INDEPENDENT UNIVERSITY, BANGLADESH

Final Assignment

Dhaka – Khulna routes’ investment decision based on their financial outcomes

Spring– 2021

Course: MBA 511 (Financial Management)

Submitted to:

Dr. Sarwar Uddin Ahmed

Professor
Department of Finance,
School of Business & Entrepreneurship

Submitted By:

Group Name- Sparkle

Group members name ID

1. Saima Mostafa Anni 2021653

2. TanniBarua 1930978

3. SangidaAkterSnigdha 1810523

4. Fatema Sharmin 2022916

Date of submission: 28th April 2021

1
 Table of Contents

Introduction…………………………………………………………………………………..3

QA 1: Industry Analysis

Industry Analysis of Airline Service………………………………………………………..4

Industry Analysis of Helicopter Service…………………………………………………….5

Industry Analysis of Launch Service………………………………………………………..6

Industry Analysis of Bus Service……………………………………………………………7

QA 2: Specific Cost Calculation of Financing Sources……………………………………..8

QA 3: Weighted Average Cost of Capital Calculation……………………………………..8

Payback period, Net Present Value, Internal Rate of Return and Profitability

Index calculations……………………………………………………………………………..9

QA 5: Best Alternative Transport Service………………………………………………….10

References…………………………………………………………………………………….11

Appendix………………………………………………………………………………...…12-21

2
Introduction

An efficient transport Industry is essential for promoting economic development. It is a significant part
of Bangladesh's economy and its growing day by day. Transport industry in Bangladesh comprises a
number of distinct modes and services, notably railways, roads, road transport, ports, Launch, coastal
shipping, airports and airlines etc. Bangladesh witnessed rapid growth of transport sector since
independence. The overall annual growth rate was nearly 8.2 percent for freight transport and 8.4
percent for passenger transport. However, roads and inland water transport are the dominant means of
transport carrying more than 90% of total traffic generated in the country and will continue to dominate
the transport landscape in the foreseeable future. Public sector is mainly responsible for development
and maintenance of transport infrastructure in Bangladesh.

Khulna is one of the major divisional cities of Bangladesh. It is the 3rd largest city with a population of
1.5 million after Dhaka and Chattogram situated in the south-western region of the country. The city is
around 45 square kilometers in area and situated along river Bhairab. The railway line and National
Highway in parallel to river act as the spine of urban development in the city. These give the city a
linear form. Major urban development took place along this road network. Later several major roads
were constructed (as ring road) and together form the arterial road network of the city. There are many
different types of mills and industry builds up in Khulna. These mills and industry play important roles
in Bangladesh economy. Everyday lots of people visit Khulna from Dhaka. Khulna transportation
facility is also good. Different types of transport like bus, launch, air, train and helicopter etc. are used
to transport from Dhaka to Khulna. World largest mangrove forest Sundarban is in Khulna. Everyday
different types of local people and foreigner visit Sundarban in different transport. Sundarban is very
attractive place for every people. So here many people try to invest transport business here. It's a very
profitable business here. For this reason, here this project we try to analysis about Air, Helicopter, Bus
and launch transportation business profitability, loss and all other data.

Different types of transport service for Dhaka to Khulna

3
 Section 1: Industry Analysis

Industry Analysis of Airline Service

After the world war, government build an airport in Tejgaon. Orient Airways used for this airport for
civil flights. The first civil flight was operated from Tejgaon airport by Captain A Rahim with a Cessna
150 in 1 January 1972. Nine days later, the first international flight was departed from Independent
Bangladesh to Calcutta with a Douglas DC-3 which crashed killing the whole crew. Later, Bangladesh
Biman Airlines was established. It was a fully state-owned independent country’s first commercial
passenger airline and a monopoly for 20 years until other competitors arrived.

The present situation of Airlines industry is going through many ups and downs due to the global
pandemic COVID-19. There have been travel restrictions in both domestic and international flights and
the demand is very low. Thousands of flights were can cancelled and still this uncertainty has put the
airlines industry in a vulnerable state. This crisis brought huge loss to airlines industries. Owners have
been worried about managing their business along with bearing all the cost associated with it. Airlines
industry was getting started again with all the precautions needed but as the number of cases rose
again, there has been a lockdown since 14th April.

