National Institute of Fashion Technology, Chennai

Department of Fashion Management Studies

Finance for Executives
Assignment 2
Q1.

PAYBACK PERIOD-

This is referred to the period as when the amount you have invested would come back so as
to know whether our investment is in the right project or not. I will be using the manual
method to calculate payback period.

X MODEL- calculating the first 2 yr amount gives me the value 2,25,000. I am now left with
75.000 to complete my investment amount which is 3,00,000 so I will use unitary method to
calculate the time in which the balance 75,000 would be returned-

1/75,000= 1.4

So it takes 1.4 months to return back the balance 75,000.

So the total payback period is 2 years and 1.4 months.

Similarly for Y MODEL- the payback period is 2 years and 5.5 months.

Lesser payback period means greater safe investment so here X

MODEL is much safer in comparision to Y MODEL.

RETURN ON INVESTMENT-

ROI= {cash you get/cash you put in}per year OR profit/ investment per year

X MODEL= taking the average of the 5 years we are getting, 1,12,400/3,00,000= 0.4

Y MODEL- 6,00,000/3,00,000 = 2

A high ROI means the investment's gains compare favourably to its cost. So here Y model is
at par.

NET PRESENT VALUE-

Net present value (NPV) is the difference between the present value of cash inflows and the
present value of cash outflows over a period of time. So we need to find the present value of
all the years at first, whose formula is
n
Present value = Future value / (1+r)

Here, r = discount rate/expected return etc.

n = no of years.

X MODEL- Calculating the present value for every year-

Year 1- 90,000/ 1.10 = 81,818

Year 2- 1,35,000/ 1.21 = 1,11,570

Year 3- 1,50,000/ 1.331 = 1,12,697

Year 4- 1,12,000/ 1.46 = 76,712

Year 5- 75,000/1.6 = 48,875

Now adding all the present values and subtracting it from our investment amount we get,
4,29,627- 3,00,000 = 1,29,672 approx.

Similarly, for the Y MODEL,

Year 1 = 54,545

Year 2 = 99,173

Year 3 = 1,35,236

Year 4 = 92,465

Year 5 = 65,625

Calculating the net present value = 4,47,044- 3,00,000 = 1,47,044 approx.

NPV is positive, that means that the value of the revenues (cash inflows) is greater than
the costs (cash outflows).
Q2.
Q3. Summarize and analyze a Case Study on Financial Decisions made by
a company.
The following case study would be a comparison of two leading cement companies(ACC &
Ultra Tech) so as to have an ideal analysis from the data acquired.

ACC (ACC Limited) is India's foremost manufacturer of cement and concrete. ACC's
operations are spread throughout the country with 17 modern cement factories, more than 50
Ready mix concrete plants, 21 sales offices, and several zonal offices. It has a workforce of
about 9,000 persons and a countrywide distribution network of over 9,000 dealers. Since
inception in 1936, the company has been a trendsetter and important benchmark for the
cement industry in many areas of cement and concrete technology.
Ultratech Cement Ltd. is the largest manufacturer of grey cement, Ready Mix Concrete
(RMC) and white cement in India. It is also one of the leading cement producers globally.
The company has an installed capacity of 1064 Million Tonnes Per Annum (MTPA) of grey
cement. Ultratech Cement has 12 integrated plants, 1 clinkerisation plant, 16 grinding units
and 6 bulk terminals. Its operations span across India, UAE, Bahrain, Bangladesh and Sri
Lanka.
ANALYSIS:
The overall analysis of the study states that the capital structure of all the companies is
consisting of equity funds and debt funds As far as the equity capital is concern, the ACC Ltd
and Ultra Tech both of the companies are increasing their equity capital every year at a
consistent growth rate, whereas the Ultratech cement ltd made the tremendous growth in the
equity financing over the period of time under study. In Ultratech cement, the growth rate of
equity financing in the end of the period under study is double than the growth rate of debt
financing. Similarly, in case of debt financing pattern of the companies, there is great
fluctuation over the period of time, but the overall trend in debt financing of all the
companies is shrinking for the period under study except the Ultratech cement Ltd, which
increase the use of debt financing in its capital structure in the study.