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Economic Analysis

The document provides a techno-economic analysis of a manufacturing project, including costs of land, capital, machinery, means of financing, revenues, expenses, and profitability over the first year. It estimates total project costs will be 78 lakhs, with 38 lakhs from promoters and 50 lakhs from bank loans. In the first year, estimated revenue is 25.64 crores and profit after tax is 7.38 lakhs, with a debt to equity ratio below the benchmark of 2:1, indicating the project is profitable.

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0% found this document useful (0 votes)
17 views10 pages

Economic Analysis

The document provides a techno-economic analysis of a manufacturing project, including costs of land, capital, machinery, means of financing, revenues, expenses, and profitability over the first year. It estimates total project costs will be 78 lakhs, with 38 lakhs from promoters and 50 lakhs from bank loans. In the first year, estimated revenue is 25.64 crores and profit after tax is 7.38 lakhs, with a debt to equity ratio below the benchmark of 2:1, indicating the project is profitable.

Uploaded by

manueltsibia
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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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

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