The major players of this sector are:

• Biman Bangladesh Airlines
• NOVOAIR
• US Bangla Airlines
• Regent Airways

Due to the pandemic, the airlines industries in the whole world are affected. The uncertainty caused
flight suspension of both domestic and international flights and reduced demand as a result a huge
decline in sales turnover. Even the market players were affected. Biman Bangladesh has lost more than
Tk 2.35 billion, US Bangla Airlines Tk 2.5 billion and NovoAir Tk 320 million and Regent Airways
Tk 600 million.

Despite the Pandemic in 2020, NOVOAIR has distributed food among 2000 distressed people on the
occasion of Eid-ul-Fitr in Uttara.

4
 Industry Analysis of Helicopter Service

Using helicopters for commuting is not about luxury or showing off any more. Travel by helicopter is
much easier and comfortable. Affluent people, mostly business persons, corporate executives, political
persons, film and sports stars, foreign buyers and foreign tourists are now opting for chopper services
to avoid the time-consuming road transports. South Asian Airlines first introduced commercial
helicopter services in 1999 with two helicopters. At present, 11 companies commercially operate with
about 25 helicopters, using them for both personal and commercial purposes.

Now a days, Aviation business in Bangladesh passes a great time. In this pandemic time public
transport is not safe. So many people use helicopter for their personal and official task. Some helicopter
operators also provide air-ambulance service for emergency evacuation of critically ill patients from
one part of the country to other. But the main problem is its high cost. So, everyone cannot afford it.
The rent ranges between Tk. 70,000 and Tk. 170,000 for each hour of flight while the waiting charge is
Tk7, 000 for each hour depending on the number of seats. Customers have to pay 15% VAT. In this
pandemic situation; maintenance cost of helicopter also increased. Lack of helipad is the other problem.
If government pays attention in this sector and make a policy for all aviation company that will be good
for the future.

Different types of Aviation Company run their business in this sector. The major players of this sector
are:
• Helicopter Bangladesh
• BRB Air Limited
• Square Air Limited
• Impress Aviation Limited
• Blue fighting aviation
• R&R Aviation

The annual turnover is estimated to be of the helicopter industry of Bangladesh is around US $2.3 to
US $2.5 million in three years. Though it is a new trend in the industry of transportation, it has gained
the capability of peak the growth with future services.

Industry Analysis of Launch Service

The river network of Bangladesh as the most important transport artery in the country's communication
sector plays a vital role in national life. The river network in Bangladesh is 14,000km long and contains
700 rivers. The rivers were the main way of movement for people and cargoes before road and rail
transport. The water Transport industry plays an important role in the transportation of import and
export items through the ports of Chittagong and Mongla. These two Sea Ports nearly established in the

5
coastal 6 belt of Bangladesh. These Ports are keeping sea communication between Bangladesh and
other parts of the world.

Launch service in Bangladesh is a big industry as it is a riverine country and many of its villages are
connected with rivers only. The Bangladesh Inland Water Transport Corporation (BIWTC) is providing
an erratic boat service between Dhaka and Khulna. Officially, the service is insured 6 days a week. In
fact, the departures depend on the water level, the season, the state of the boats. They relaunched their
service on 2016 and named it as Rocket. The most popular steamer service of the BIWTC was
discontinued on October 2, 2011 as Mongla- Ghasiakhali channel lost navigability. This service is open
for all. The launch usually departs from Dhaka at 6:30pm and gets to Khulna next day at 8:30pm. This
launch service is widely famous over the country and specially to the Sundarban’s tourists. It can also
be said that because of the Sundarbans being one of the greatest tourist spots this rocket service is
phenomenally famous for Dhaka to Khulna river route.

Rocket is the generic name that is given to special Paddle Steamer from the colonial period that runs
daily between Dhaka and Khulna. Rocket is the most famous transportation for this route which is
provided by the BIWTC and currently it is the only way open for the general people to travel to
Khulna. BIWTC is running five rocket services on Dhaka-Morolganj route besides operating ferry
services across the country and running some water services on different routes. They have launched
like: Shundarban 9, M. V. Bangali, P.S. Tern, P.S. Ostrich and Surovi 8. This Paddle steamer named
Rocket runs on our rivers on a daily basis. There are some major players in this industry are:

• Karnaphuli
• Sundarban
• Green Line
• Surovi etc.

