COTTON PRODUCTION

Sophea Ly (u5123854)
Student Information
Name : Sophea Ly
Graduate Diploma, IDEC 8001
Page 1 of 12
Student ID:
u5123854
Email. Sophea.ly@anu.edu.au
Agriculture Project: Cotton Production

Table1: Project Parameter Table ( Original Form)
Project Life (years)
Project Output volume (tonnes)
Output price -World price ($US/Tonne)
20
80000
120
Investment Cost (IC)- Year 1

Land ( $ L million)
Imported pumping and harvesting
($ US million)
Equipment Scracpt Value (%)
Operating Cost (OC)- Starting from year 2
Imported Chemical fertilizer ($US/ Tonne)
Local Labor forces - persons
Labor Minimum wage rate ($L/month)
Local Electricity price ($L /tonne of ouput)
450
45
Tarriff and subsidies and Others Tax

Export tax on cotton
Imported Tariff for fertilizer (%)
OER ( $ L/$USD)
Financial discount rate (end of year)
Land resale at year 20th increase by %
Scrapt value of equipment
15%
40%
5
3%
30%
10%
10%
Income Tax rate
25%
20
400
600
20
Notes
All output are exported
Assuming no inflation on other inputs/outputs, except land
Table1.1: Project Parameter Table ( in Million and Local Currency)

20
Project Output volume (M tonnes)
0.08
0.0006
Output price -World price ($L M/Tonne)
Land ( $ L million)
($ L million)
Imported Chemical fertilizer ($L M/ Tonne)
Labor Minimum wage rate ($L M/month)
Local Electricity price ($L M/tonne )
450
225
1,000,000
OER ( $ L/$USD)
15%
40%
5
3%
30%
10%
10%
Income Tax rate
25%
0.0001
400
0.0006
0.00002
Notes
Table 2: Finacial Analysis Table (Before Tax in $L Million)

Description/year
1-Project Benefit/Receipt
- Foreign Receipt ($L Million)Export Sales
Total project Receipt (1)
$L 1,000,000
10
11
12
13
14
15
16
17
18
19
20
0.00
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
0.00
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
2- Project Expediture
2-1- Local Expenditure
Investment Cost- Land
Operating cost
Labor
Electricity
2-2- Foreign Expenditure
Investment Cost
equipment
Operating cost
- Imported chemicals and fertilisers
Total Project Expenditure (2)
Net Benefit (1)-(2)
Project Net Present Value- $ LM
Page 2 of 12
450.00
-585.00
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
225.00
675.00
-675.00
2.88
1.60
-22.50
11.20
11.20
11.20
11.20
11.20
11.20
11.20
11.20
11.20
11.20
11.20
11.20
11.20
11.20
11.20
11.20
11.20
11.20
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68 -591.82
25.12 632.62
11.20
30.352034 $ L Million
Table 3: Financial Cash Flow After Tax in $L M

