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Financial Management

Mr. Shiv Sawhney took out a loan to purchase a luxury coach for his new travel agency business. He projected revenues and costs over 5 years based on occupancy and expenses. The exhibits show estimates of revenue, costs, profits, and loan repayment over 5 years. While Mr. Sawhney was happy with projected profits of over Rs. 2.6 lakh after 5 years, the assistant needs to validate the calculations and determine if the project should be accepted.

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784 views

Financial Management

Mr. Shiv Sawhney took out a loan to purchase a luxury coach for his new travel agency business. He projected revenues and costs over 5 years based on occupancy and expenses. The exhibits show estimates of revenue, costs, profits, and loan repayment over 5 years. While Mr. Sawhney was happy with projected profits of over Rs. 2.6 lakh after 5 years, the assistant needs to validate the calculations and determine if the project should be accepted.

Uploaded by

jakhmikuta
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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Financial Management

SITUATION BASED CASE STUDY- 3

AGRA TRAVEL AGENCY

Mr. Shiv Sawhney planned to operate a Travel Agency, for which his first step was to
purchase a luxury coach, he named his travel agency as “Agra tour and travel” for which
he needed Rs.10 lakh. He took a loan of Rs. 6 lakh and financed 4 lakh from his pocket.
He had invested this 4 lakh in a bank account on which he was receiving interest @10%

The salvage value that the Bus will fetch after the useful life of 5 years
is expected to be Rs 2.5 lakh.

His assumptions regarding the occupancy of the Bus and cost are given in the Exhibit 1 to
4, which you have to assume to be correct.

Exhibit –1

Agra Tours and Travels ( cost Estimation)


Fuel oil Advertisemen Depreciatio Total
Year greese Repairs t Wages Bonus Other n Cost
60,00 2,00 5,00 2,50 16,00 150,00
1 0 0 30,000 0 0 0 0 265,500
80,00 2,00 6,00 2,60 16,00 150,00
2 0 0 30,000 0 0 0 0 286,600
90,00 2,00 7,00 2,70 16,00 150,00
3 0 0 10,000 0 0 0 0 277,700
110,00 3,00 8,00 2,80 16,00 150,00
4 0 0 10,000 0 0 0 0 299,800
120,00 3,00 9,00 2,90 16,00 150,00
5 0 0 5,000 0 0 0 0 305,900

Exhibit-2
Loan Amortization Schedule
Year int. principle
ending loan taken repaid repaid repaid balance
600,000. 166,446. 72,000. 94,446.
1 0 0 0 0 505,554.0
505,554. 166,446. 60,666. 105,779.
2 0 0 5 5 399,774.5
399,774. 166,446. 47,972. 118,473.
3 5 0 9 1 281,301.4
4 281,301. 166,446. 33,756. 132,689. 148,611.6

1
4 0 2 8
148,611. 166,446. 17,833. 148,612.
5 6 0 4 6 -

Exhibit-3

Estimated profit
Revenue Cost PBIT Interest PBT Tax PAT
300,000.0 265,500.0 34,500.0 72,000.0 -37500 - -37500
330,000.0 286,600.0 43,400.0 60,666.5 -17266.48 - -17266.48
390,000.0 277,700.0 112,300.0 47,972.9 64,327.1 22,514.5 41,812.6
390,000.0 299,800.0 90,200.0 33,756.2 56,443.8 19,755.3 36,688.5
390,000.0 305,900.0 84,100.0 17,833.4 66,266.6 23,193.3 43,073.3

Exhibit-4
Estimated profit
Revenue Cost PBIT Interest PBT Tax PAT
300,000.0 265,500.0 34,500.0 72,000.0 -37500 - -37500
330,000.0 286,600.0 43,400.0 60,666.5 -17266.48 - -17266.48
390,000.0 277,700.0 112,300.0 47,972.9 64,327.1 22,514.5 41,812.6
390,000.0 299,800.0 90,200.0 33,756.2 56,443.8 19,755.3 36,688.5
390,000.0 305,900.0 84,100.0 17,833.4 66,266.6 23,193.3 43,073.3

Mr Shiv Sawhney, was very happy that after 5 years after paying the bank loan, he will
be left with more than 2.6 lakh.
1. Do you agree with the calculation that he has made? If not then where has he
committed a mistake?
2. Had you been in his place would you accept the project?
3. If not, than work out your calculations?
4. What will be the appropriate discount rate that you will like to use?

2
3

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