The government-owned Bangladesh Inland Water Transport Corporation (BIWTC). Rivers, streams,
and canals together cover 7.0 per cent of the total surface i.e., about 24 thousand kilometers of
Bangladesh. The revenue income of BIWTC may be decreased after the inauguration of Padma Bridge
on the river Padma, the prime ferry route of the state-run waterways. The authority has been finding out
alternate ferry routes to minimize the revenue losses. Being a government organization, they do not
publish their profitability or sustainability. But the ferry service is still profitable by carrying so far
7000 to 8000 vehicles in every day for the five channels in Padma and Meghna rivers. The government
planned to earn Tk 19 crore revenue every year against Tk 12 crore spending every year from the two
vessels. Estimating a net profit of about Tk 7 crore a year.

6
 Industry Analysis of Bus Service

The capital city of Bangladesh, Dhaka currently has a population of over 14.8 million people and about
30 million trips are made per day here to meet the daily needs of these people. Amongst other modes,
bus is the most common and the only majorly available public transportation system to cater this
number of trips. The Bangladesh Road Transport Corporation (BRTC) is the only public transport
service provider in the country, established under the Bangladesh Road Transport Corporation
Ordinance of 1961. It provides bus services that are international, intercity and intra-city. Dhaka based
public bus services include both double decker and single decker buses and also exclusive services for
women, employees and students.

Though the bus services carry about 47% of the total trips and 70% of the motorized trips, the services
in Dhaka City are unorganized, ill – disciplined and mostly fragmented and needs a lot of
improvement.

Present Bus operation in Dhaka city is deteriorating day by day. In the prevailing situation, Bus
business in Dhaka city is not profitable. As result, number of bus is not increasing as desired rather bus
owners or operators are not reinvesting their money in city transport service. Due to overlapping routes,
the driver competes each other to get more passengers, create obstruction near to junction so that bus
cannot overtake, driver does not care about safety of the passenger during boarding and alighting. The
Dhaka Metro Regional Transport Committee (DMRTC) is providing the route permits to the operator
without having analysis of passenger demand and necessity of additional bus companies on the same
routes. At present system, the route permit is given by the demand of the operator in most cases. Most
companies are interested to operate the bus in the routes which are profitable. As a result, most bus
companies operate their buses on profitable routes without thinking passenger service

Dhaka to Khulna is a route spread over 246.0 kilometers. Currently, there are four leading bus
operators for this route. Operators include
• ShohaghParibahan,
• Hanif Enterprise,
• Tungipara Express,
• Saintmartin Hyundai,
• Emad Enterprise
• DigantaParibahan

GDP from Bus industry of Bangladesh increased to 11671.90 BDT Million in 2019 from 10920.80
BDT Million in 2018. According to Trading Economics global macro models and analysts’
expectations, GDP from transport in Bangladesh is expected to reach 11847.00 BDT Million by the end
of 2020.

7
Section 2: Calculation of cost of the source of financing for the firm

Items Values

Yield to Maturity 7.14%

(YTM)

Cost of Debt (Kd): 4.28%

Cost of Preferred Stock 10.26%

(Kp):

Cost of New 13.79%

Common Stock (Ks):

Section 3: Calculate Weighted Average Cost of Capital

WACC:

Weights are: Long term debt = 40%, Preferred stock = 15%; and Common stock equity = 45%

Items Values

Weighted Average Cost of 9.46%

Capital (WACC):

8
Section 4: Calculation of Payback Period, Net Present Value, Internal Rate of

Return and Profitability Index for all the services.

Net Cash Flow

Year
Air Helicopter Launch Bus

BDT 40,00,000 BDT 35,00,000 BDT 25,00,000 BDT 20,00,000

1 1810523 1810523 1810523 1810523

2 1930978 1930978 1930978 1930978

3 2021653 2021653 2021653 2021653

4 2022916 2022916 2022916 2022916

Summary of the calculation of Payback Period, Net Present Value, Internal Rate of
Return and Profitability Index for all the services:

Details Air Helicopter Launch Bus

Payback 2.06 years 1.87 Years 1.36 Years 1.09 Years

Period

Net Present 2216318.69 2716318.69 37,16318.69 4216318.69

Value

Internal Rate 32.38% 40.78% 65.69 % 86.75%

of Return

Profitability 1.55: 1 1.78: 1 2.48: 1 3.10: 1

Index

9
 Section 5: Choose of the best transport service alternative-independent and

mutually exclusive projects.