Description/year
Total Project Benefit (Sales + Land Resale)
Total Project Operating Cost (Table 2)
Interest Payment
Depreciation of asset (starting in year 2)
Taxable Income
( Rev - OpExp - Interest- Depre)
Taxation Liability ( 25%)
Net Benefit Before Tax (Table 2)
Net Benefit After Tax
2.88
1.60
$L 1,000,000
1
0.00
0.00
0.00
0.00
0.00
2
40.80
15.68
0.00
10.66
14.46
3
40.80
15.68
0.00
10.66
14.46
4
40.80
15.68
0.00
10.66
14.46
5
40.80
15.68
0.00
10.66
14.46
6
40.80
15.68
0.00
10.66
14.46
7
40.80
15.68
0.00
10.66
14.46
8
40.80
15.68
0.00
10.66
14.46
9
40.80
15.68
0.00
10.66
14.46
10
40.80
15.68
0.00
10.66
14.46
11
40.80
15.68
0.00
10.66
14.46
12
40.80
15.68
0.00
10.66
14.46
13
40.80
15.68
0.00
10.66
14.46
14
40.80
15.68
0.00
10.66
14.46
15
40.80
15.68
0.00
10.66
14.46
16
40.80
15.68
0.00
10.66
14.46
17
40.80
15.68
0.00
10.66
14.46
18
40.80
15.68
0.00
10.66
14.46
19
40.80
15.68
0.00
10.66
14.46
0.00
-675.00
-675.00
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
3.62
25.12 632.62
21.50 629.00
Assume the taxation law in the country is such that there is zero tax liability for a particular year if the project does not have a positive benefit.
Assume also scrap values of assets are not subject to tax.
Land Resale Considered as Scrapt Value and therefore not subject to Tax
20
40.80
15.68
0.00
10.66
14.46
Page 3 of 12
Explanation on Excel Spreedsheet
($ LM = $ Local Million)
Q1. See Table 1.1 and 1.2: Parameter Table in Original Form and New Form (in Million )
Note
= Value in USD x OER
- Convert all Value in USD to Local Currency
- Convert all value into Million unit = Original Value / 1,000,000
Q2: See Table 2: Financial Cash Flow Before Tax
Note
= Output price * ( 1 - Export Tax rate) * OER = 120 ( 1-0.15) * 5 = 510 $L/Tonne
- Derive Output Price after Tax
= Output price after Tax x Quantity Produced per Year = 510 $L/Tonne * 0.08 M tonne = 40.80 $L M
- Export Revenue ($L M)
= Imported Price ( 1 + Tarrif rate) * OER = 20 * 5 * (1+0.40) = 140 $L/Tonne
- Derive input price of Chemical fertilizer after Tarrif
= Imported Price after Tarrif x Quanity produced = 140 * 0.08 M tonne= 11.20 $L M
- Cost of purchase of Chemical fertilizer
= # of labor x Wage rate x 12 months = 0.0006 * 400*12= 2.88 $ LM
- Labor Cost per year
= Electricity Price per tonne x Quanitity Production = 20 * 0.08 M tonne = 1.6 $L M
- Non-trade (electricity)
= Investment Cost + Operating Cost
- Total Expenditure
= Land purchase + Equipment purchase = 450 +225 = 675 $ L M
Year 1
= Labor + Electricity + Fertilizer = 2.88+ 1.60+ 11.20 = 15.68 $ L M
Year 2 -19
= (Minus) Land Resales +(minus) Equipment Scrap value + Labor + Electricity + Fertilizer
Year 20
- Total Revenue (from year 2 to year 20)

- Project Net Benefit (Before Tax)
(Minus)Initial Land Price x (1 + 30%) + (minus)( Initial Equipment Price x 10%) + + Labor + Electricity + Fertilizer
=-[ (450 * 130%) + (225 * 10%)] + 2.88+ 1.60+ 11.20 = (Minus) 591.82 $L M
= Revenue from Sales (From year 2 to year 20) = 40.80 LM
= Total Revenue - Total Expediture
Q3: Calculate NPV at 3 %
20
=
=1
( )
(1 + )
Excel Formular : NPV (rate, NB1, NB2,....)

Refer to Table 2: NPV at 3% discount rate = 30.35 $ L Million
Q4- Project Acceptance based on NPV
Based on decision rule that the project should be accepted as long it generate positive profit with NPV >0
Thus, the project with NPV = 30.35 $L Millions should be selected
Page 4 of 12
Q5- Financial Cash Flow after Tax, see Table 3

- Total Benefit
- From Year 2 to year 20
= Sales revenue + Asset Sales

only Sales Revenue = 40.8 $ L M
ReSales of Land & Sales of Equipment (Excluded from Calculation because they are considered as scrap value
and therefore not subject to Tax)
- Operating Cost
- Interest payment
- Depreciation
- Taxable Income
- Year I
(From Table 2)
- Taxable Liability
- Year I
= taxable Income x Tax rate
- Net Benifit After Tax

- Year I
-In Year 20
= Net Benefit Before Tax(Table 2) - Taxliability
N/A
= (Price of asset - Scrap Value )/19 = (45-4.5)/19= 2,12 $LM
= Revenue - Operating Cost - Depreciation
No income yet
= 40.80 - 15.68- 10.66 = 14.46 $ LM
No tax
= 14.46 * 25% = 3.62$ LM
- 675 $ L M
= 25.12- 3,62 = 21.50 $ L M
= 632.62- 2.62= 629 $ LM
Student Information
Name : Sophea Ly
Page 5 of 11
Student ID:
u5123854

Output FOBprice -World price ($US/Tonne)
20
200000
80

Investment Period (year)
Raw materials pa incl Traff ($ L M)
400
3
8
Labor cost per annual ($ L M)

Overhead cost ($ L M)
Output domestic price ($L)
Raw material CIF price ( $L)
Popultion ( $L/tonne)
In year 4)
4
2
360
7.5
15
7.5
OER ( $ L/$USD)
SER
EEP
Unprotected Labor Cost ($ L M)

