Anarcon India: Project and Planning

By Chetan panara Ram Chaudhary Yashir Momin Dinesh Moyal

Problems in case
There are 4 Big problem in case. • Weak project structure Top Management was unaware about the problem Only one manager in project • Land acquisition process project have no Pre monsoon plan Project have scheduled in such manner

• Eraction problem • Transportation

Cost Benefit Analysis
• if the project is not finish on 30th sep.2003. On that condition client does not get benefit from 600million project.

• • • • • • •

Depreciation benefit(600-180/2) Corporate tax benefit at 30% Wind power benefit (1.4million *5 Rs. Per unit)

=240 million =180 million =7 million

Total

=427 million

Mathematical equation of the case
• Total investment for purchasing the crane 31,150,000

(Addition of total landed cost of Rs 31,650,000 and provision for spares inventory @ 5 % of the landed cost)
Annual cost of operating demag 665 crane Annual cost of hiring an equivalent crane from the market Annual saving by Enercon owning the crane

(31.15million)

• • •

Interest payable on capital borrowings

7,606,000 15,600,000 7,994,000 (8.00million) 14 % per annum

Additional Assumptions required for Calculations Operating life for a crane Salvage value at the end of operating life

10 years Rs 6.23 million

• • • • •

( 20 % of original investment of Rs 31.15 million) Equity-Debt ratio for project financing 60 : 40 Return expected by Enercon on its own equity 20 % per annum Net total taxation rate applicable to Enercon Depreciation provision 33 % on incremental profits on straight line basis

• •

Average Return on Investment (ROI) Annual savings by Enercon owning the crane Return on investment (PBDIT)

Rs 8.00 million 31 %

• •

Pay-back Period for Investment Annual cash-flow (before depreciation) Pay-back period for investment (31.15 /8.00 )

Rs 8.00 million 3.9 years

Net Present Value Calculation of Weighted Average Return on Capital (WACC) Post-tax cost of project term borrowings with 33 % income tax and 14 % market interest rate on 40 % project cost (= 0.40 x 14 x 0.67) 3.75 % per annum

Cost of expected return on equity investment on 60 % of Project cost at 20 % per annum return on equity

12.00 % per annum

• Total weighted average cost of capital (WACC) per annum

15.8 %

Net Present Value (Considering 20% salvaged value of investment at end of 10th year) Rs 40.4 million • Internal Rate of Return (IRR) 23% Based on all the four criteria considered, it is clear that owning a 220 tonne crane is an attractive proposition. Hence, Enercon should own at least one such crane initially.

WBS
• • • • • • • • • • • • • Land identification and acquisition Micrositing and planning Approach road formation Foundation casting WEC delivery Tower delivery Blades delivery Machine eraction 11 KV overhead line Pre-commissioning of WEC VCB and metering yard construction VCB and 11kv line charging Commissioning

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