Investment Opportunities for ALLCURE INC. - Feasibility Study
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AI Summary
The report analyses two revenue earning opportunities i.e. T-REC and P-REC based on quantitative and qualitative parameters. The quantitative analysis has been carried out on four parameters - Discounted Payback period, Net Present Value, Internal Rate of Return, and Profitability Index. The qualitative analysis of the two projects has been carried out based on litigation, penalty & moral impact of the project on the future prospect of the company. The report recommends T-REC as a better alternative based on critical aspects of the sector and the impact on human body.
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Analysis of
Investment
opportunities for
ALLCURE INC.
Investment
opportunities for
ALLCURE INC.
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Executive Summary
In the said report, there has been analysis of investment proposal at the disposal of
ALLCURE Inc. The two proposals has been analysed based on quantitative and
qualitative parameter to understand the feasibility of project on financial, social and
other areas. The quantitative parameter of analysing the project has been highlighted
here in below:
(a) Net Present Value;
(b) Profitability Index;
(c) Internal Rate of Return;
(d) Discounted Payback Period
Further, the parameters for analysing qualitative aspect of the project includes
litigation, penalty & moral impact of the project on the future prospect of the
company.
On the basis of above analysis, it has been understood that P-REC is feasible on
quantitative front while T-REC is feasible on qualitative front and hence a
conservative view has been taken to safeguard the future interest of the company by
choosing proposal T-REC and further testing P-REC before official launch.
In the said report, there has been analysis of investment proposal at the disposal of
ALLCURE Inc. The two proposals has been analysed based on quantitative and
qualitative parameter to understand the feasibility of project on financial, social and
other areas. The quantitative parameter of analysing the project has been highlighted
here in below:
(a) Net Present Value;
(b) Profitability Index;
(c) Internal Rate of Return;
(d) Discounted Payback Period
Further, the parameters for analysing qualitative aspect of the project includes
litigation, penalty & moral impact of the project on the future prospect of the
company.
On the basis of above analysis, it has been understood that P-REC is feasible on
quantitative front while T-REC is feasible on qualitative front and hence a
conservative view has been taken to safeguard the future interest of the company by
choosing proposal T-REC and further testing P-REC before official launch.
Table Of Contents:
Executive Summary...........................................................................2
Introduction.......................................................................................4
Findings.............................................................................................4
4.1 Quantitative Findings on the basis (P-REC & T-REC)..............4
Discounted Payback period:........................................................5
Net Present Value:.......................................................................5
Internal Rate of Return:...............................................................5
Profitability Index.........................................................................5
4.2 Qualitative Findings................................................................7
Recommendation and Justifications.................................................7
Detail Comparison and Further Recommendation...........................7
Conclusion.........................................................................................8
References.........................................................................................8
Appendix-1........................................................................................9
Executive Summary...........................................................................2
Introduction.......................................................................................4
Findings.............................................................................................4
4.1 Quantitative Findings on the basis (P-REC & T-REC)..............4
Discounted Payback period:........................................................5
Net Present Value:.......................................................................5
Internal Rate of Return:...............................................................5
Profitability Index.........................................................................5
4.2 Qualitative Findings................................................................7
Recommendation and Justifications.................................................7
Detail Comparison and Further Recommendation...........................7
Conclusion.........................................................................................8
References.........................................................................................8
Appendix-1........................................................................................9
Introduction
ALL Cure Inc. has incurred expenditure on Research and development of medicine for
years and is now proposing to explore two revenue earning opportunities i.e. T-REC
and P-REC. The analysis in this report deals with feasibility study of the aforesaid
project based on quantitative and qualitative parameters. Further, P- REC has side
impact and shall result in long term disease while T –REC is much more stable>
Findings
4.1 Quantitative Findings on the basis (P-REC & T-REC)
The assumptions that have been undertaken for carrying out the analysis presented in
the Appendix of the report have been highlighted here in under:
(a) Expenses incurred in training human resource has been treated as capital
expenditure which is non –depreciable and no tax deduction shall be available on
the same;
(b) The life of both the proposal is 8 years and the assets are assumed to be disposed
at the end of eight years;
(c) The cost incurred towards renovation is treated as Capital Expenditure and the
same is tax depreciable for analysis purpose.
(d) Any loss or gain on disposal of asset after completion of 8 years has been taken
into consideration for analysis;
(e) Realisation of Working capital on completion of project;
(f) Expenditure incurred on Research and Development has been considered as sunk
cost and not tax deductible.
The quantitative analysis has been carried on four parameters. The parameter chosen
for analysis has been enumerated here-in-under:
Discounted Payback period:
This capital budgeting tool analyse the time period to breakeven the investment made
initially while recognising the concept of time value of money. Further, in layman
terms it means that time period which shall be required by the company to recollect
the initial outlay made by discounting the cash flows to present value. (Anon., 2018)
Net Present Value:
It is a significant methods under capital budgeting under it the discounted cash flow
computed is reduced by initial outlay to understand the feasibility of the project. If the
said computation is positive, the project is feasible and if negative, the project shall
ALL Cure Inc. has incurred expenditure on Research and development of medicine for
years and is now proposing to explore two revenue earning opportunities i.e. T-REC
and P-REC. The analysis in this report deals with feasibility study of the aforesaid
project based on quantitative and qualitative parameters. Further, P- REC has side
impact and shall result in long term disease while T –REC is much more stable>
Findings
4.1 Quantitative Findings on the basis (P-REC & T-REC)
The assumptions that have been undertaken for carrying out the analysis presented in
the Appendix of the report have been highlighted here in under:
(a) Expenses incurred in training human resource has been treated as capital
expenditure which is non –depreciable and no tax deduction shall be available on
the same;
(b) The life of both the proposal is 8 years and the assets are assumed to be disposed
at the end of eight years;
(c) The cost incurred towards renovation is treated as Capital Expenditure and the
same is tax depreciable for analysis purpose.