Description/year
Investment Cost
Operating cost
Raw material
Labor
Overhead
Net Benefit (1)-(2)
133.33
133.33
133.33
133.33
0.00
-133.33
133.33
0.00
-133.33
Discount rate
5%
Social Discount rate

Output
export Tax
Raw material ($ US)
Import Tarrif
4%
10%
1.51
6%
10
11
12
13
14
15
16
17
18
19
20
8.00
4.00
2.00
8.00
4.00
2.00
8.00
4.00
2.00
8.00
4.00
2.00
8.00
4.00
2.00
8.00
4.00
2.00
8.00
4.00
2.00
8.00
4.00
2.00
8.00
4.00
2.00
8.00
4.00
2.00
8.00
4.00
2.00
8.00
4.00
2.00
8.00
4.00
2.00
8.00
4.00
2.00
8.00
4.00
2.00
8.00
4.00
2.00
8.00
4.00
2.00
14.00
36.00
22.00
14.00
72.00
58.00
14.00
72.00
58.00
14.00
72.00
58.00
14.00
72.00
58.00
14.00
72.00
58.00
14.00
72.00
58.00
14.00
72.00
58.00
14.00
72.00
58.00
14.00
72.00
58.00
14.00
72.00
58.00
14.00
72.00
58.00
14.00
72.00
58.00
14.00
72.00
58.00
14.00
72.00
58.00
14.00
72.00
58.00
14.00
72.00
58.00
172.151865 $ L Million

Description/year
Investment Cost
Operating cost
Raw material
Labor
Overhead
10%
2
$L 1,000,000
133.33
0.00
-133.33
5
5.5
$L 1,000,000
133.33
133.33
133.33
10
11
12
13
14
15
16
17
18
19
20
8.30
2.00
2.00
8.30
2.00
2.00
8.30
2.00
2.00
8.30
2.00
2.00
8.30
2.00
2.00
8.30
2.00
2.00
8.30
2.00
2.00
8.30
2.00
2.00
8.30
2.00
2.00
8.30
2.00
2.00
8.30
2.00
2.00
8.30
2.00
2.00
8.30
2.00
2.00
8.30
2.00
2.00
8.30
2.00
2.00
8.30
2.00
2.00
8.30
2.00
2.00
Pullution
Net Benefit (1)-(2)
Page 6 of 11
133.33
0.00
-133.33
133.33
0.00
-133.33
133.33
0.00
-133.33
0.75
13.05
44.00
30.95
380.576645 $ L Million
Turtoria;7
Question 3: The project gas o operating cost, output: 100 unit per year , interst 10%
1) First scenario could occur at Prob 0.7, price $1 per unit
Year
Investment cost
Benefit
NB
NPV
0
280
0
-280
1
0
100
100
2
0
100
100
3
0
100
100
1
0
300
300
2
0
300
300
3
0
300
300
-$31.31
1) Second scenario could occur at Prob 0.3, price $3 per unit

Year
Investment cost
Benefit
NB
NPV
0
330
0
-330
$416.06
Expeted Value of NPV

NPV
Probability
0.7
0.3
Pro* NPV
-$31.31
$416.06
-$21.92
$124.82
$102.90
The project should be accepted

1.0714286
3.00
15.30
88.00
72.70
3.00
15.30
88.00
72.70
3.00
15.30
88.00
72.70
3.00
15.30
88.00
72.70
3.00
15.30
88.00
72.70
3.00
15.30
88.00
72.70
3.00
15.30
88.00
72.70
3.00
15.30
88.00
72.70
3.00
15.30
88.00
72.70
3.00
15.30
88.00
72.70
3.00
15.30
88.00
72.70
3.00
15.30
88.00
72.70
3.00
15.30
88.00
72.70
3.00
15.30
88.00
72.70
3.00
15.30
88.00
72.70
3.00
15.30
88.00
72.70
Student Information
Name : Sophea Ly
Page 7 of 11
Student ID:
u5123854

Output price -World price ($US/Tonne)
Land ( $ L million)- CIF
($ US million)
Imported Chemical fertilizer ($US/ Tonne)
Labor Minimum wage rate ($L/month)
Unprotected Labor Minimum wage rate ($L/month)
the border price equivalent of this electricity
Local Electricity price ($L /tonne of ouput)
20
80000
120
450
45
10%
20
400
600
350
14
20
Table1.1: Project Parameter Table ( in Million and Local Currency)

20
Project Output volume (M tonnes)
0.08
0.0006
Output price -World price ($L M/Tonne)
Land ( $ L million)
($ L million)
Imported Chemical fertilizer ($L M/ Tonne)
Labor Minimum wage rate ($L M/month)
Unprotected Labor Minimum wage rate ($L/month)
the border price equivalent of this electricity
Local Electricity price ($L M/tonne )

