NOD Co a franchise of Dr.

Reddyy pharmacy, sells 250 strips/day of low budget drugs at an average contribution of Rs
Sales volume and average price are expected to grow by 5% every year for both the drugs
To operate a franchise , it needs to have a 1250 sqft space for retail shop with a lease rental of Rs.175 / sqft / month (re
A one time renovation of the premises worth Rs.30,00,000 will need to be incurred at the start. Required personnel cos
Wage inflation in the economy is 8%. Other operational expenses are expected to be 30% of the contribution, generate
Tax rate in the economy is 35%. Tax losses cannot be carried forward
The initial investment (deposit + renovation) can be funded by 60% bank loan (@13% interest rate). The remaining sho
Other investment opportunity with NOD Co. is expected to provide a return of 25%
Evaluate the business opportunity with a project life of 5 years
After 5 years the franchise will be handed over to Dr. Reddyy and the deposit will be refunded to the NOD Co.(Ignore d
 rage contribution of Rs.40/ strip and 150 strips/day of high budget drugs at an average contribution of Rs.70/ strip

Rs.175 / sqft / month (rental contract for 5 years, deposit of Rs.15,00,000 at the start)
Required personnel costs are Rs 125,000/month
contribution, generated for the period

ate). The remaining should be funded using equity. The debt is to be repaid at the end of 5 years in lump sum

o the NOD Co.(Ignore depreciation) If NOD Co. invests in the project, what is the expected IRR?
 Chart Title
1200

1000

800

600

400

200

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
 Year-0 Year-1 Year-2 Year-3 Year-4 Year-5
Sales Volume (Strips/Day)
Low Budge 250 5% qty sold 250 262.50 275.63 289.41 303.88
High Budg 150 5% 150 157.50 165.38 173.64 182.33

commission (Rs./Strip)
Low Budge 40 5% sp 40 42.00 44.10 46.31 48.62
High Budg 70 5% 70 73.50 77.18 81.03 85.09

Annual Sales 365 7,482,500 8,249,456 9,095,026 10,027,266 11,055,060

Rent E 12 1250 175 2,625,000 2,625,000 2,625,000 2,625,000 2,625,000

Salarie 12 125000 8% 1,500,000 1,620,000 1,749,600 1,889,568 2,040,733
Other Expenses 26% 1,945,450 2,144,859 2,364,707 2,607,089 2,874,316
Interest Expense 13% 345,150 345,150 345,150 345,150 345,150
PBT 1,066,900 1,514,448 2,010,569 2,560,459 3,169,861
Tax Expense 35% 373,415 530,057 703,699 896,160 1,109,451
PAT 693,485 984,391 1,306,870 1,664,298 2,060,410

Cash Flow Calculations

Initial Investment (4,500,000) <==

Debt Raised 2,655,000
Debt Repaid (2,655,000)
Deposit Refund 1,500,000
PAT 693,485 984,391 1,306,870 1,664,298 2,060,410
Total Cash Flow (1,845,000) 693,485 984,391 1,306,870 1,664,298 905,410

IRR 46.44% good investment as IRR > Cost of Capital

opportunity 15.0%

operational sensitivity
% growth in sales volume
46.44% 3% 4.00% 5% 6% 7%
300 -49% -12% -4% 3% 8%
310 -8% 0% 6% 11% 16%
320 4% 10% 15% 19% 23%
workdays
330 13% 18% 23% 27% 30%
/yr
340 21% 26% 30% 33% 37%
350 29% 33% 37% 40% 43%
365 40% 43% 46% 50% 53%

0 1 2 3
-100 -10 -10 -10
irr Err:523 irr > coc
coc 20%

financing sensitivity
 interest rate %
46.44% 11% 12.00% 13% 14% 15% <== LOW IMPACT ON IRR
0% 23% 23% 23% 23% 23%
15% 26% 26% 26% 26% 26%
30% 31% 30% 30% 30% 30%
% debt 45% 37% 37% 36% 36% 35%
60% 49% 48% 47% 46% 45%
75% 75% 73% 71% 69% 68%
90% 169% 164% 159% 153% 148%

DEBT = RISK
RISK ==> MORE RETURNS
LEVERAGE
 LL UL RANDOM
Volume Gr 2 8 5%
OPEX % 25 30 26% <==
Debt % 20 70 59%
Deposit 1,500,000
Rennovation 3,000,000 WHAT IS THE PROB THAT PROJECT BEATS THE COST OF CAPIT
Initial Invest 4,500,000