(d) Any loss or gain on disposal of asset after completion of 8 years has been taken
into consideration for analysis;
(e) Realisation of Working capital on completion of project;
(f) Expenditure incurred on Research and Development has been considered as sunk
cost and not tax deductible.
The quantitative analysis has been carried on four parameters. The parameter chosen
for analysis has been enumerated here-in-under:
Discounted Payback period:
This capital budgeting tool analyse the time period to breakeven the investment made
initially while recognising the concept of time value of money. Further, in layman
terms it means that time period which shall be required by the company to recollect
the initial outlay made by discounting the cash flows to present value. (Anon., 2018)
Net Present Value:
It is a significant methods under capital budgeting under it the discounted cash flow
computed is reduced by initial outlay to understand the feasibility of the project. If the
said computation is positive, the project is feasible and if negative, the project shall
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not be carried out. The rate for discounting shall be such, which shall satisfy the need
of return of financers of the project or the existing capital structure of the company.
(InvestingAnswers, Inc, 2018)
Internal Rate of Return:
In this method of capital budgeting, the rate of return of the project is computed by
extrapolating and interpolating of the discounting factor in manner that provides a
particular rate at which the present value of cash flows is equal to the cash outlay
made at beginning stage of the product. In short, IRR is the rate of return at which the
present value of inflow is equal to outflow. (Accounting For Management, 2018)
Profitability Index
Under the said quantitative analysis, the present value of cash flows is divided by
outflows. If the said computation is greater than one than the project is feasible,
otherwise the same should be dropped. (Bennett, Coleman & Co. Ltd., 2018)
A brief synopsis of the comparison of P-REC and T-REC based on the above
parameter has been detailed here in under:
Sl No Particular P-REC T-REC
1 Discounted Pay Back period @18% 5.251532 7.024696201
2 Discounted Pay Back period @24% 6.473792 Never Paid off
3 Net Present Value @18% 1153831 220793.9465
4 Net Present Value @24% 427363.3 -234538.2196
5 Internal Rate of Return 28% 22%
6 Profitability Index @18% 1.40 1.08
7 Profitability Index @24% 1.15 0.92
On perusal of the above table, it may be inferred that P-REC is feasible under all the
parameter except discounted payback period as the same exceeds 5 years, while under
other parameters the said project is standing up to the needs and expectation of
financers of capital structure.
Further, w.r.t T-REC it may be seen that the project is not feasible @24% discount
and the discounted payback period of the project is greater than 5 Years. However, if
the weighted average cost of capital of the project is less than 22% than the project
shall be accepted.
of return of financers of the project or the existing capital structure of the company.
(InvestingAnswers, Inc, 2018)
Internal Rate of Return:
In this method of capital budgeting, the rate of return of the project is computed by
extrapolating and interpolating of the discounting factor in manner that provides a
particular rate at which the present value of cash flows is equal to the cash outlay
made at beginning stage of the product. In short, IRR is the rate of return at which the
present value of inflow is equal to outflow. (Accounting For Management, 2018)
Profitability Index
Under the said quantitative analysis, the present value of cash flows is divided by
outflows. If the said computation is greater than one than the project is feasible,
otherwise the same should be dropped. (Bennett, Coleman & Co. Ltd., 2018)
A brief synopsis of the comparison of P-REC and T-REC based on the above
parameter has been detailed here in under:
Sl No Particular P-REC T-REC
1 Discounted Pay Back period @18% 5.251532 7.024696201
2 Discounted Pay Back period @24% 6.473792 Never Paid off
3 Net Present Value @18% 1153831 220793.9465
4 Net Present Value @24% 427363.3 -234538.2196
5 Internal Rate of Return 28% 22%
6 Profitability Index @18% 1.40 1.08
7 Profitability Index @24% 1.15 0.92
On perusal of the above table, it may be inferred that P-REC is feasible under all the
parameter except discounted payback period as the same exceeds 5 years, while under
other parameters the said project is standing up to the needs and expectation of
financers of capital structure.
Further, w.r.t T-REC it may be seen that the project is not feasible @24% discount
and the discounted payback period of the project is greater than 5 Years. However, if
the weighted average cost of capital of the project is less than 22% than the project
shall be accepted.
4.2 Qualitative Findings
The qualitative analysis of the two projects has been carried out here in below:
(a) P-REC is an under tested product with undetectable long-term hazard that may
develop in the body of individual who may consume the same. The product is
under a nascent test and may be subject to certification during consideration by
national testing bodies;
(b) If P-REC is implemented, there may be litigation and dispute in future on account
of side impact of the product and shall tarnish the image and future long term
prospects of the proposed company;
(c) Pharmaceutical Sector has been prone to litigation, disputes and bans risk.
Accordingly, launching a 100% untested product with knowledge of failure can
be very risky;
(d) Launching of P-REC may hamper the long term continuity of the organisation is
the said product turns out to be a major failure of the company on account of long
term issues in the product.
(e) Considering T-REC, it shall be pertinent to note is traditional product and is
clinically safe and tested. Further, the side of the product is not available at the
disposal of the company and it is presumed that this shall be safe .However,
(f) T-REC in addition to above shall be less prone to litigation and disputes.