Rank the project according to each of the methods:

Method Air Helicopter Launch Bus Ranking

Air Helicopter Launch Bus

PBP 2.06 years 1.87 Years 1.36 Years 1.09 Years 4 3 2 1

NPV 2216318.69 2716318.69 37,16318.69 4216318.69 4 3 2 1

IRR 32.38% 40.78% 65.69 % 86.75% 4 3 2 1

PI 1.55: 1 1.78: 1 2.48: 1 3.10: 1 4 3 2 1

Independent Project: Independent decision is choosing all the projects as long as they meet minimum
acceptance criteria.

Payback Period: If PP is less than a cutoff period, accept the project. Here in the summary its clearly
shows that Air, Helicopter, launch, Bus all services payback period is less than four years. So, all
services are acceptable in the independent project.

Net Present Value: If NPV is Positive or More than Zero, accept the project. Here NPV of Air
(2216318.69), Helicopter (2716318.69), Launch (37,16318.69) and Bus (4216318.69), all services
NPV is positive. So, all services are accepted as Independent project. Internal Rate of Return: If IRR is
more than Cost of capital, accept the project. Here IRR of Air - 32.38%, Helicopter-40.78%, Launch-
65.69% and Bus-86.75%. All services IRR are more than the cost of capital. So, all services are
accepted as Independent project. Profitability index: If the PI is more than 1, accept the project. Here PI
of Air-1.55, Helicopter1.78, Launch-2.48 and Bus-3.10, all PI is more than 1. So, all are accepted as
Independent project.

Mutually Exclusive Project: When accepting one, it automatically excludes the other in a mutually
exclusive project. If every services or project meet all the criteria of acceptance, higher Net Present
value gets priorities in a mutually exclusive project to select the best services. Here the Net present
value of Bus is highest among all the services which are BDT 4216318.69and among all the services
Bus have lower Payback period, higher Internal rate of return and Profitability index. So, Bus Service
is acceptable in a mutually exclusive project.

10
 References

• https://www.lightcastlebd.com/insights/2020/05/the-airline-industry-under-severe-threat-
due-to-the-covid-19-outbreak

• https://barta24.com/details/national-en/92228/novoair-celebrates-eidul-fitr-distressed-people

• https://thefinancialexpress.com.bd/trade/airline-industry-counting-losses-amid-covid-19-
pandemic-1586520644

• https://www.dhakatribune.com/business/2017/09/08/helicopter-commute-gains-ground-
bangladesh?fbclid=IwAR2c6EvHRN87CPkRnEA5UJtY2JORMHkYkMMDrsvmNucYr-
XaTPWM9Ui2FSA
• https://www.dhakatribune.com/business/commerce/2019/06/03/flying-home-with-
ease?fbclid=IwAR1UBMhYQLo6cl0PqyhOSUhftD370t_Y5IcRnSeEU-
eKmiAgDAurY4JFgPY

• https://www.maritime-executive.com/editorials/the-bangladesh-commercial-river-transport-
industry
• http://documents1.worldbank.org/curated/en/101171568294166006/pdf/Bangladesh-First-
Regional-Waterway-Transport-Project-Better-Inland-Waterways-Leading-to-More-
Domestic-and-Regional-Connectivity.pdf.
• https://www.researchgate.net/publication/341712950_Expanding_Tradable_Benefits_of_Inl
and_Waterways_Case_of_Bangladesh
• http://en.banglapedia.org/index.php?title=transport
• http://www.discoverybangladesh.com/transportation.html#:~:text=The%20transport%20sec
tor% 20of%20Bangladesh, carrying%20both%20passengers%20and%20cargo

11
 Appendix:

2. Cost of the source of financing:

Yield to Maturity (YTM):

