The total outlay on a project being considered by a firm is expected to be Rs.320 lakh. The project will be financed as follows: Rs. 80 lakh of equity, Rs.150 lakh of term loans, Rs. Lakh of non-convertible debentures and short-term bank finance. The term loan has to be repaid in three equal installments of Rs. Lakh each at the end of the 3rd, 4th and 5th years.
The total outlay on a project being considered by a firm is expected to be Rs.320 lakh. The project will be financed as follows: Rs. 80 lakh of equity, Rs.150 lakh of term loans, Rs. Lakh of non-convertible debentures and short-term bank finance. The term loan has to be repaid in three equal installments of Rs. Lakh each at the end of the 3rd, 4th and 5th years.
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The total outlay on a project being considered by a firm is expected to be Rs.320 lakh. The project will be financed as follows: Rs. 80 lakh of equity, Rs.150 lakh of term loans, Rs. Lakh of non-convertible debentures and short-term bank finance. The term loan has to be repaid in three equal installments of Rs. Lakh each at the end of the 3rd, 4th and 5th years.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online from Scribd
Appraisal Criteria (Problem)
The total outlay on a project being considered by a firm is expected to be
Rs.320 lakh, consisting of Rs.240 lakh of fixed assets and Rs.80 lakh of
current assets.
The project will be financed as follows:
Rs. 80 lakh of equity, Rs.150 lakh of term loans, Rs.50 lakh of non-convertible
debentures, and Rs.40 lakh of short-term bank finance.
The term loan has to be repaid in three equal installments of Rs.50 lakh each
at the end of the 3rd, 4th and 5th years. The interest on the outstanding
amount will be 20 percent. The non-convertible debentures carry an interest
rate of 15 percent and will be redeemed at the end of the 5th year. The level of
short-term bank finance will remain at Rs.40 lakh and will be paid back at the
end of the 5th year. The interest rate on short-term bank finance will be 18
percent. The project will have a life of five years. The expected sales from the
project will be Rs.240 lakh per year. The operating costs excluding
depreciation will be Rs.100 lakh per year. The depreciation rate on fixed
assets will be 25 percent as per the written down value method.
The net salvage value of fixed and current assets will be equal to their book
values. The corporate income tax is 34 percent. The cost of equity may be
assumed to be 25 percent.Required:
a. Compute the annual cash flows of the project
1. From total funds point of view
2. From long-term funds point of view
3. From equity point of view.
b. Calculate the NPV of the project from total funds
point of view.
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