However, T-REC shall hit by a major setback if new and innovative version is
launched by competitor, the above observation may not hold true.
Recommendation and Justifications
Based on above, it shall be recommended to directors and other KMP of All Cure Inc.
to go for investing in T-REC as the said product is clinically safe to launch and same
is feasible at Weighted Average Cost of Capital less than 22%. Further, launching P-
REC is in grafted with major issue that the same may have failure in the future, as the
product is not 100% clinically tested. However, the project has return in the short run
greater than 24% WACC.
Detail Comparison and Further Recommendation
A differentiation of two projects based on various parameters has been presented here
in below:
Sl No Particular P-REC T-REC
1 Discounted Pay Back period @18% 5.251532 7.024696201
2 Discounted Pay Back period @24% 6.473792 Never Paid off
3 Net Present Value @18% 1153831 220793.9465
The qualitative analysis of the two projects has been carried out here in below:
(a) P-REC is an under tested product with undetectable long-term hazard that may
develop in the body of individual who may consume the same. The product is
under a nascent test and may be subject to certification during consideration by
national testing bodies;
(b) If P-REC is implemented, there may be litigation and dispute in future on account
of side impact of the product and shall tarnish the image and future long term
prospects of the proposed company;
(c) Pharmaceutical Sector has been prone to litigation, disputes and bans risk.
Accordingly, launching a 100% untested product with knowledge of failure can
be very risky;
(d) Launching of P-REC may hamper the long term continuity of the organisation is
the said product turns out to be a major failure of the company on account of long
term issues in the product.
(e) Considering T-REC, it shall be pertinent to note is traditional product and is
clinically safe and tested. Further, the side of the product is not available at the
disposal of the company and it is presumed that this shall be safe .However,
(f) T-REC in addition to above shall be less prone to litigation and disputes.
However, T-REC shall hit by a major setback if new and innovative version is
launched by competitor, the above observation may not hold true.
Recommendation and Justifications
Based on above, it shall be recommended to directors and other KMP of All Cure Inc.
to go for investing in T-REC as the said product is clinically safe to launch and same
is feasible at Weighted Average Cost of Capital less than 22%. Further, launching P-
REC is in grafted with major issue that the same may have failure in the future, as the
product is not 100% clinically tested. However, the project has return in the short run
greater than 24% WACC.
Detail Comparison and Further Recommendation
A differentiation of two projects based on various parameters has been presented here
in below:
Sl No Particular P-REC T-REC
1 Discounted Pay Back period @18% 5.251532 7.024696201
2 Discounted Pay Back period @24% 6.473792 Never Paid off
3 Net Present Value @18% 1153831 220793.9465
Sl No Particular P-REC T-REC
4 Net Present Value @24% 427363.3 -234538.2196
5 Internal Rate of Return 28% 22%
6 Profitability Index @18% 1.40 1.08
7 Profitability Index @24% 1.15 0.92
Thus, based on quantitative analysis, it may be concluded that project P-REC shall be
better compared to T-REC. However, considering the qualitative aspect of the project
T-REC is a better alternative and company should test P-REC for more years before
launching in the market.
Conclusion
Thus on the basis of above deliberations it shall be safe to conclude that company
should opt for T-REC based on critical aspect of the sector and the impact on human
body.
References
4 Net Present Value @24% 427363.3 -234538.2196
5 Internal Rate of Return 28% 22%
6 Profitability Index @18% 1.40 1.08
7 Profitability Index @24% 1.15 0.92
Thus, based on quantitative analysis, it may be concluded that project P-REC shall be
better compared to T-REC. However, considering the qualitative aspect of the project
T-REC is a better alternative and company should test P-REC for more years before
launching in the market.
Conclusion
Thus on the basis of above deliberations it shall be safe to conclude that company
should opt for T-REC based on critical aspect of the sector and the impact on human
body.
References
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Accounting For Management, 2018. Internal rate of return method. [Online]
Available at: https://www.accountingformanagement.org/internal-rate-of-return-method/
[Accessed 5 October 2018].
Anon., 2018. Payback Period & Discounted Payback Period | Formula | Example. [Online]
Available at: https://www.wallstreetmojo.com/payback-period-discounted-payback-period/
[Accessed 5 October 2018].
Bennett, Coleman & Co. Ltd., 2018. Definition of 'Profitability Index'. [Online]
Available at: https://economictimes.indiatimes.com/definition/profitability-index
[Accessed 5 October 2018].
InvestingAnswers, Inc, 2018. Net Present Value (NPV). [Online]
Available at: https://investinganswers.com/financial-dictionary/technical-analysis/net-present-
value-npv-2995
[Accessed 5 October 2018].
Available at: https://www.accountingformanagement.org/internal-rate-of-return-method/
[Accessed 5 October 2018].
Anon., 2018. Payback Period & Discounted Payback Period | Formula | Example. [Online]
Available at: https://www.wallstreetmojo.com/payback-period-discounted-payback-period/
[Accessed 5 October 2018].
Bennett, Coleman & Co. Ltd., 2018. Definition of 'Profitability Index'. [Online]
Available at: https://economictimes.indiatimes.com/definition/profitability-index
[Accessed 5 October 2018].
InvestingAnswers, Inc, 2018. Net Present Value (NPV). [Online]
Available at: https://investinganswers.com/financial-dictionary/technical-analysis/net-present-
value-npv-2995
[Accessed 5 October 2018].
