Financial Viability in Capital Budgeting – Case for EXCEL application.

Maruti Suzuki Limited intends to set up a new car manufacturing unit in Gujarat. You have been
asked to prepare a financial plan for 12 years and also inform the management about whether
the project is viable or not.
While doing so you have to prepare the following financial statement for 12 years..
a) Profit & Loss Statement
b) Balance Sheet
c) Cash Flow Statement
d) Relevant Ratios (Ratio Analysis)
e) Project IRR
f) Equity IRR
Also prepare supporting spreadsheets.
You are given the following inputs:
1. Basic Project cost is Rs. 5000 crores.(excluding IDC).
2. Construction period is two years, 60% is completed in the first year and 40% in the second
year.
3. Breakup of Rs. 5000 crores:
Rs. SLM
Particulars / Assets (in crores) Depreciation

Land 350

Plant & Machinery 4000 10%

Buildings 200 5%

Other Civil Works (Roads etc.) 250 5%

Office equipment’s (Furniture) 100 10%

Electrical Works 100 10%

Total 5000

4. Installed capacity of the plant is 5,00,000 cars per annum. Assume a single model is
manufactured.
5. The project is financed by 40% of debt and 60% of equity. The debt portion is to be repaid
in 10 equated annual installments. In the first two years during the construction period, there is a
moratorium for repayment of principal and interest. However, interest continues to accrue during
the moratorium period. Interest rate on debt is fixed at 10% per annum.

6. Cost of Equity = 20%.

7. Considering the demand in the market in the 3rd year, which is the first year of production
the company is able to manufacture 60% of its capacity. Thereafter in each year the company is
able to ramp up its production by 20% of its capacity, till it reaches peak capacity.
At the end of each year the company has one month finished goods as inventory.

8. Initial selling price is Rs. 10,00,000 per car. The company increases the selling price by
10% every two years.

9. The major component of cost is direct material, which in the first year is Rs. 7,00,000 per
vehicle. Inflation on material cost is 5% per annum.

10. Other direct Factory expenses excluding depreciation, 5% of material cost.

11. Factory overheads = 5% of ( material cost + other direct factory expenses + depreciation).

12. Cost of Production = Material cost + Other direct factory expenses + Factory overheads +
Depreciation

13. Administrative overheads are 20 % of Factory overheads.

14. Cost of Production, is used to value finished goods inventory. (Assume no raw material and
WIP)

15. Creditors for supply of material are 15 days of material cost.

16. The company exports 5000 cars every month out of which 50% is sold in the United States
and balance 50% is sold in the Eurozone. The current exchange rate are:
1 USD = Rs. 60, 1 Euro = Rs. 80.The USD is expected to appreciate by 2% per
annum and Euro is expected to appreciate by 3% per annum.

17. The selling price of the vehicles to USA is $ 15,000 and to Eurozone is Euro 11,000. The
company grants 3 months credit to export customers based on L/C.

18. 5% of domestic sales are to institutional customers, to whom the company grants 2 months
credit.

19. Tax rate is 30% of profit before tax. (Tax depreciation ignored for simplicity)

20. Assume Terminal Value is zero.

21. Use “Goal Seek” function in excel to make decisions.