OER ( $ L/$USD)
Income Tax rate
Foreign Exchange Premium
Notes
15%
40%
5
3%
30%
10%
25%
15%
450
225
1,000,000
OER ( $ L/$USD)
15%
40%
5
3%
30%
10%
10%
Income Tax rate
25%
0.0001
400
0.0006
0.00035
0.000014
0.00002
Notes
$L 1,000,000
Description/year
- Foreign Receipt ($L Million)Export Sales
Total project Receipt (1)
2-1- Local Expenditure
Investment Cost- Land
Operating cost
Labor
Electricity
2-2- Foreign Expenditure
Investment Cost
equipment
Operating cost
- Imported chemicals and fertilisers
Net Benefit (1)-(2)
Page 8 of 11
1
10
11
12
13
14
15
16
17
18
19
20
0.00
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
0.00
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
40.80
450.00
-585.00
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
2.88
1.60
225.00
675.00
-675.00
2.88
1.60
-22.50
11.20
11.20
11.20
11.20
11.20
11.20
11.20
11.20
11.20
11.20
11.20
11.20
11.20
11.20
11.20
11.20
11.20
11.20
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68
25.12
15.68 -591.82
25.12 632.62
11.20
30.352034 $ L Million
Table 3: Financial Cash Flow After Tax in $L M

Description/year
Total Project Benefit (Sales + Land Resale)
Total Project Operating Cost (Table 2)
Interest Payment
Depreciation of asset (starting in year 2)
Taxable Income
( Rev - OpExp - Interest- Depre)
Taxation Liability ( 25%)
Net Benefit Before Tax (Table 2)
Net Benefit After Tax
2.88
1.60
$L 1,000,000
1
0.00
0.00
0.00
0.00
0.00
2
40.80
15.68
0.00
10.66
14.46
3
40.80
15.68
0.00
10.66
14.46
4
40.80
15.68
0.00
10.66
14.46
5
40.80
15.68
0.00
10.66
14.46
6
40.80
15.68
0.00
10.66
14.46
7
40.80
15.68
0.00
10.66
14.46
8
40.80
15.68
0.00
10.66
14.46
9
40.80
15.68
0.00
10.66
14.46
10
40.80
15.68
0.00
10.66
14.46
11
40.80
15.68
0.00
10.66
14.46
12
40.80
15.68
0.00
10.66
14.46
13
40.80
15.68
0.00
10.66
14.46
14
40.80
15.68
0.00
10.66
14.46
15
40.80
15.68
0.00
10.66
14.46
16
40.80
15.68
0.00
10.66
14.46
17
40.80
15.68
0.00
10.66
14.46
18
40.80
15.68
0.00
10.66
14.46
19
40.80
15.68
0.00
10.66
14.46
0.00
-675.00
-675.00
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
25.12
21.50
3.62
3.62
25.12 632.62
21.50 629.00
Assume the taxation law in the country is such that there is zero tax liability for a particular year if the project does not have a positive benefit.
Assume also scrap values of assets are not subject to tax.
Land Resale Considered as Scrapt Value and therefore not subject to Tax
20
40.80
15.68
0.00
10.66
14.46
Page 9 of 11
Explanation on Excel Spreedsheet
($ LM = $ Local Million)
Q1. See Table 1.1 and 1.2: Parameter Table in Original Form and New Form (in Million )
Note
= Value in USD x OER
- Convert all Value in USD to Local Currency
- Convert all value into Million unit = Original Value / 1,000,000
Q2: See Table 2: Financial Cash Flow Before Tax
Note
= Output price * ( 1 - Export Tax rate) * OER = 120 ( 1-0.15) * 5 = 510 $L/Tonne
- Derive Output Price after Tax
= Output price after Tax x Quantity Produced per Year = 510 $L/Tonne * 0.08 M tonne = 40.80 $L M
- Export Revenue ($L M)
= Imported Price ( 1 + Tarrif rate) * OER = 20 * 5 * (1+0.40) = 140 $L/Tonne
- Derive input price of Chemical fertilizer after Tarrif
= Imported Price after Tarrif x Quanity produced = 140 * 0.08 M tonne= 11.20 $L M
- Cost of purchase of Chemical fertilizer
= # of labor x Wage rate x 12 months = 0.0006 * 400*12= 2.88 $ LM
- Labor Cost per year
= Electricity Price per tonne x Quanitity Production = 20 * 0.08 M tonne = 1.6 $L M
- Non-trade (electricity)
= Investment Cost + Operating Cost
- Total Expenditure
= Land purchase + Equipment purchase = 450 +225 = 675 $ L M
Year 1
= Labor + Electricity + Fertilizer = 2.88+ 1.60+ 11.20 = 15.68 $ L M
Year 2 -19
= (Minus) Land Resales +(minus) Equipment Scrap value + Labor + Electricity + Fertilizer
Year 20
- Total Revenue (from year 2 to year 20)