Appendix-1
Determination of Discounted Payback period, NPV, IRR and Profitability Index for P-REC
Sl
NO Content Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
Terminal
Value
1 Renovation Cost of New P&E
-
185000
2 Cost of Human resource -40000
Increase in Working Capital
-Inventory -54000 54000
-Debtors -23000 23000
-Creditors 27000 -27000
3 Cost of Plant and Machinery
-
261500
0
4 Expense of Quality Inspection -60000 -60000 -60000 -60000 -60000 -60000 -60000 -60000
5
Selling Price of plant and
Machinery 260000
6 Quantity to be sold 48000 48000 48000 48000 60000 60000 60000 60000
7 Rate per pcs 60 60 60 60 60 60 60 60
8 Sales Value 2880000
288000
0
288000
0
288000
0
360000
0
360000
0
360000
0
360000
0
9 Variable operating cost -1296000
-
129600
0
-
129600
0
-
129600
0
-
144000
0
-
144000
0
-
144000
0
-
144000
0
10 Annual Fixed Cost -470000
-
470000
-
470000
-
470000
-
470000
-
470000
-
470000
-
470000
11 Depreciation -306000
-
306000
-
306000
-
306000
-
306000
-
306000
-
306000
-
306000
Determination of Discounted Payback period, NPV, IRR and Profitability Index for P-REC
Sl
NO Content Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
Terminal
Value
1 Renovation Cost of New P&E
-
185000
2 Cost of Human resource -40000
Increase in Working Capital
-Inventory -54000 54000
-Debtors -23000 23000
-Creditors 27000 -27000
3 Cost of Plant and Machinery
-
261500
0
4 Expense of Quality Inspection -60000 -60000 -60000 -60000 -60000 -60000 -60000 -60000
5
Selling Price of plant and
Machinery 260000
6 Quantity to be sold 48000 48000 48000 48000 60000 60000 60000 60000
7 Rate per pcs 60 60 60 60 60 60 60 60
8 Sales Value 2880000
288000
0
288000
0
288000
0
360000
0
360000
0
360000
0
360000
0
9 Variable operating cost -1296000
-
129600
0
-
129600
0
-
129600
0
-
144000
0
-
144000
0
-
144000
0
-
144000
0
10 Annual Fixed Cost -470000
-
470000
-
470000
-
470000
-
470000
-
470000
-
470000
-
470000
11 Depreciation -306000
-
306000
-
306000
-
306000
-
306000
-
306000
-
306000
-
306000
Determination of Discounted Payback period, NPV, IRR and Profitability Index for P-REC
12 Opportunity Rent Forgone -48000 -48000 -48000 -48000 -48000 -48000 -48000 -48000
13 Operating Cash flow before Tax
-
289000
0 748060 748060 748060 748060
133606
0
133606
0
133606
0
133606
0 310000
14 Tax -224418
-
224418
-
224418
-
224418
-
400818
-
400818
-
400818
-
400818 27600
15 Depreciation 306000 306000 306000 306000 306000 306000 306000 306000
16 Net Operating Cash flow
-
289000
0 829642 829642 829642 829642
124124
2
124124
2
124124
2
124124
2 337600
17 Discounting Factor @18% 1
0.84745762
7
0.71818
4
0.60863
1
0.51578
9
0.43710
9
0.37043
2
0.31392
5
0.26603
8 0.266038164
18 Discounted Cash Flow
-
289000
0
703086.440
7 595836
504945.
7
427920.
1
542558.
3
459795.
2
389656.
9
330217.
7 89814.48408
19 Net Present Value
115383
1
20 Cumulative
-
289000
0
-
2186913.55
9
-
159107
8
-
108613
2
-
658212
-
115653
344141.
8
733798.
7
106401
6 1153830.921
21 Discounted Payback period
5.25153
2
22 Discounting Factor @24% 1
0.80645161
3
0.65036
4
0.52448
7
0.42297
4
0.34110
8
0.27508
7
0.22184
4
0.17890
7 0.178906664
23 Discounted Cash Flow
-
289000
0 669066.129
539569.
5
435136.
7
350916.
7
423397.
3
341449.
4
275362.
4
222066.
5 60398.88991
24 Net Present Value
427363.
3
25 Cumulative - - - - - - - 144898 366964. 427363.3353
12 Opportunity Rent Forgone -48000 -48000 -48000 -48000 -48000 -48000 -48000 -48000
13 Operating Cash flow before Tax
-
289000
0 748060 748060 748060 748060
133606
0
133606
0
133606
0
133606
0 310000
14 Tax -224418
-
224418
-
224418
-
224418
-
400818
-
400818
-
400818
-
400818 27600
15 Depreciation 306000 306000 306000 306000 306000 306000 306000 306000
16 Net Operating Cash flow
-
289000
0 829642 829642 829642 829642
124124
2
124124
2
124124
2
124124
2 337600
17 Discounting Factor @18% 1
0.84745762
7
0.71818
4
0.60863
1
0.51578
9
0.43710
9
0.37043
2
0.31392
5
0.26603
8 0.266038164
18 Discounted Cash Flow
-
289000
0
703086.440
7 595836
504945.
7
427920.
1
542558.
3
459795.
2
389656.
9
330217.
7 89814.48408
19 Net Present Value
115383
1
20 Cumulative
-
289000
0
-
2186913.55
9
-
159107
8
-
108613
2
-
658212
-
115653
344141.
8
733798.
7
106401
6 1153830.921
21 Discounted Payback period
5.25153
2
22 Discounting Factor @24% 1
0.80645161
3
0.65036
4
0.52448
7
0.42297
4
0.34110
8
0.27508
7
0.22184
4
0.17890
7 0.178906664
23 Discounted Cash Flow
-
289000
0 669066.129
539569.
