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Published by Md. Saimon Islam

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Published by: Md. Saimon Islam on Dec 01, 2012
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03/05/2014

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Capital Investment Decision

On 22 December, 2010 the company has informed
that the Board of Directors of the company has
decided to-
• Acquire sizable amount of land to setup new Pharma
facilities.
• Approximate cost for acquisition of land is Tk. 300.00
million.


Capital Investment Decision
• Assumptions-
• 10 year project
• The production and sales target is 50,000,000
pcs of medicine
• Cost of Capital- 15%


Particulars Assumptions Year 2010 (Taka) Year (2011-2021)
Cost of Capital 15%
Year 10
Investment 300,000,000.00
Quantity 50,000,000.00 50,000,000.00
Price 100.00 100.00
Revenue 5,000,000,000.00
VC 70% 3,500,000,000.00
FC 3.00% 150,000,000.00
Depreciation 30,000,000.00
EBIT 1,320,000,000.00
Tax 30% 396,000,000.00
Net Income 924,000,000.00
Cash flow 954,000,000.00
Sensitivity Analysis

Particulars Amount in Taka Amount in Taka Change
Quantity 50,000,000.00 40,000,000.00
Price 100.00 100.00 -
Revenue
5,000,000,000.0
0
4,000,000,000.
00
(0.25)
VC
3,500,000,000.0
0
2,800,000,000.
00
(0.25)
FC 150,000,000.00 150,000,000.00 -
Depreciation 30,000,000.00 30,000,000.00 -
EBIT
1,320,000,000.0
0
1,020,000,000.
00
(0.29)
Tax 396,000,000.00 306,000,000.00 (0.29)
Net Income 924,000,000.00 714,000,000.00 (0.29)
Cash flow 954,000,000.00 744,000,000.00 (0.29)
NPV 4,487,905,269.00 3,433,963,858.00 (0.31)
Relative
Change
1.10
Scenario Analysis

Particulars Pessimistic (-20%) Normal Optimistic (+ 20%)
Quantity 40,000,000.00
50,000,000.00
60,000,000.00
Price 100.00
100.00
100.00
Revenue
4,000,000,000.00
5,000,000,000.0
0
6,000,000,000.00
VC
2,800,000,000.00
3,500,000,000.0
0
4,200,000,000.00
FC
150,000,000.00 150,000,000.00 150,000,000.00
Depreciation
30,000,000.00 30,000,000.00 30,000,000.00
EBIT
1,020,000,000.00
1,320,000,000.0
0
1,620,000,000.00
Tax 30.0%
306,000,000.00 396,000,000.00 486,000,000.00
Net Income
714,000,000.00 924,000,000.00 1,134,000,000.00
Cash flow
744,000,000.00 954,000,000.00 1,164,000,000.00
NPV
3,433,963,858.00 4,487,905,269.00 5,541,846,681.00
Calculation of the future stock price
for these three scenarios
Description Pessimistic Normal Optimistic
MKT Price
372.50 372.50 372.50
No. Of Share
Outstanding
19714756 19714756 19714756
Current Capitalization
(A)
7,343,746,610.00 7,343,746,610.00 7,343,746,610.00
NPV (B) 3,433,963,858.00 4,487,905,269.00 5,541,846,681.00
(A + B) 10,867,927.72 E3 11,921,869.13 E3 12,975,810.54 E3
New Share Price
With Project
551.25 604.72 658.18
Breakeven Quantity Based on NPV:
PVIFA
n=10, i=15%
5.018768626
Initial Investment 300,000,000.00
EAC 59,775,618.75
Fixed Cost 150,000,000.00
VC/unit 70.00
Price/unit 100.00
Tax 0.30
1-Tc 0.70
Depreciation 30,000,000.00
After Tax Fixed
Charge
155,775,618.80
After Tax Contribution 21.00
BEP Quantity 7,417,886.61
Particulars Year (2011-2021)
Investment 30,000,000.00
Quantity 7,417,886.61
Price/unit 100.00
Revenue 741,788,661.00
VC 519,252,062.70
FC 150,000,000.00
Depreciation 30,000,000.00
EBIT 42,536,598.30
Tax 12,760,979.49
Net Income 29,775,618.81
Cash flow 59,775,618.81
So, the project NPV at 2010 is, NPV
2009
=
-300,000,000.00+ (59,775,618.81 X PVIFA
n=10, i=15%
)
NPV = --300,000,000.00+ (59,775,618.81* 5.018768626)
= 0.00
Breakeven Price Based on NPV:
TVC= 3,500,000,000.00
TFC= 150,000,000.00
TR=3,722,536,598.00
Depreciation= 30,000,000
EBIT= (NI/ 0.70)=42,536,598.21

Net Income= 29,775,618.75
OCF= 29,775,618.75+30,000,000
EAC= 59,775,618.75
Particulars Amount in Taka
Revenue 3,722,536,598.00
VC 3,500,000,000.00
FC 150,000,000.00

Depreciation 30,000,000.00
EBIT 42,536,598.21
Tax 12,760,979.46
Net Income 29,775,618.75
Cash flow 59,775,618.75
We know,
Revenue = Price X Quantity
Price = Revenue / Quantity
Price = 3,722,536,598.00 / 50,000,000.00
Price = 74.45

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