Given, Principal Payment= BDT 100, Price of the Bond= BDT 1200

Annual Interest Payment = (1000*10%) = BDT 100

YTM = Annual Interest Payment + Principal payment – Price of the Bond

Number of years to maturity

0.6(Price of Bond) + 0.4(Principal payment)

= 100+ 1000-1200
10

0.6(1200) + 0.4(1000)

= 80 ÷ 1120

= 0.0714

= 7.14%

Cost of Debt (Kd) Cost of Preferred Stock (Kp) Cost of Common Stock (Kn)

Given, Given, Given,

D1 = 6, P0 = 80, F = 3, g = 6%
Tax rate = 40% Pp = BDT 100
Kn = D1 +g
Kd = Yield (1- tax rate) Dp = 100 * 10% = 10 P0 - F
= 6 + 0.06
= 0.0714* (1-0.4) F = BDT 2.5 80-3

= 0.04284 Kp = Dp = 0.1379
Pp- F
= 4.28% = 10 = 13.79%
100-2.5

= 0.10256

= 10.26%

12
3. Weighted Average Cost of Capital (WACC)

Given,

Wd = 40%, Wp = 15%, Ws = 45%

Kd = 0.0428, Kp = 0.1026, Kns = 0.1379

WACC = (Wd*Kd) + (Wps* Kps) + (Wcs*Kcs)

= (0.40 * 0.0428) + (0.15 * 0.1026) + (0.45 * 0.1379)

=0.01712 + 0.01539 + 0.06206

= 0.09457

= 9.46%

13
4. Calculation of Payback Period, Net Present Value, Internal Rate of Return and
Profitability Index

Air industry

Pay Back Period (PBP)

PBP = A + NCO – C
D
=2+ 40, 00,000 - 3741501
40, 00,000
= 2 + 0.06
= 2.06 years

Net Present Value:

PV = FV
(1+i) n

Initial Investment = 40, 00,000

Year Cash flow PV at 9.46% PV

1 1810523 1810523 1654049.88
(1+0.0946) 1
2 1930978 1930978 1611634.06
(1+0.0946) 2
3 2021653 2021653 1541488.48
(1+0.0946) 3
4 2022916 2022916 14091426.27
(1+0.0946) 4
Net Present Value of Cash Inflow= 6216318.69
Net Present Value of Cash Outflow= 4000000
Net Present Value (BDT)= 2216318.69

14
Profitability Index = Present Value of Cash Inflow
Present Value of Cash Outflow

= 6216318.69
4000000

= 1.55: 1

Internal Rate of Return:

Year Cash Flow Calculation PV at 32% Calculation PV at 33%

1 1810523 1810523 1371608.33 1810523 1361295.49
(1+0.32)1 (1+0.33)1

2 1930978 1930978 1108228.88 1930978 1091626.44

(1+0.32)2 (1+0.33)2

3 2021653 2021653 878991.79 2021653 859313.61

(1+0.32)3 (1+0.33) 3

4 2022916 2022916 666318.89 2022916 646504.10

(1+0.32)4 (1+0.33) 4

Net Present Value of Cash Inflow= 4025147.89 3958739.64

4000000 4000000
Net Present Value of Cash Outflow=
25147.89 - 41260.36
Net Present Value (BDT)=

IRR = L + N (H-L)
N+M

= 32% + 25147.89 (33%-32%)

25147.89 +41260.36

= 32% + 0.379

=32.38%

15
 Helicopter Industry

Pay Back Period (PBP)

Initial investment BDT 35, 00,000

NCO−C
Pay Back Period (PBP) = A + D
35,00,000−1810523
=1+ 1930978

= 1 + 0.87
= 1.87 Years

Net Present Value (NPV)

Initial Investment 35, 00, 000 BDT

Year Cash Flow Calculation of PV at 9.46% Value

1810523
1 1810523 (1+.0946)1 1654049.88
1930978
2 1930978 (1+.0946)2 1611634.06
2021653
3 2021653 (1+.0946)3 1541488.48
2022916
4 2022916 (1+.0946)4 1409146.27
Present Value of Cash Inflow 6216318.69
Present Value of Out Inflow (3500000)
Net Present Value 2716318.69