5
435136.
7
350916.
7
423397.
3
341449.
4
275362.
4
222066.
5 60398.88991
24 Net Present Value
427363.
3
25 Cumulative - - - - - - - 144898 366964. 427363.3353
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Determination of Discounted Payback period, NPV, IRR and Profitability Index for P-REC
289000
0
2220933.87
1
168136
4
124622
8 895311 471914 130464 4
26 Discounted Payback period
6.47379
2
27 Internal Rate of Return 28%
28 Profitability Index @18% 1.399
29 Profitability Index @24% 1.148
Computation of Net Present Value for T-REC
Sl
NO Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
Terminal
Value
1 Future Cash Flows 1235000
118600
0 964000 752000 695000 670000 634000 590000
2 Renovation Cost -185000
3 Human Resource Cost -40000
4
Plant and Machinery
Cost
-
2615000
5 Depreciation -306000 -306000 -306000 -306000 -306000 -306000 -306000 -306000
6
Increase in Working
Capital
-Inventory -54000 54000
-Debtors -23000 23000
-Creditors 27000 -27000
7 Salvage 260000
8 Cash flow before tax
-
2890000 929000 880000 658000 446000 389000 364000 328000 284000 310000
9 Tax -278700 -264000 -197400 -133800 -116700 -109200 -98400 -85200 27600
289000
0
2220933.87
1
168136
4
124622
8 895311 471914 130464 4
26 Discounted Payback period
6.47379
2
27 Internal Rate of Return 28%
28 Profitability Index @18% 1.399
29 Profitability Index @24% 1.148
Computation of Net Present Value for T-REC
Sl
NO Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
Terminal
Value
1 Future Cash Flows 1235000
118600
0 964000 752000 695000 670000 634000 590000
2 Renovation Cost -185000
3 Human Resource Cost -40000
4
Plant and Machinery
Cost
-
2615000
5 Depreciation -306000 -306000 -306000 -306000 -306000 -306000 -306000 -306000
6
Increase in Working
Capital
-Inventory -54000 54000
-Debtors -23000 23000
-Creditors 27000 -27000
7 Salvage 260000
8 Cash flow before tax
-
2890000 929000 880000 658000 446000 389000 364000 328000 284000 310000
9 Tax -278700 -264000 -197400 -133800 -116700 -109200 -98400 -85200 27600
Computation of Net Present Value for T-REC
10 Cash flow after tax
-
2890000 650300 616000 460600 312200 272300 254800 229600 198800 337600
11 Depreciation 306000 306000 306000 306000 306000 306000 306000 306000
12 Net cash flow
-
2890000 956300 922000 766600 618200 578300 560800 535600 504800 337600
13
Discounting Factor
@18% 1
0.84745762
7
0.71818
4
0.60863
1
0.51578
9
0.43710
9
0.37043
2
0.31392
5
0.26603
8 0.266038164
14 Discounted Cash Flow
-
2890000
810423.728
8 662166
466576.
4
318860.
7
252780.
3 207738
168138.
2
134296.
1 89814.48408
15 Net Present Value
220793.
9
16 Cumulative
-
2890000
-
2079576.27
1
-
141741
0 -950834 -631973 -379193 -171455 -3316.6
130979.
5 220793.9465
17
Discounted Payback
period
7.02469
6
18
Discounting Factor
@24% 1
0.80645161
3
0.65036
4
0.52448
7
0.42297
4
0.34110
8
0.27508
7
0.22184
4
0.17890
7 0.178906664
19 Discounted Cash Flow
-
2890000
771209.677
4
599635.
8
402071.
9
261482.
3
197262.
6
154268.
7
118819.
8
90312.0
8 60398.88991
20 Net Present Value
-
234538.
2
21 Cumulative
-
2890000
-
2118790.32
3
-
151915
5
-
111708
3 -855600 -658338 -504069 -385249 -294937 -234538.2196
22
Discounted Payback
period Never Paid off
23 Internal Rate of Return 22%
24
Profitability Index
@18%
1.07639
9
25 Profitability Index 0.91884
10 Cash flow after tax
-
2890000 650300 616000 460600 312200 272300 254800 229600 198800 337600
11 Depreciation 306000 306000 306000 306000 306000 306000 306000 306000
12 Net cash flow
-
2890000 956300 922000 766600 618200 578300 560800 535600 504800 337600
13
Discounting Factor
@18% 1
0.84745762
7
0.71818
4
0.60863
1
0.51578
9
0.43710
9
0.37043
2
0.31392
5
0.26603
8 0.266038164
14 Discounted Cash Flow
-
2890000
810423.728
8 662166
466576.
4
318860.
7
252780.
3 207738
168138.
2
134296.
1 89814.48408
15 Net Present Value
220793.
9
16 Cumulative
-
2890000
-
2079576.27
1
-
141741
0 -950834 -631973 -379193 -171455 -3316.6
130979.
5 220793.9465
17
Discounted Payback
period
7.02469
6
18
Discounting Factor
@24% 1
0.80645161
3
0.65036
4
0.52448
7
0.42297
4
0.34110
8
0.27508
7
0.22184
4
0.17890
7 0.178906664
19 Discounted Cash Flow
-
2890000
771209.677
4
599635.
8
402071.
9
261482.
3
197262.
6
154268.
7
118819.
8
90312.0
8 60398.88991
20 Net Present Value
-
234538.
