation and Retirement Cash Flows ( 11+12-13-14-15-16) Net Cash Flow -15.00 LONG TERM FUNDS METHOD Initial Investment -35

4.00 0.00

4.00 0.00

4.00 0.00

4.00 0.00

11.71 -4.00 7.71

11.79 -4.00 7.79

11.90 -4.00 7.90

12.03 -4.00 8.03

12.18 6.00 18.18 -4

Profit after Tax Preference Dividend Net Salvage Value of Fixed Assets Net Salvage Value of Current Assets Repayment of Term Loan Redemption of Preference Capital Repayment of WCF Retirement of Trade Creditors Initial Investment -35 Operating Cash Inflows ( PAT + Depr. + Int. on TL (1-t))

7.21 0.00

7.96 0.00

8.64 0.00

9.27 0.00

4.00 0.00

4.00 0.00

4.00 0.00

4.00 0.00

9.84 0.00 5.00 20.00 4.00 0.00 10.00 5.00

13.11

12.91

12.74

12.59

12.46

Page 3

day1MagnumTech

Terminal Cash Flow ( 11+12 ) Net Cash Flow TOTAL FUNDS METHOD Initial Investment

-35.00

13.11

12.91

12.74

12.59

10.00 22.46

-50 7.21 0.00 7.96 0.00 8.64 0.00 9.27 0.00 9.84 0.00 5.00 20.00 4.00 0.00

Profit after Tax Preference Dividend Net Salvage Value of Fixed Assets Net Salvage Value of Current Assets Repayment of Term Loan Redemption of Preference Capital Repayment of WCF Retirement of Trade Creditors Initial Investment -50 Operating Cash Inflows ( PAT + Depr. +Int. on TL (1-t) +Int. on WCF (1-t)) Terminal Cash Flow ( 11+12 ) Net Cash Flow -50.00 IRR Equity Method Long Term Funds Total Funds

4.00 0.00

4.00 0.00

4.00 0.00

4.00 0.00

13.95

13.75

13.58

13.43

13.30 25.00 38.30

13.95

13.75

13.58

13.43

Err:523 Err:523 Err:523

Cost of Capital 0.18 15 0.12 20 0.1 35 Total Funds 15 20 10 5 50

0.08 0.04 0.12 0.05 0.03 0.02 0 0.1

0.03

Page 4

day1MagnumTech

COMPUTATION OF INTEREST Book Value of FA 13.31 Year Interest on Term Loan Opening Repayment during Closing Interest Balance The Year Balance @ 10% 20 16 12 8 4 4 4 4 4 4 16 12 8 4 0 2.00 1.60 1.20 0.80 0.40

1 2 3 4 5

Page 5

day1MagnumTech

Page 6

day2Minicase

MAGNUM TECHNOLOGIES LTD. Rs Million Total Outlay 640 Application Breakup Fixed Assets 400 Current Assets 240 Sources Break up Equity 240 Term Loan 200 Working Capital Finance 120 Trade Credit 80

640

640

240 NWC 40 400

Term Loan is repayable in 5 equal instalments of Rs 4 million each due at the end of every year. Retirement of working capital and trade credit at the end of project - fifth year end. Interest rates : % age Working Capital 12 Term Loan25*8 starting at 1.5 yrs & int @14% Annual Revenues Operating Costs (Ex Depr.) Depreciation rate Net Salvage Value Fixed Assets Current Assets Tax Rate

15% WDV Method

30

Page 7

day2Minicase

Page 8

day2Minicase

EQUITY METHOD 1 Equity Funds 2 Revenues 3 Operating Costs 4 Depreciation 5 Interest on WCF 6 Interest on TL 7 Profit before Tax 8 Tax 9 Profit after Tax 10 Preference Dividend 11 Net Salvage Value of Fixed Assets 12 Net Salvage Value of Current Assets 13 Repayment of Term Loan 14 Redemption of Preference Capital 15 Repayment of WCF 16 Retirement of Trade Creditors 17 Initial Investment 18 Operating Cash Inflows ( 9 + 4 - 10 ) 19 Liquidation and Retirement Cash Flows ( 11+12-13-14-15-16) 20 Net Cash Flow LONG TERM FUNDS METHOD Initial Investment Profit after Tax Preference Dividend Net Salvage Value of Fixed Assets Net Salvage Value of Current Assets Repayment of Term Loan Redemption of Preference Capital Repayment of WCF Retirement of Trade Creditors Initial Investment Operating Cash Inflows ( PAT + Depr. + Int. on TL (1-t)) -200 -200 0 -200

Margin Money for WC Project Cost

-200.00 Err:523

Page 9

day2Minicase

Terminal Cash Flow ( 11+12 ) Net Cash Flow TOTAL FUNDS METHOD Initial Investment Profit after Tax Preference Dividend Net Salvage Value of Fixed Assets Net Salvage Value of Current Assets Repayment of Term Loan Redemption of Preference Capital Repayment of WCF Retirement of Trade Creditors Initial Investment Operating Cash Inflows ( PAT + Depr. +Int. on TL (1-t) +Int. on WCF (1-t)) Terminal Cash Flow ( 11+12 ) Net Cash Flow IRR Equity Method Long Term Funds Total Funds

Page 10

day2Minicase

1 -40

2 750.00 525.00 60.00 14.40 28.00 122.60 36.78 85.82

3 750.00 525.00 51.00 14.40 26.25 133.35 40.01 93.35

4 750.00 525.00 43.35 14.40 19.25 148.00 44.40 103.60

5 750.00 525.00 36.85 14.40 12.25 161.50 48.45 113.05

6 750.00 525.00 31.32 14.40 5.25 174.03 52.21 121.82 100.00 240.00 50.00 120.00 80.00 Year

DEPRECIATION TIME 0 1 2 3 4 5

0.00

0.00

50.00

50.00

50.00

-40.00 145.82 0.00 -40.00 0.00 145.82 144.35 -50.00 144.35 146.95 -50.00 146.95 149.90 -50.00 149.90 153.14 90.00 153.14 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 5.50 6.00

-240 85.82 93.35 103.60 113.05 121.82 100.00 0.00

0.00

-2.18

16.10

41.00

63.95

85.25

Page 11

day2Minicase

Page 12

day2Minicase

COMPUTATION OF INTEREST

DEPRECIATION PRESENT COST 400 400 340 289 245.65 208.8

DEPRECIATED COST DEPRECIATION VALUE

400 340 289 245.65 208.8 177.48 0 60 51 43.35 36.85 31.32

Interest on Term Loan Opening Balance 0 0 200 200 200 200 175 150 125 100 75 50 25 Repayment during Closing The Year Balance 0 0 0 0 0 25 25 25 25 25 25 25 25 0 0 200 200 200 175 150 125 100 75 50 25 0 Interest @ 14%

0.00 0.00 14.00 14.00 14.00 12.25 10.50 8.75 7.00 5.25 3.50 1.75

28.00 26.25 19.25 12.25 5.25

Page 13

day2Minicase

Page 14