- Project Net Benefit (Before Tax)
(Minus)Initial Land Price x (1 + 30%) + (minus)( Initial Equipment Price x 10%) + + Labor + Electricity + Fertilizer
=-[ (450 * 130%) + (225 * 10%)] + 2.88+ 1.60+ 11.20 = (Minus) 591.82 $L M
= Revenue from Sales (From year 2 to year 20) = 40.80 LM
= Total Revenue - Total Expediture
Q3: Calculate NPV at 3 %
20
=
=1
( )
(1 + )
Excel Formular : NPV (rate, NB1, NB2,....)

Refer to Table 2: NPV at 3% discount rate = 30.35 $ L Million
Q4- Project Acceptance based on NPV
Based on decision rule that the project should be accepted as long it generate positive profit with NPV >0
Thus, the project with NPV = 30.35 $L Millions should be selected
Page 10 of 11
Q5- Financial Cash Flow after Tax, see Table 3

- Total Benefit
= Sales revenue + Asset Sales

only Sales Revenue = 40.8 $ L M
ReSales of Land & Sales of Equipment (Excluded from Calculation because they are considered as scrap value
and therefore not subject to Tax)
- Operating Cost
- Interest payment
- Depreciation
- Taxable Income
- Year I
(From Table 2)
- Taxable Liability
- Year I
= taxable Income x Tax rate
- Net Benifit After Tax

- Year I
-In Year 20
= Net Benefit Before Tax(Table 2) - Taxliability
N/A
= (Price of asset - Scrap Value )/19 = (45-4.5)/19= 2,12 $LM
= Revenue - Operating Cost - Depreciation
No income yet
= 40.80 - 15.68- 10.66 = 14.46 $ LM
No tax
= 14.46 * 25% = 3.62$ LM
- 675 $ L M
= 25.12- 3,62 = 21.50 $ L M
= 632.62- 2.62= 629 $ LM

COTTON PRODUCTION

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COTTON PRODUCTION

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Sophea Ly (u5123854)

Agriculture Project: Cotton Production

Investment Cost (IC)- Year 1

Tarriff and subsidies and Others Tax

Income Tax rate

Table1.1: Project Parameter Table ( in Million and Local Currency)

Income Tax rate

Table 2: Finacial Analysis Table (Before Tax in $L Million)

Project Net Present Value- $ LM

Table 3: Financial Cash Flow After Tax in $L M

Explanation on Excel Spreedsheet

- Total Revenue (from year 2 to year 20)

Q3: Calculate NPV at 3 %

Excel Formular : NPV (rate, NB1, NB2,....)

Q5- Financial Cash Flow after Tax, see Table 3

= Sales revenue + Asset Sales

= taxable Income x Tax rate

- Net Benifit After Tax

= Net Benefit Before Tax(Table 2) - Taxliability

Agriculture Project: Cotton Production

Investment Cost (IC)- Year 1

Labor cost per annual ($ L M)

Table 2: Finacial Analysis Table (Before Tax in $L Million)

Project Net Present Value- $ LM

Social Discount rate

Table 2: Finacial Analysis Table (Before Tax in $L Million)

Project Net Present Value- $ LM

1) Second scenario could occur at Prob 0.3, price $3 per unit

Expeted Value of NPV

The project should be accepted

Agriculture Project: Cotton Production

Table1.1: Project Parameter Table ( in Million and Local Currency)

Table 2: Finacial Analysis Table (Before Tax in $L Million)

Tarriff and subsidies and Others Tax

Income Tax rate

Project Net Present Value- $ LM

Table 3: Financial Cash Flow After Tax in $L M

Explanation on Excel Spreedsheet

- Total Revenue (from year 2 to year 20)

Q3: Calculate NPV at 3 %

Excel Formular : NPV (rate, NB1, NB2,....)

Q5- Financial Cash Flow after Tax, see Table 3

= Sales revenue + Asset Sales

= taxable Income x Tax rate

- Net Benifit After Tax

= Net Benefit Before Tax(Table 2) - Taxliability

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