2
21 Cumulative
-
2890000
-
2118790.32
3
-
151915
5
-
111708
3 -855600 -658338 -504069 -385249 -294937 -234538.2196
22
Discounted Payback
period Never Paid off
23 Internal Rate of Return 22%
24
Profitability Index
@18%
1.07639
9
25 Profitability Index 0.91884
Computation of Net Present Value for T-REC
@18% 5
Appendix -2
Determination of Discounted Payback period, NPV, IRR and Profitability Index for P-REC
Sl
NO Content Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
Terminal
Value
1
Renovation Cost of
New P&E -185000
2
Cost of Human
resource -40000
Increase in Working
Capital
-Inventory -54000 =-C8
-Debtors -23000 =-C9
-Creditors 27000 =-C10
3
Cost of Plant and
Machinery
=-
2550000-
65000
4
Expense of Quality
Inspection =-5000*12
=-
5000*12
=-
5000*12
=-
5000*12
=-
5000*12
=-
5000*12
=-
5000*1
2
=-
5000*12
@18% 5
Appendix -2
Determination of Discounted Payback period, NPV, IRR and Profitability Index for P-REC
Sl
NO Content Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
Terminal
Value
1
Renovation Cost of
New P&E -185000
2
Cost of Human
resource -40000
Increase in Working
Capital
-Inventory -54000 =-C8
-Debtors -23000 =-C9
-Creditors 27000 =-C10
3
Cost of Plant and
Machinery
=-
2550000-
65000
4
Expense of Quality
Inspection =-5000*12
=-
5000*12
=-
5000*12
=-
5000*12
=-
5000*12
=-
5000*12
=-
5000*1
2
=-
5000*12
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Determination of Discounted Payback period, NPV, IRR and Profitability Index for P-REC
5
Selling Price of plant
and Machinery 260000
=A1
3+1 Quantity to be sold 48000 48000 48000 48000
=G14/80
% =H14 =I14 =J14
7 Rate per pcs 60 60 60 60 60 60 60 60
8 Sales Value =D14*D15
=E14*E1
5
=F14*F1
5
=G14*G1
5
=H14*H1
5 =I14*I15
=J14*J1
5
=K14*K1
5
9 Variable operating cost =-D16*45%
=-
E16*45%
=-
F16*45%
=-
G16*45%
=-
H16*40%
=-
I16*40%
=-
J16*40
%
=-
K16*40%
10 Annual Fixed Cost -470000 -470000 -470000 -470000 -470000 -470000 -470000 -470000
11 Depreciation
=(C11+C5-
L13)*10% =D19 =E19 =E19 =G19 =H19 =I19 =J19
12
Opportunity Rent
Forgone =-4000*12
=-
4000*12
=-
4000*12
=-
4000*12
=-
4000*12
=-
4000*12
=-
4000*1
2
=-
4000*12
=A2
0+1
Operating Cash flow
before Tax
=SUM(C5:
C20)
=SUM(D5:D
20)
=SUM(E5
:E20)
=SUM(F5
:F20)
=SUM(G5
:G20)
=SUM(H5
:H20)
=SUM(I5
:I20)
=SUM(J
5:J20)
=SUM(K5
:K20)
=SUM(L5:
L20)
=A2
1+1 Tax =-D21*30%
=-
E21*30%
=-
F21*30%
=-
G21*30%
=-
H21*30%
=-
I21*30%
=-
J21*30
%
=-
K21*30% =-Q21
=A2
2+1 Depreciation =-D19 =-E19 =-F19 =-G19 =-H19 =-I19 =-J19 =-K19
=A2
3+1
Net Operating Cash
flow =C21
=D21+D22+
D23
=E21+E2
2+E23
=F21+F2
2+F23
=G21+G2
2+G23
=H21+H2
2+H23
=I21+I22
+I23
=J21+J2
2+J23
=K21+K2
2+K23
=L21+L22
+L23
=A2
4+1
Discounting Factor
@18% 1 =C25/1.18
=D25/1.1
8
=E25/1.1
8
=F25/1.1
8
=G25/1.1
8
=H25/1.
18
=I25/1.1
8
=J25/1.1
8 =K25
=A2
5+1 Discounted Cash Flow =C24*C25 =D24*D25
=E24*E2
5
=F24*F2
5
=G24*G2
5
=H24*H2
5 =I24*I25
=J24*J2
5
=K24*K2
5 =L24*L25
=A2 Net Present Value =SUM(C26
5
Selling Price of plant
and Machinery 260000
=A1
3+1 Quantity to be sold 48000 48000 48000 48000
=G14/80
% =H14 =I14 =J14
7 Rate per pcs 60 60 60 60 60 60 60 60
8 Sales Value =D14*D15
=E14*E1
5
=F14*F1
5
=G14*G1
5
=H14*H1
5 =I14*I15
=J14*J1
5
=K14*K1
5
9 Variable operating cost =-D16*45%
=-
E16*45%
=-
F16*45%
=-
G16*45%
=-
H16*40%
=-
I16*40%
=-
J16*40
%
=-
K16*40%
10 Annual Fixed Cost -470000 -470000 -470000 -470000 -470000 -470000 -470000 -470000
11 Depreciation
=(C11+C5-
L13)*10% =D19 =E19 =E19 =G19 =H19 =I19 =J19
12
Opportunity Rent
Forgone =-4000*12
=-
4000*12
=-
4000*12
=-
4000*12
=-
4000*12
=-
4000*12
=-
4000*1
2
=-
4000*12
=A2
0+1
Operating Cash flow
before Tax
=SUM(C5:
C20)
=SUM(D5:D
20)
=SUM(E5
:E20)
=SUM(F5
:F20)
=SUM(G5
:G20)
=SUM(H5
:H20)
=SUM(I5
:I20)
=SUM(J
5:J20)
=SUM(K5
:K20)
=SUM(L5:
L20)
=A2
1+1 Tax =-D21*30%
=-
E21*30%
=-
F21*30%
=-
G21*30%
=-
H21*30%
=-
I21*30%
=-
J21*30
%
=-
K21*30% =-Q21
=A2
2+1 Depreciation =-D19 =-E19 =-F19 =-G19 =-H19 =-I19 =-J19 =-K19
=A2
3+1
Net Operating Cash
flow =C21
=D21+D22+
D23
=E21+E2
2+E23
=F21+F2
2+F23
=G21+G2
2+G23
=H21+H2
2+H23
=I21+I22
+I23
=J21+J2
2+J23
=K21+K2
2+K23
=L21+L22
+L23
=A2
4+1
Discounting Factor
@18% 1 =C25/1.18
=D25/1.1
8
=E25/1.1
8
=F25/1.1
8
=G25/1.1
8
=H25/1.