Debt 2,655,000 59% 46.4% MEAN 46%

Equity 1,845,000 1 46.4% SD 0%
2 46.4% MAX 46%
Debt is to be repaid at end of 5 years 3 46.4% MIN 46%
4 46.4%
5 46.4% 10% 0
6 46.4% 15% 0
7 46.4% 20% 0
8 46.4% 25% 0
9 46.4% 30% 0
10 46.4% 35% 0
11 46.4% 40% 0
12 46.4% 45% 0
13 46.4% 50% 1000
14 46.4% 55% 0
15 46.4% 60% 0
16 46.4% 65% 0
17 46.4% 70% 0
18 46.4% 75% 0
19 46.4% 80% 0
20 46.4%
21 46.4%
22 46.4%
23 46.4%
24 46.4%
25 46.4%
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35 46.4%
36 46.4%
37 46.4%
38 46.4%
39 46.4%
40 46.4%
41 46.4%
42 46.4%
43 46.4%
 44 46.4%
= LOW IMPACT ON IRR 45 46.4%
46 46.4%
47 46.4%
48 46.4%
49 46.4%
50 46.4%
51 46.4%
52 46.4%
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 97 46.4%
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150 46.4%
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200 46.4%
201 46.4%
202 46.4%
203 46.4%
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255 46.4%
256 46.4%
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259 46.4%
260 46.4%
261 46.4%
262 46.4%
263 46.4%
264 46.4%
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268 46.4%
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270 46.4%
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272 46.4%
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275 46.4%
276 46.4%
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280 46.4%
281 46.4%
282 46.4%
283 46.4%
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292 46.4%
293 46.4%
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297 46.4%
298 46.4%
299 46.4%
300 46.4%
301 46.4%
302 46.4%
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304 46.4%
305 46.4%
306 46.4%
307 46.4%
308 46.4%
309 46.4%
310 46.4%
311 46.4%
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314 46.4%
315 46.4%
316 46.4%
317 46.4%
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324 46.4%
325 46.4%
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327 46.4%
328 46.4%
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333 46.4%
334 46.4%
335 46.4%
336 46.4%
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340 46.4%
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342 46.4%
343 46.4%
344 46.4%
345 46.4%
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350 46.4%
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352 46.4%
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362 46.4%
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384 46.4%
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399 46.4%
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402 46.4%
403 46.4%
404 46.4%
405 46.4%
406 46.4%
407 46.4%
408 46.4%
409 46.4%
410 46.4%
411 46.4%
412 46.4%
413 46.4%
414 46.4%
415 46.4%
416 46.4%
417 46.4%
418 46.4%
419 46.4%
420 46.4%
421 46.4%
422 46.4%
423 46.4%
424 46.4%
425 46.4%
426 46.4%
427 46.4%
428 46.4%
429 46.4%
430 46.4%
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435 46.4%
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446 46.4%
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450 46.4%
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459 46.4%
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468 46.4%
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521 46.4%
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568 46.4%
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572 46.4%
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574 46.4%
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619 46.4%
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627 46.4%
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680 46.4%
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731 46.4%
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733 46.4%
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786 46.4%
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825 46.4%
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830 46.4%
831 46.4%
832 46.4%
833 46.4%
834 46.4%
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838 46.4%
839 46.4%
840 46.4%
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864 46.4%
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892 46.4%
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904 46.4%
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945 46.4%
946 46.4%
947 46.4%
948 46.4%
949 46.4%
950 46.4%
951 46.4%
952 46.4%
953 46.4%
954 46.4%
955 46.4%
956 46.4%
957 46.4%
958 46.4%
959 46.4%
960 46.4%
961 46.4%
962 46.4%
963 46.4%
964 46.4%
965 46.4%
966 46.4%
967 46.4%
968 46.4%
969 46.4%
970 46.4%
971 46.4%
972 46.4%
973 46.4%
974 46.4%
975 46.4%
976 46.4%
977 46.4%
978 46.4%
979 46.4%
980 46.4%
981 46.4%
982 46.4%
983 46.4%
984 46.4%
985 46.4%
986 46.4%
987 46.4%
988 46.4%
989 46.4%
990 46.4%
991 46.4%
992 46.4%
993 46.4%
994 46.4%
995 46.4%
996 46.4%
997 46.4%
998 46.4%
999 46.4%
TS THE COST OF CAPITAL OF 15%

Z VALUE #DIV/0!

REJ PROB #DIV/0!

ACCEPT P #DIV/0!