16
IRR (Internal Rate of Return)
Cash Calculation of PV at Calculation of PV at
Year Flow 40% Value 41% Value
1810523 1810523
1 1810523 (1+.40)1 1293230.71 (1+.41)1 1284058.9
1930978 1930978
2 1930978 (1+.40)2 985192.86 (1+.41)2 971268.04
2021653 2021653
3 2021653 (1+.40)3 736754.01 (1+.41)3 721189.3
2022916 2022916
4 2022916 (1+.40)4 526581.63 (1+.41)4 511801.32
Present Value of Cash Inflow 3541759.21 3488317.5
Present Value of Out Inflow (3500000) (3500000)
Net Present Value 41759.21 (11682.47)

Interpolation:
N
IRR = L+ N+M (𝐻 − 𝐿)
41759.21
= 40% + (41% − 40%)
41759.21+11682.47

= 40% + 0.78
= 40.78%

Present value of present cash inflow

Profitability Index = Present value of present cash outflow

6216318.69
= 3500000

= 1.78: 1

17
 Launch industry:
Payback Period:

Net Present Value (NPV) of Project Launch:

Initial Investment 35, 00, 000 BDT

Year Cash Flow PV at 9.46% PV

1 1810523 1654049.881
1810523
(1 + 0.0946) 1
2 1930978 1611634.064
1930978
(1 + 0.0946) 2
3 2021653 1541488.479
2021653
(1 + 0.0946) 3
4 2022916 1409146.266
2022916
(1 + 0.0946) 4
Net Present Value of Cash Inflow 6216318.69
Net Present Value of Cash Outflow = (2500000)

Net Present Value (BDT) = 3716318.69

18
 Internal Rate of Return:

Year Cash Flow PV at 65% Value PV at 66% Value

1 1810523 1810523 1097286.667 1810523 1077692.262
(1 + .65) 1 (1 + .66) 1
1930978 1930978 709266.483 1930978 700796.8424
2 (1 + .65) 2 (1 + .66) 2
2021653 2021653 450043.7989 2021653 441959.3747
3 (1 + .65) 3 (1 + .66) 3
4 2022916 2022916 272924.2167 2022916 266406.9173
(1 + .65) 4 (1 + .66) 4
Present Value of Cash Inflow 2529521.166 2486805.397

Present Value of Out Inflow 2500000.00 2500000.00

Net Present Value 29521.166 (13194)

Interpolation:

=65%+0.691116733*1%

=65.69%

Profitability index (PI):

PI= PV of cash inflow / PV of Cash Outflow
= 6216318.69
2500000
= 2.48: 1

19
 Bus industry:

Payback Period:
= 1+ 189477
1930978
=1.09 years

Net Present Value (NPV) of Project Bus:

Year Cash Flow PV at 9.46% PV

1 1810523 1654049.88
1810523
(1 + 0.0946) 1
2 1930978 1611634.06
1930978
(1 + 0.0946) 2
3 2021653 1541488.48
2021653
(1 + 0.0946) 3
4 2022916 1409146.267
2022916
(1 + 0.0946) 4
Net Present Value of Cash Inflow 6216318.69
Net Present Value of Cash Outflow = (2000000)

Net Present Value (BDT) = 4216318.69

Profitability index (PI):

PI= PV of cash inflow / PV of Cash Outflow

= 6216318.69
2000000
=3.10: 1

20
 Internal Rate of Return:

Year Cash Flow PV at 86% Value PV at 87% Value

1 1810523 1810523 973399.46 1810523 968194.11
(1 + .86) 1 (1 + .87) 1
1930978 1930978 558150.65 1930978 552197.08
2 (1 + .86) 2 (1 + .87) 2
2021653 2021653 314172.22 2021653 309158.93
3 (1 + .86) 3 (1 + .87) 3
4 2022916 2022916 169015.32 2022916 165428.92
(1 + .86) 4 (1 + .87) 4
Present Value of Cash Inflow 2014737.65 1994979.04

Present Value of Out Inflow 2000000.00 2000000.00

Net Present Value 14737.65 (5020.96)

Interpolation

N
IRR = L+ N+M (𝐻 − 𝐿)
14737.65
= 86% + 14737.65+5020.96 (87% − 86%)

= 86% + 0.75
= 86.75%

21