18
=I25/1.1
8
=J25/1.1
8 =K25
=A2
5+1 Discounted Cash Flow =C24*C25 =D24*D25
=E24*E2
5
=F24*F2
5
=G24*G2
5
=H24*H2
5 =I24*I25
=J24*J2
5
=K24*K2
5 =L24*L25
=A2 Net Present Value =SUM(C26
Determination of Discounted Payback period, NPV, IRR and Profitability Index for P-REC
6+1 :L26)
=A2
7+1 Cumulative =C26 =C26+D26
=D28+E2
6
=E28+F2
6
=F28+G2
6
=G28+H2
6
=H28+I2
6
=I28+J2
6
=J28+K2
6 =K28+L26
=A2
8+1
Discounted Payback
period
=5+(-
H28/I26)
=A2
9+1
Discounting Factor
@24% 1 =C30/1.24
=D30/1.2
4
=E30/1.2
4
=F30/1.2
4
=G30/1.2
4
=H30/1.
24
=I30/1.2
4
=J30/1.2
4 =K30
=A3
0+1 Discounted Cash Flow =C30*C24 =D30*D24
=E30*E2
4
=F30*F2
4
=G30*G2
4
=H30*H2
4 =I30*I24
=J30*J2
4
=K30*K2
4 =L30*L24
=A3
1+1 Net Present Value
=SUM(C31
:L31)
=A3
2+1 Cumulative =C31 =C33+D31
=D33+E3
1
=E33+F3
1
=F33+G3
1
=G33+H3
1
=H33+I3
1
=I33+J3
1
=J33+K3
1 =K33+L31
=A3
3+1
Discounted Payback
period
=6+(-
I33/J31)
=A3
4+1 Internal Rate of Return
=IRR(N35:
N45)
=A3
5+1
Profitability Index
@18%
=1+L28/-
C28
=A3
6+1
Profitability Index
@24%
=1+L33/-
C33
Computation of Net Present Value for T-REC
Sl
NO Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
Terminal
Value
1 Future Cash Flows 1235000 1186000 964000 752000 695000 670000 634000 590000
2 =B5 =C5
6+1 :L26)
=A2
7+1 Cumulative =C26 =C26+D26
=D28+E2
6
=E28+F2
6
=F28+G2
6
=G28+H2
6
=H28+I2
6
=I28+J2
6
=J28+K2
6 =K28+L26
=A2
8+1
Discounted Payback
period
=5+(-
H28/I26)
=A2
9+1
Discounting Factor
@24% 1 =C30/1.24
=D30/1.2
4
=E30/1.2
4
=F30/1.2
4
=G30/1.2
4
=H30/1.
24
=I30/1.2
4
=J30/1.2
4 =K30
=A3
0+1 Discounted Cash Flow =C30*C24 =D30*D24
=E30*E2
4
=F30*F2
4
=G30*G2
4
=H30*H2
4 =I30*I24
=J30*J2
4
=K30*K2
4 =L30*L24
=A3
1+1 Net Present Value
=SUM(C31
:L31)
=A3
2+1 Cumulative =C31 =C33+D31
=D33+E3
1
=E33+F3
1
=F33+G3
1
=G33+H3
1
=H33+I3
1
=I33+J3
1
=J33+K3
1 =K33+L31
=A3
3+1
Discounted Payback
period
=6+(-
I33/J31)
=A3
4+1 Internal Rate of Return
=IRR(N35:
N45)
=A3
5+1
Profitability Index
@18%
=1+L28/-
C28
=A3
6+1
Profitability Index
@24%
=1+L33/-
C33
Computation of Net Present Value for T-REC
Sl
NO Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
Terminal
Value
1 Future Cash Flows 1235000 1186000 964000 752000 695000 670000 634000 590000
2 =B5 =C5
Computation of Net Present Value for T-REC
3 =B6 =C6
4 =B8 =C8
5 Depreciation =D13 =E13 =F13 =G13 =H13 =I13 =J13 =K13
6
Increase in
Working Capital
-Inventory =C18 =L18
-Debtors =C19 =L19
-Creditors =C20 =L20
7 Salvage =L9
8
Cash flow before
tax
=SUM(C4
3:C51)
=SUM(D43
:D51)
=SUM(E4
3:E51)
=SUM(F4
3:F51)
=SUM(G43
:G51)
=SUM(H43
:H51)
=SUM(I4
3:I51)
=SUM(J4
3:J51)
=SUM(K4
3:K51)
=SUM(L4
3:L52)
9 Tax
=-
D53*30%
=-
E53*30%
=-
F53*30%
=-
G53*30%
=-
H53*30%
=-
I53*30%
=-
J53*30%
=-
K53*30% =-Q15
10
Cash flow after
tax =C53+C54 =D53+D54 =E53+E54 =F53+F54 =G53+G54 =H53+H54 =I53+I54 =J53+J54 =K53+K54 =L53+L54
11 Depreciation =-D47 =-E47 =-F47 =-G47 =-H47 =-I47 =-J47 =-K47
