Techno-Economic Analysis

COST OF PROJECT

 Land
Land Area=500 sq mt
Cost per unit area of land=2000 INR
Total cost=10 Lakhs

 Fixed Capital
=Capital invested in (Land+ Factory Shed & Building+ Plant & Machinery)
=10+15+53
=78 Lakhs

 Working Capital
=capital invested in (raw material+power+wages+maintenance)
=40 Lakhs

 Margin Money for Working Capital

=25% of Working Capital
=0.25*40
=10 Lakhs

MEANS OF FINANCE

 Promoter's Contribution
=38 Lakhs

 Loan from Bank

These are of two types
1. Term Loan: Loan given by a bank for a definite period of time.
2. Cash Credit Limit: A limit given in current account where the client can withdraw
amount upto the limit sanctioned. It is 75% of total working capital i.e.30lakhs.

The Term Loan given by Bank= 50.00 Lakhs

 LIST OF PLANT MACHINERY

 Cost of Plant Line as per Quotation

= 42.84 Lakhs.

 Excise Duty
An excise or excise tax (sometimes called a duty of excise special tax) is commonly
referred to as an inland tax on the sale, or production for sale, of specific goods.
=12.36% of (Cost as per Quotation)
=12% (42.84)
=5.30

 Central sales tax(CST)

Since we are importing plant line from other state, it adds to the cost
=2% of (Cost of Plant as per Quotation +Excise Duty)
=2% (42.84+5.30)
=0.96 Lakhs

 Freight Charges
A freight rate is a price at which a certain cargo is delivered from one point to
another.
=0.4 Lakhs

 Motors and electrical Installation

=3.5 Lakhs

REVENUE REALIZATION

 Opening stock of finished goods:

This is defined as the amount of finished goods present in the store from the
previous year.
 Closing stock of finished goods:
This is defined as the amount of goods that will be present in the store at the end of
each year.
 EXPENSES

Installed capacity 300 MT

Capacity utilization 70%
No. of shifts (8 hr per day 2
No. Of Months 12
No. of working days per month 25
Production in Kgs 70% of 300
=210000
Opening stock of finished goods 0
Closing stock of finished goods 4900
Selling price per Kg 125 Rs

Sales Realization
= sales (in kg)*selling price (per kg)
= (210000-4900)*125
= 25637500

EXPENSES FOR FIRST YEAR

Raw Materials & Consumables

 The total consumption of Polypropylene Granules, Fillers, Master Batch (Pigments)

assuming 70% production
= (Production of Straps assuming 70%efficiency)*(consumption of raw materials for
300 MT production)/ (Production assuming 100% efficiency)
= (210000*312000)/300
= 218400
 Cost of raw materials consumed
= (Cost of raw materials assuming 100% consumption)*(Amount of raw materials
used assuming 70% consumption)/ (Amount of raw material used assuming 100%
consumption)
= ( 28500000.00 * 218400)/ 312000
= 19950000.00
 Cost of Packing Material

 Cost of packing Material

= (Production assuming 70% efficiency)*(Cost of packing for material assuming 100%
efficiency)/ (production assuming 100% efficiency)
= (210000* 954000.00)/300
= 667800.00

Power and Electricity

Units Consumed/annum= Connected Load in KW* Load factor* No. of Working Hrs.
/day* No. of Working days/annum* Capacity Utilization = 90.00*0.85*16*300*70%
= 257040
 Rate/Unit=5.50
 Annual Electric Expenditure

= (Units Consumed/annum)*(Rate/Unit)
=257040*5.50
=1413720.00

Total Wages & Salaries

 Fringe benefit: This includes Provident Fund and Employees State Insurance.

Fringe benefit=15% of Salary

=0.15*600000.00
=90000
Total wages and Salaries
=Wages + Fringe benefit
=600000.00+90000
=690000.00
Repairs and Maintenance

During the first financial year there will be no expenditure on repairs & maintenance
(considering warranty). There after expenditure of Rs. 5000/- per month is
considered reasonable with an increase of 10% p.a.

Selling, General & Adm. Expenses

Selling, Gen. & Admin Expenses (sales, marketing, transportation etc.)
=2% of Total Sales realization
=0.02*25637500.00
=512750.00
 Interest on Term Loan

 Rate of Interest =13.5 % p.a.

Consider balance outstanding for month of August:

=Principal amount – Repayment
=4,945,000.00-55,000.00

Consider for month of September:

Interest on term loan
=Balance outstanding for previous year *rate of Interest/100/12
= (4,890,000.00*13.5)/ (100*12)
=55,013

Similarly we can calculate Term loan for each month

Total Interest on Term Loan will be the sum of Interest for each month=652725.00
(Detail Calculations for this are shown with the sheet attached)

Interest on Working Capital Limit

 Interest on Cash Credit Limit=13.75%

Total working capital requirement has been envisaged at Rs. 40.00 Lakhs against
which Cash Credit Limit of Rs. 30.00 Lakhs is required. (Assuming 85% average
utilization)

 Interest on Working Capital Limit

= (Cash Credit Limit*Interest on Cash Credit Limit*average utilization)
=3000000*13.75%*85%
=350625.00
Depreciation

 Written down Value (WDV): It is the depreciated value of an asset for purpose of
taxation.

