Anwal Gas Traders

Case Discussion and Analysis

Central Issue?
• The company is facing an LPG shortage due to
delays by the supplier, especially when demand is
high.
• Due to lack of enough storage, the company was
unable to meet consumer demand and was forced
to rely on its supplier, which had a bad impact on
the company's reputation and put future customers
at risk.
• Therefore, the company was debating whether to
invest in growth in February 2021.
 Other facts from the Case
Problem Statement
• Inadequate storage and higher operational costs

Scenario 1: Proposal from the manager (Base

Case)

Scenario 2: Changes in Tax and product Prices

Scenario 3: Changes in interest rate and working

capital
Scenario 1
In the proposal for the company to expand and
build new storage units, Malik Asad used his
university knowledge to forecast and estimate
the cash flows for the installation as well as
cash flows for the next 10 years of the project

Key ingredients for Decision:

• Future Cash-flows
• Riskiness associated with these cash flows
• Project life
Capital Budgeting Process
Current Financials Waterfall Chart
Processing • Basic Ingredients Details and numbers crunching

Numbers
Initial Investment, including Increase/Decrease in
WC (Rs) 9,51,00,000           Price 1%
WACC   14%           Increase in Cost 2%
Lifetime of the Investment (years)   20           Increase/Decrease in Sales Yearly 2%

Salvage Value at the End of the Project (Rs) 3,51,50,000           Monthly Sales (Rs) 17,680

Tax   29%           Annual Sales (Rs) 2,12,160

                Increase in Sales Yearly  

10 
 Project life             Price (Rs) 1,307

 
              Cost (Rs) 983
Conclusions
• All the capital budgeting techniques such as NPV,
IRR, PBP and PI recommends acceptance of the
project
• Positive NPV
• IRR> cost of capital
• PI>1
• PBP shorter
Thanks