12 Net cash flow =C55+C56 =D55+D56 =E55+E56 =F55+F56 =G55+G56 =H55+H56 =I55+I56 =J55+J56 =K55+K56 =L55+L56
13
Discounting
Factor @18% =C25 =D25 =E25 =F25 =G25 =H25 =I25 =J25 =K25 =L25
=A5
8+1
Discounted Cash
Flow =C57*C58 =D57*D58 =E57*E58 =F57*F58 =G57*G58 =H57*H58 =I57*I58 =J57*J58 =K57*K58 =L57*L58
=A5
9+1 Net Present Value
=SUM(C5
9:L59)
=A6
0+1 Cumulative =C59 =C59+D59 =D61+E59 =E61+F59 =F61+G59 =G61+H59 =H61+I59 =I61+J59 =J61+K59 =K61+L59
=A6
1+1
Discounted
Payback period
=7+(-
J61/K59)
=A6
2+1
Discounting
Factor @24% 1 =C63/1.24
=D63/1.2
4 =E63/1.24 =F63/1.24 =G63/1.24
=H63/1.2
4 =I63/1.24 =J63/1.24 =K63
3 =B6 =C6
4 =B8 =C8
5 Depreciation =D13 =E13 =F13 =G13 =H13 =I13 =J13 =K13
6
Increase in
Working Capital
-Inventory =C18 =L18
-Debtors =C19 =L19
-Creditors =C20 =L20
7 Salvage =L9
8
Cash flow before
tax
=SUM(C4
3:C51)
=SUM(D43
:D51)
=SUM(E4
3:E51)
=SUM(F4
3:F51)
=SUM(G43
:G51)
=SUM(H43
:H51)
=SUM(I4
3:I51)
=SUM(J4
3:J51)
=SUM(K4
3:K51)
=SUM(L4
3:L52)
9 Tax
=-
D53*30%
=-
E53*30%
=-
F53*30%
=-
G53*30%
=-
H53*30%
=-
I53*30%
=-
J53*30%
=-
K53*30% =-Q15
10
Cash flow after
tax =C53+C54 =D53+D54 =E53+E54 =F53+F54 =G53+G54 =H53+H54 =I53+I54 =J53+J54 =K53+K54 =L53+L54
11 Depreciation =-D47 =-E47 =-F47 =-G47 =-H47 =-I47 =-J47 =-K47
12 Net cash flow =C55+C56 =D55+D56 =E55+E56 =F55+F56 =G55+G56 =H55+H56 =I55+I56 =J55+J56 =K55+K56 =L55+L56
13
Discounting
Factor @18% =C25 =D25 =E25 =F25 =G25 =H25 =I25 =J25 =K25 =L25
=A5
8+1
Discounted Cash
Flow =C57*C58 =D57*D58 =E57*E58 =F57*F58 =G57*G58 =H57*H58 =I57*I58 =J57*J58 =K57*K58 =L57*L58
=A5
9+1 Net Present Value
=SUM(C5
9:L59)
=A6
0+1 Cumulative =C59 =C59+D59 =D61+E59 =E61+F59 =F61+G59 =G61+H59 =H61+I59 =I61+J59 =J61+K59 =K61+L59
=A6
1+1
Discounted
Payback period
=7+(-
J61/K59)
=A6
2+1
Discounting
Factor @24% 1 =C63/1.24
=D63/1.2
4 =E63/1.24 =F63/1.24 =G63/1.24
=H63/1.2
4 =I63/1.24 =J63/1.24 =K63
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Computation of Net Present Value for T-REC
=A6
3+1
Discounted Cash
Flow =C63*C57 =D63*D57 =E63*E57 =F63*F57 =G63*G57 =H63*H57 =I63*I57 =J63*J57 =K63*K57 =L63*L57
=A6
4+1 Net Present Value
=SUM(C6
4:L64)
=A6
5+1 Cumulative =C64 =C66+D64 =D66+E64 =E66+F64 =F66+G64 =G66+H64 =H66+I64 =I66+J64 =J66+K64 =K66+L64
=A6
6+1
Discounted
Payback period Never Paid off
=A6
7+1
Internal Rate of
Return
=IRR(N62:
N71)
=A6
8+1
Profitability Index
@18%
=1+(L61/-
C61)
25
Profitability Index
@18%
=1+L66/-
C66
=A6
3+1
Discounted Cash
Flow =C63*C57 =D63*D57 =E63*E57 =F63*F57 =G63*G57 =H63*H57 =I63*I57 =J63*J57 =K63*K57 =L63*L57
=A6
4+1 Net Present Value
=SUM(C6
4:L64)
=A6
5+1 Cumulative =C64 =C66+D64 =D66+E64 =E66+F64 =F66+G64 =G66+H64 =H66+I64 =I66+J64 =J66+K64 =K66+L64
=A6
6+1
Discounted
Payback period Never Paid off
=A6
7+1
Internal Rate of
Return
=IRR(N62:
N71)
=A6
8+1
Profitability Index
@18%
=1+(L61/-
C61)
25
Profitability Index
@18%
=1+L66/-
C66
1 out of 17
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