 Depreciation on Factory Shed & Building has been calculated @ 10% p.a. on W.D.V.
method as per Income Tax Rules

 WDV of Shed & Building at year beginning=1,500,000.00

 Rate of Depreciation=10%

 Depreciation
= WDV* Rate of Depreciation
=1,500,000.00*0.1
=150,000.00

 WDV of Shed & Building at year end=( WDV of Shed & Building at year beginning)-
( Depreciation)
=1,500,000.00-150,000.00
=1,350,000.00

 Depreciation on Plant & Machinery has been calculated @ 15% p.a. on W.D.V.
method as per Income Tax Rules

 WDV of Plant & Machinery at year beginning=5,300,000.00

 Rate of Depreciation=15%

 Depreciation= WDV* Rate of Depreciation

=5,300,000.00*15%
=795,000.00

 WDV of Plant & Machinery at year end

=5,300,000.00-795,000.00
=4,505,000.00

 Total depreciation for 1st year

= (Depreciation on Factory Shed & Building) + (Depreciation on Plant & Machinery)
=150,000.00+795,000.00
=945,000.00

PROFITABILITY STATEMENT
 After 1st year Revenue Realization=256.38(calculated above)

 Cost of production
=Cost of (Raw Materials & Consumables + Packing Material Consumed + Power &
Electricity)+Wages & Salaries + Repairs & Maintenance cost+ Selling, General &
Admin. Expenses+ Interest on Term Loan + Interest On Cash Credit Limit +
Depreciation)
= (199.50+6.68+14.14+6.90+0.00+5.13+6.53+3.51+9.450)
=251

 Cost of Goods Sold=Cost of production + Opening Stock of Finished Goods-Closing

Stock of Finished Goods
=251.83+0-6.13
=245.70

 Profit before Tax

=Total realization-Cost of Goods Sold
=256.38-245.70
=10.67 Lakhs

 Income Tax ( Company)=30.9% of Profit before Tax

=30.9% * 10.67
=3.30

 Profit after Tax

= Profit before Tax- Income Tax
=10.67-3.30
=7.38

 Cash accruals=Profit after tax + depreciation

=7.38+9.45
=16.83

 Withdrawals = 0

 Net Cash accruals=Cash accruals -withdrawals

=16.83-0
=16.83
PROJECT BALANCE SHEET
 Liabilities

 Share Capital =(Promoter's Contribution+Profit after tax-Withdrawal)

=38.00+7.38-0
=45.38

 Term Loan from Bank

=Balance outstanding at the end of 1st year/100000
=4,505,000.00/ 100000
=45.05

 Cash Credit Limit form Bank=30.00

 Sundry Creditors for Goods=1.00

 Current Liabilities & Prov=1.00

 Total liabilities is the sum of above liabilities=45.38+45.05+30.00+1.00+100

=122.43

Assets

 Fixed Assets at WDV= (1000000+WDV of Shed & Building at year end+WDV of Plant
& Machinery at year end)/100000
= (1000000+1,350,000.00+4,505,000.00)/ 100000
=68.55 Lakhs

 Closing Stock of Raw Materials=(Raw Material Consumed in 1st

year/300)*(15/100000)
= (19950000.00/300)*(15/100000)
=9.98 Lakhs

 Closing Stock of Finished Goods =6.13 Lakhs (calculated above)

 Sundry Debtors=sales Realization/12/100000

=25637500/ (12/100000)
=21.36 Lakhs
 Other Current Assets=2

 Cash & Bank Balance=1

 Investments
= (Total liabilities-( Fixed Assets at WDV+ Closing Stock of Raw Materials+ Closing
Stock of Finished Goods+ Sundry Debtors+ Other Current Assets+ Cash & Bank
Balance))
= (122.43-(68.55+9.98+6.13+21.36+2+1))
=13.41 Lakhs

 Total assets
=Sum of above all sets
= (68.55+9.98+6.13+21.36+2+1+13.41)
=122.43 Lakhs

Therefore, total assets=total liabilities

 Debt equity ratio is defined as the ratio of the money raised by the bank to the
money raised by the promoters. Benchmark for debt equity ratio is 2:1 .If this ratio is
less than 2, than it is considered profitable.

Debt Equity Ratio

= (Term Loan from Bank+Cash Credit Limit form Bank) / Share Capital
= (45.05+30.00)/45.38
=1.65 Lakhs

Calculation of Debt Service Coverage Ratio (DSCR)

DSCR refers to a ratio used by bank loan officers in determining debt servicing ability.
The higher this ratio is, the easier it is to obtain a loan. The minimum benchmark is 2.

 Amount of Coverage available

=Net Cash Accruals+Interest on Term Loan
=16.83+6.53
=23.35 Lakhs

 Repayment Commitments=Installment of Term Loan+Interest on Term Loan

=4.95+6.53
=11.48 Lakhs

 Debt Service Coverage Ratio(DSCR)=(Amount of Coverage available/Repayment

Commitments)
=23.35/11.48
=2.03
BREAK EVEN ANALYSIS
All the costs faced by companies can be broken into two main categories: fixed costs and
variable costs.
1. Variable costs are expenses that change in proportion to the activity of a business
2. Fixed costs are business expenses that are not dependent on the level of goods or
services produced by the business
 Total variable expenses=233.93 Lakhs

 Total Fixed expenses=17.90 Lakhs

 Variable cost per kg

=Total variable cost / Total production assuming 70% efficiency
= (233.93/210000)*100000
=111.39 Lakhs

 Selling Price per kg=125 Rs

 Contribution per unit

=Selling price per kg-Variable price per kg
=125-111.39
=13.61 Lakhs

 The break-even point (BEP) is the point at which cost or expenses and revenue are
equal: there is no net loss or gain, and one has "broken even". It is the capacity, below
which, if the production goes then we will incur loss.

BEP in kg
= (Fixed expenses)/Contribution per kg
= (17.90*100000)/13.61

 BEP in % to Installed Capacity

=BEP in Kg/300000
=43.85