Union Bank of India, Knowledge Centre, Bengaluru

Agr. Project finance - Exercise

Project Analysis
Anagriculture project with initial investment costs is Rs.15,00,000/
Tt generates year end cash inflows of Rs. 3,75,000/-, Rs.6,00,000/-, Rs.6,00,000/
Rs.7,50,000/- and Rs.7,50,000/- in 5 years.
Ihe borrower is ready to contribute 25% of total investment outlay and requested for balance
757% from your Bank as a loan. Due diligence of the borrower, guarantor and property are
satisfactory. The activity is technically feasible with sufficient backward and forward
linkages. Branch is ready to sanction aloan of 75% of the project cost with an interest @ 12%
p.a. which is repayable in 5 yearly installments with accrued interest. The opportunity cost of
beneficiary's margin is 15% p.a.
The Discounting Factor table is provided below
DISCOUNd TABLE
YEAR DISCOUNT FACTOR-HOWN MäCH 1AT A
FUTURE DATE IS WORTH TODAY
15% 20%1 25% 30% 35%| 40% 45% 50%
1 0.869565 0.833333 0.800000 0.769231 0.740741 0.714286 0.689655 0.666667
0.756144 6.694444 0.640000}.. 0.591716 Li.0.548697 0.510204 0.475624 0.444444
3 0.657516 0.578704 0.512000.d455466| 0.364431 0.328017 0.296296.
6.`71753 0.482253 0.409600 0.350128 0.301068 0.260308 0.226218 0.19753
5 0.49717T 0.401878 0.327680 0.269329 0.223014 0.185934 0.156013 0.131687
0.432328 0.334898 0.262144 0.207176 0.165195 0.132810 0.107595 0.087791
0.375937 0.279082 0.209715 0.159366 -0.122367 0.094865! 0.074203 0,058528
0.326902 0.232568 0.167772 0,122589 .0.09b642 0.067760o 0.05117S 0.039018
0.284262 0.193807 0.134218 0.094300 0.067142 0,048400 0.035293 0.026012
10 "0.247185 0.161506 0.107374 0.072538 .049735 0.034572 0.024340| 0.017342

Work out the Cost of Capital (COC), Net present Value (NPV), Benefit Cost Ratio (BC Ratio),
Internal Rate of Return (RR) and Debt Service Coverage Ratio (DSCR)

1. Cost of Capital = (Margin proportion xopportunitycost) + (Loan proportion XLoan Interest)

2. Calculation of NPV
Year Cash Inflow Discounting Factor®15% Present Value Rs.
2
mt N

Total
Less Investment outlay
Net Present Value
 Union Bank of India, Knowledge Centre, Bengaluru
Agr. Project finance -Exercise

Benefit Cost Ratio

BCR = Present value of benefits
Present value of Costs

3. Internal Rate of Return

IRR = Lower discount rate + [difference between NPV at lower discount rate
two disCount rates X Absolute difference between
NPVs at two discount rates]
Year Cash inflow DF@20% PV Rs. DF@25% PV Rs. DF 30% PV Rs.
1

2
3
4

Total
Less
investment
outlay
NPV

IRR =

4. DSCR = Profit after tax + depreciation + Interest on loan

Interest on loan + installment of loan

Year Loan at the Principal Interest Cash Profit DSCR

beginning of year repayment @12% inflow
1

4
5
Average DSCR