Professional Documents
Culture Documents
◦ AGRICULTURAL PRODUCTS
◦ MINERAL PRODUCT
◦ LIVE STOCK AND FOREST PRODUCTS, AND
◦ MARINE PRODUCTS
PROCESSED INDUSTRAIL MATERIALS &
COMPONENTS
AUXILIARY INDUSTRAIL MATERIALS &
FACTORY SUPPLIES
UTILITIES
CHOICE OF THE TECHONOLOGY:
◦ PLANTS CAPACITY
◦ PRINCIPAL INPUTS
◦ INVESTMENT OUTLAY & PRODUCTION
COST
◦ USE BY OTHER UNITS
◦ PRODUCT MIX
◦ LATEST DEVELOPMENT
◦ EASE OF ABSORPTION
ACQUIRING TECHNOLOGY:
◦ TECHNOLOGY LICENSING
◦ PURCHASE OF TECHNOLOGY
◦ JOINT VENTURE TECHNOLOGY ARRANGMENT
APPRORIATENESS OF TECHNOLOGY:
◦ LOCAL RAW MATERIALS
◦ LOCAL MAN POWER
◦ LATER TO BASIC NEEDS
◦ ECOLOGICAL BALANCE
◦ SOCIAL & CULTURAL CONDITIONS
D.PLANT CAPACITY:
TECHNOLOGICAL REQUIREMENT
INPUT CONSTRAINTS
INVESTMENT COSTS:
C1=C2[Q1/Q2]∞
Where:
C1= derived cost for Q1 Units of
capacity
C2= known cost for Q2 units of
capacity
∞= a factor reflecting capacity cost
relationship
This usually between 0.2 and 0.9
Ex : The known investment cost for 5,000 units of
capacity for the manufacture of a certain item is
Rs. 10,00,000. What will be the investment cost
for 10,000 units a capacity if the capacity cost
factor is 0.6.
SOLUTION:
The derived investment cost for 10,000 units
of may be obtained as follows :
C1=10,00,000 X [10,000/5000]0.6=15,16,000
MARKET CONDITIONS
RESOURCES OF FIRM
GOVERNMENT POLICY
PROXIMITY TO RAW MATERIALS AND
MARKETS
AVAILABILITY OF INFRASTRUCTURE
GOVERNMENT POLICY
OTHER FACTORS – ENVIRN. POLLUTION,
LABOUR SITUTATION
SITE SELECTION – COST OF LAND, SITE
PREPA & DIV.
ESTIMATE LIKELY LEVEL OF PRODUCTION
OVERTIME
DEFINE MACHINE & OPERATIONS.
CALCULATE MACHINE HOUR FOR EACH
HOURS
SELECT MACHINE & EQUIPMENTS
REQUIRED
Type:
PLANT EQUIPMENT
MECHANICAL EQUIPMENT
ELECTRICAL EQUIPMENT
INSTRUMENTS
CONTROLS
INTERNAL TRANSPORT SYSTEM
CONSTRAINTS IN SELECTION:
80 80 {96000
1,80,000
270-120 150 Units }
B.E.P [IN TERMS OF PERCENTAGE ON
INSTALLED CAPACITY]
FIXED COSTS EXPECTED CAPACITY
UTILIZATION
CONTRIBUTION IN THE YEAR
80 48 percent
90% (say )
150
BEP OF SALES {IN THE TERMS OF RUPEES }
80 270 = 144M
150
SOURCES OF FUNDS:
ISSUE OF SHARE
PBT WITH INTEREST
DEPRECATION PROV. FOR THE YEAR
DEVELOPMENT REBATE RESERVE
INCREASE IN SECURED MEDIUM & LTL
Other LTL/MTL
INCREASE IN UNSECURED LOANS & DEPOSITS
INCREASE IN LIABILITIES FOR DEFERED PAYMENT
SALE OF FIXED ASSETS
SALE OF INVESTMENT
OTHER INCOME
DISPOSITION OF FUNDS:
◦ CAPITAL EXP. FOR PROJECT
◦ OTHER NORMAL CAPITAL EXP.
◦ INCREASE IN WORKING CAPITAL
◦ DECREASE IN SECURED MEDIUM & LTL
◦ DECREASE IN BORROWING FOR WORKING CAPITAL
◦ DECREASE IN LIABILITIES IN DEFERRED PAYMENTS
◦ INCREASE IN INVESTMENT
◦ INTEREST ON TERM LOAN
◦ INTEREST ON BANK BORROWING FOR W.C
◦ TAXATION
◦ DIVIDEND
◦ OTHER EXP.
EX: THE BALANCE SHEET OF X LTD. AT THE END OF
THE YEAR N
[THE YEAR WHICH IS JUST OVER] IS AS FOLLOWS:
360 360
The projected income statement and the
distribution of earning for the year n+1 is
given below:
PARTICULAR Amount
SALES 400
COST OF GOODS SOLD 300
DEPRECIATION 20
EBIT 80
INTEREST 20
TAX 30
PAT 30
DIVIDEND 10
RETAINED EARNING 20
During the year n+1 the form plans to raise
a secured term loan of 20, repay a previous
term loan to the extent of 5 and increase
unsecured loans by 10, current liabilities
and provisions are expected to remain
unchanged. Further, the firm plans to
acquire fixed assets worth 30 and increase
its inventories by10. receivables are
expected to increase by 15. other assets
would remain unchanged, excepting, of
course cash. The level of cash would be the
balancing amount in the projected balance
sheet
SOLUTION: PROJECTED CASH FLOW
STATEMENT OF X LTD.
CASH 20 30
INVENTORIES 80 +10 90
RECEIVABLES 80 +15 95
BALANCING FIGURE 405
STEPS
INVOLVED IN TESTING
PROJECT VIABILITY:
PARTICULAR
Cost of old machine Rs. 50,000
Life of old machine 5 years
Deprecation according to straight line remaining useful life 2 years
Cost of the new machine Rs. 70,000
Installation charges Rs. 10,000
Amount realized on sale of old machine Rs. 25,000
Additional working capital required Rs. 5,000
Income tax 50%
Capital gains tax 30%
Investment allowance 20%
Solution: