2. Godavari Electricals Ltd., wanted to set up its new plant for manufacturing of heaters.

The Management of
Godavari identified that Kakinada, Vijayawada and Hyderabad are the potential areas to set up the plant. Fixed
costs per year and the variable costs per unit at each of the three locations is given below.

Location Fixed cost / Yr. Variable cost / Unit

Kakinada Rs. 2,00,000 325

Vijayawada Rs. 2,50,000 285

Hyderabad Rs. 3,00,000 265

The product is expected to be sold at Rs.1050 and the existing demand for heaters in the market is 600 units per year. Calculate
the likely profit at cash of the location and determine the location that is the most profitable to the company.

Solution

We calculate the total costs ( sum of the fixed and variable costs) at each of the three locations when 600 units of goods are sold.

Total cost at Kakinada = Rs.2,00,000 + (325 x 600)

= Rs. 3,95,000
Total cost at Vijayawada = Rs. 2,50,000 + (285 x 600)

= Rs. 4,21,000

Total cost at Hyderabad = Rs. 3,00,000 + (265 x 600)

= Rs. 4,59,000

Total revenue of the firm = Rs. 1050 x 600 = Rs.6,30,000.

Therefore, the profits of the company if they were set up in the given locations would be as follows.

Profit at Kakinada = Rs.6,30,000 - Rs.3,95,000

= Rs. 2,35,000

Profit at Vijayawada= Rs. 6,30,000 – Rs.4,21,000

= Rs. 2,09,000

Profit at Hyderabad = Rs.6,30,000 – 4,59,000

= Rs. 1,71,000

From the above calculations, it is clear that Kakinada is the most profitable location to set up the new plant for producing 600
units per year.
 3. Factor Rating Technique
The factor rating technique is based on the ranking of various weighted factors that influence the choice of location. Factor
rating is used to evaluate alternative locations. The advantages are:

• It helps managers decide why one location or site is better than another
• It helps in bringing diverse location considerations into the evaluation process.
• It fosters consistency of judgment about location alternatives
The following are the steps involved in this method:

i. Relevant factors related to location decision are listed.

ii. Various factors are examined and weights are assigned representing their importance. For instance, the least important
factor is 1 and a very important one will be given a weight of 5. If the rating is high then it conveys that factor is more
important.
iii. Location is also rated according to its merits on each factor.
iv. Product of rating is computed by multiplying location rating and factor rating.
The location with the highest score is considered superior. But implementing an organized system for evaluating multiple
company objectives requires careful judgment.

Moreover, evaluation should be more qualitative as the information required to make these decisions is often incomplete, and
prediction of future conditions difficult.

4. Indigo Glass Manufacturing Ltd. is evaluating two locations A and B for setting up of its new plant. Following are
the factors and corresponding weights assigned by the management of Indigo.

Based on the data given below, determine the location that is most suitable for setting up of a new plant.
 Factor Factor Rating Location A Location B

Production cost 5 7 8

Supply of raw materials 4 6 5

Labour availability 4 7 6

Proximity to customers 3 8 7

Availability of facilities 2 6 9

Tax advantage 2 5 2

Solution

Now, we calculate the product of factor rating and score of each location for each factor.
The sum of the scores obtained by each of the locations is calculated, and the location with the highest score is then selected.

Factor Factor Rating Location A Location B

Production cost 5 7 x 5 = 35 8 x 5 = 40

Supply of raw materials 4 6 x 4 = 24 5 x 4 = 20

Labor availability 4 7 x 4 = 28 6 x 4 = 24

Proximity to customers 3 8 x 3 = 24 7 x 3 = 21

Availability of facilities 2 6 x 2 = 12 9 x 2 = 18

Tax advantage 2 5 x 2 = 10 2x2=4

Total Score 133 127

Therefore, the location A should be selected for setting up of a new plant as the total score of location A (i.e. 133) is higher than
the score of location B (i.e. 127).
 A PROJECT BEING SET UP NEAR BOMBAY FOR MANUFACTURING CHEMICALS HAS A TOTAL ESTIMATED PROJECT
COST OF RS. 3000 LACS. THE PROJECT ESTIMATOR HAS FURNISHED YOU WITH FOLLOWING SUMMERISED TIME
AND COST ESTIMATES FOR THIS PROJECT. ON THE BASIS OF INDIVIDUAL WORK PACKAGES AS UNDER:

SR.NO. WORK PKG. DUR. EST. COST (RS. START

MONTHS LACS) MONTH
1. ENGINEERING 10 200 1
2. MATERIALS 4 400 2
3. EQUIPMENT 8 1600 2
4. CONSTRUCTION 7 700 3
5. INSTALLATION 4 100 9

ASSUMING EQUAL MONTHLY EXPENDITURES FOR THE ENTIRE DURATION OF PROJECT OF 12 MONTHS FOR EACH
WORK PACKAGE COMPLETE A MONTHLY AND CUMULATIVE BUDGET WORK SHEET IN THE FORMAT GIVEN
HEREUNDER:

SR. WORK PACKAGE DURATION MONTHS/AMOUNT RS. LACS TOTAL

NO. MONTHS COST (IN
LACS)

1 2 3 4 5 6 7 8 9 10 11 12

1. ENGINEERING 10 200

2. MATERIALS 4 400

3. EQUIPMENT 8 1600
4. CONSTRUCTION 7 700

5. INSTALLATION 4 100

MONTHLY AMOUNT

CUMULATIVE
AMOUNT 3000
 COST/SCHEDULE INTEGRATION – I
COST MANAGEMENT, ESTIMATING AND COST CONTROL

A project budget is to be developed right at the early stage of a project. Normally this requires breakdown of activities and associated
costs of each activity per unit time and cumulative costs per time period. This data can then be used to draw a graphic budget profile.
The profile of the cumulative budget over time period results in what we call S-Curve.

An export oriented project is being set up near Delhi for producing high-tech medical equipment. The total estimate cost as well as the
budget cost of the project is Rs.2640 lacs. Your project estimator has furnished you with the following summarized time and cost
estimates for this project, on the basis of individual work packages.

No Work Package Duration Months Estimated Cost Start Month

Rs. lacs

1 Engineering 10 200 1

2 Materials 3 160 3

3 Equipment 12 1920 5

4 Construction 10 300 5

5 Installation 4 60 15

Assuming equal monthly expenditures for the duration of each work package.
 1. Complete a monthly and cumulative budget work sheet, using the form attached.

2. Prepare S-Curve for the cumulative expenditure for the project.

You may use the enclosed worksheets for developing the cumulative budget over time, and the S-Curve.

1. Budget Worksheet
No Work Package Duration Start Months /Amounts in Rs. Lacs Total
Months Month Costs Rs.
In Lacs
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

1. Engineering 10 1 200

2. Materials 8 3 160

3. Equipment 12 5 1920

4. Construction 10 5 300

5. Installation 1 15 60

Monthly Amount ---

Cumulative Amount 2640

CASE STUDY II
EARNED VALUE, VARIANCE & PERFORMANCE ANALYSIS OF A PROJECT

1400
1600
1300
1500
THE FOLLOWING STATUS INFORMATION IS FURNISHED TO YOU ABOUT A PROJECT AT BOMBAY TO MANUFACTURE
FINE CHEMICALS AT A PROJECT BUDGET OF RS.2640 LAKHS FOR WHICH THE ORIGINAL PLANNED DURATION WAS
18 MONTHS.
AS A PART OF PROJECT CONTROL THE PROJECT DEPARTMENT IS REQUIRED NOT ONLY TO CONTROL TIME BUT
ALSO COSTS.
DATA: AT THE COMPLETION OF 10 MONTHS FROM COMMENCEMENT OF THE PROJECT STATUS INFORMATION IS AS
UNDER:
1. PROJ. BUD. – RS. 2640 LACS 2. PROJ. DURATION (ORIG) = 18 MONTHS
3. BUDTD COST OF WORK SCHEDULE (BCWS) = RS. 1500 LACS
4. BUDTD COST OF WORK PERFORMED (BCWP) = RS. 1200 LACS (EARNED VALUE)
5. ACTUAL COST OF WORK PERFORMED (ACWP) = RS. 1600 LACS
CALCULATE THE VARIANCES, PERFORMANCE INDICES, FORECAST DURATION AND FORECAST PROJECT COST AS
UNDER:

1. SCHEDULE VARIANCE = BCWP – BCWS =

2. COST VARIANCE = BCWP – ACWP =

3. SCHEDULE PERFORMANCE
INDEX (SPI) = EARNED VALUE (BCWP)
---------------------------------- =
BUDGET TO DATE (BCWS)

4. COST PERFORMANCE INDEX

(CPI) = EARNED VALUE (BCWP)
-------------------------------- =

ACTUAL TO DATE (ACWP)

5.
5.ESTIMATED DURATION AT
COMPLETION = ORIGINAL DURATION
 ---------------------------- =
SPI

6. ESTIMATED COST AT
COMPLETION = ORIGINAL BUDGET
------------------------ =
CPI

7. PROJECT DELAY = ESTIMATED DURATION =

AT COMPLETION MINUS
ORIGINAL DURATION

8. PROJECT COST OVERRUN = ESTIMATED COST =

AT COMPLETION
MINUS ORIGINAL
BUDGET

9. PERCENTAGE COMPLETE =
IN RELATION TO
ESTIMATED COST AT
COMPLETION = EARNED VALUE (BCWP)
------------------------------------- X 100
ESTIMATED AT COMPLETION

Kwality Laboratories is a bulk drug manufacturing company which had purchased land of 4 hectares at Rs. 15 lakhs at Belapur MIDC.
Site development expenses were Rs.6 lakhs. They have applied for a term loan to IDBI. They are eligible for a State subsidy of 15% on
fixed capital investment. Debt-equity should be 2:1. A contingency provision is required to be made on buildings at 5% and on plant &
machinery at 10%. The various details of the project are given as under:
 Project details Rs. Lakhs
Land 15.00
Site Development 6.00
Plant & Machinery 191.00
Buildings 50.00
Other fixed assets 40.00
Preliminary Expenses 32.00
Pre-operative expenses 30.00
Working Capital Margin 26.00

Calculate the project cost and the means of finance

Answer:
Contingency at 5% on building cost of Rs. 50.00 = Rs.2.50 Lakhs
Contingency on P&M at 10% on Rs. 191.00 Lakhs = Rs.19.10 Lakhs
Hence total contingency is Rs.2.50 + 19.10 = Rs.21.60 Lakhs
State subsidy on fixed investment of Rs.323.60 lakhs at 15% = Rs.48.50 Lakhs.
Cost of the Project Rs. Lakhs
Land 15.00
Site Development 6.00
Plant & Machinery 191.00
Buildings 50.00
Other fixed assets 40.00
Contingencies 21.60
Preliminary Expenses 32.00
Pre-operative expenses 30.00
Working Capital Margin _26.00
TOTAL Project Cost 411.60
 Since the debt-equity ratio prescribed for this project is 2:1,
term loans from financial institutions would be Rs.411.60 x 2/3 = Rs.274.40 lakhs.
The balance Rs.137.20 lakhs will be equity. As there is a state subsidy of Rs.48.50 lakhs which is a part of the equity, the
promoters would have to bring Rs.88.70 lakhs as their contribution for the project.

MEANS OF FINANCE

Once the cost of the project has been estimated, the next logical step is to find how best to finance it. The means of finance and the
financing mix chosen are bound to have a far reaching effect on the profitability and also the risk associated with the project.
Therefore, all the available avenues should be evaluated and the means and pattern of financing should be fixed carefully. The
financing pattern of the companies mentioned in the previous section is given below:
Exhibit 5.6
• Vista Pharmaceuticals Limited
(Rs. In lakh)
Means of Finance
Equity Share Capital
Promoters-Private 205.00
APIDC 45.00
Public _375.00 625.00
Term Loans:
Foreign currency loan from IDBI 215.00
Rupee Term Loan from IDBI __90.00 305.00
State subsidy _15.00
945.00

• Vorin Laboratories Limited

 (Rs. In lakh)
Means of Finance
Promoters 197.00
APIDC 20.00
Public Issue 164.21
Lease Finance _65.00
446.21

• Natco Laboratories Limited

(Rs. In Lakh)
Means of Finance
Equity
Promoters 1,445
Issue __730 2,175
Debt
 Term Loans from Financial Institutions
- IDBI 875
- ICICI 250
- IRBI 200
- IFCI 250
- SCICI __135 1,710
Term Loans from Banks
- SBI 200
- Corporation Bank 100
- Canara Bank __100 400
Non-convertible Debentures (from Canbank 200
Investment Management Services Ltd.)
___15
4,500

Mini Garments Limited

 Means of Finance:

(Rs. In lakh)
Share Capital
Promoters 90.12
Public Issue ____0 90.12
Term Loan 100.00
Subsidy _10.00
200.12

Sales Estimation
For products which are manufactured in the country, the basis of assuming a selling price is the pricing pattern laid down by the
government, if the products’ price is controlled by the governments or the current market price and price trends in the past. For
products which are not manufactured in the country and are being imported, the landed cost of a similar imported product is assumed
to be the selling price.
The selling price for Mini Garments was estimated to be Rs 250, Rs.190 and Rs.130 per piece of pant, shirt and kidswear. At 100%
capacity utilization, the project is estimated (as shown in table below) to produce 1,14,000 pieces of pants, 1,06,875 pieces of shirts and
1,28,250 pieces of kids wear (excluding 5% rejected material). Rejected material is expected to be sold at Rs.125, Rs.85 and Rs.65 per
piece of Pants, Shirts and Kidswear respectively. The sales realization at 50%, 60% and 80% capacity per pieces of pants, shirts and
kidswear levels is given in the table below.

The following points have to be borne in mind while estimating working results or profits:

i. The unit is assumed to sell all that it produces. That is, production is considered to be equal to sales and hence no adjustment is
necessary for opening or closing stock.
ii. Adjustments are not made for inflation. That is, projections of revenues and costs are made at today’s prices. It is assumed that
the impact of inflation on revenues will be offset by that on costs.
iii. Sales are generally estimated net of excise duty while commission paid to salesmen is shown as an expense in the income
statement.
The capacity of Mini Garments Limited at 100% levels was estimated to be 1,14,000, 1,06,875 and 1,28,250 pieces
per annum of pants, shirts, and kidswear respectively determined as follows:
Capacities at 100% levels

Product Mix No. of Pieces/ Pieces/day (2 Pcs/annum Reject Pcs/annum

Machines Machine shifts) (300 days) @5%
used
Pants 40 5.00 400 1,20,000 6,000 1,14,000

Shirts 30 6.25 375 1,12,500 5,625 1,06,875

Kids Wear 30 7.50 450 1,35,000 6,750 1,28,250

Its capacity utilization was estimated to be 50%, and 60% during 1st and 2nd years and 80% from 3rd year onwards.
The production capacity of the project is determined as follows:

Production Capacity (Pcs/annum)

Product mix Capacity at I year @ 50% II Year @60% III Year
100% levels capacity Capacity onwards @ 80%
capacity
Pants 1,14,000 57,000 68,400 91,200
Shirts 1,06,875 53,438 64,125 85,500
Kids Wear 1,28,250 64,125 76,950 1,02,600
Mini Garments Limited has estimated term loan to be Rs.100 lakh and working capital loan (as calculated in the table-
Margin Money for Working Capital) to be Rs.23.93 lakh and Rs.28.84 lakh during I and II year respectively and Rs.38.39
lakh from III year onwards. It has been assumed that interest on term loan and on bank borrowings is to be 18% p.a. Term
Loan is assumed to be repaid in 20 equal quarterly installments starting from beginning of the III year of operation. Based
on the above estimates and assumptions Mini Garments interest schedule will be:

Repayment and Interest Schedule of Term Loan

(Rs. In lakh)

Year Opening Amount Closing Interest @ Total

Balance Repaid Balance 18.00% Repayment

I 100.00 0.00 100.00 18.00 18.00

II 100.00 0.00 100.00 18.00 18.00

III 100.00 20.00 80.00 15.75* 35.75

IV 80.00 20.00 60.00 12.15 32.15

V 60.00 20.00 40.00 8.55 28.55

VI 40.00 20.00 20.00 4.95 24.95

VII 20.00 20.00 0.00 1.35 21.35

• Interest is calculated as follows:

Rs. 95 lakh for 3 months @ 18% p.a. – 4.275
Rs. 90 lakh for 3 months @ 18% p.a. – 4.050
Rs. 85 lakh for 3 months @ 18% p.a. - 3.825
Rs. 80 lakh for 3 months @ 18% p.a. - 3.600
15.750
 9. Cost of the Project
9.01 The cost of the project is estimated at Rs.2,043 lakh, the broad break up of which is given below:

(Rs.Lakh)
i. Land 6.00
ii. Site development 4.00
iii. Buildings and other civil works 199.00
iv. Plant and Machinery
Imported 730
Indigenous 440 1,170.00
v. Technical know-how fees 100.00
vi. Expenses on Technicians 16.00
vii. Miscellaneous Fixed Assets 80.00
viii. Preliminary 35.00
ix. Preoperative Expenses 200.00
x. Provision for Contingencies 171.00
xi. Margin Money for Working Capital (See ___62.00
Appendix 4)
2,043

10. Means of Financing

10.00 The project cost of Rs.2,043 lakh is proposed to be financed using a combination of equity share capital, treated as subsidy. The
company proposes to maintain a debt-equity ratio of 1.57:1

10.01 The loan component is proposed to be financed in the following manner:

IDBI 37.50%
- 18.0%
ICICI 18.0%
- 26.4%
IFCI -
Banks -
10.2 24% of the equity share capital will be brought by TIDCO, while the promoters are expected to contribute 25%. The balance is to be
raised from the public.

10.3 The project is eligible for a state government subsidy of Rs.15 Lakh.

11. Profitability

11.01 The major assumptions underlying the estimates of cost of production and profitability are given below:
i. The installed capacity of the plant would be 14,000 tpa of glazed ceramic floor and wall tiles. The selling price was estimated to
be Rs.81.092 lakh per 1,000 tonnes.

ii. Capacity utilization would be assumed as follows:

First year - 70%
Second year - 80%
Third year - 90%

iii. Requirement of raw material at full capacity utilization has been estimated at Rs.200 Lakh.

iv. The cost of packing material at full capacity utilization has been estimated at Rs.4 Lakh.

v. Estimation of power and fuel cost:

I year: Rs.13 Lakh, II year: Rs.16 Lakh and III year: Rs.20 Lakh

vi. Repairs and maintenance has been estimated at-

2% of gross block during I year
2.5% of gross block during II year
3.5% of gross block during III year
vii. Administrative and other overheads has been estimated at Rs.12 Lakh, Rs.18 Lakh and Rs.24 Lakh respectively in I year, II
year and III year respectively.

viii. Wages including benefits, during the III year has been estimated at Rs.28 Lakh. Escalation of 5% every year has been
considered.

ix. Selling expenses have been assumed to be 3.7% of sales.

x. Depreciation, for the purpose of projections, has been provided on straight line basis at 3%, 11% and 3.34% on buildings,
plant and machinery and miscellaneous fixed assets.

xi. Interest payable on term loan has been considered as 14% and on bank borrowings at 18%. Term loan is repayable in 16
equal half-yearly instalments from the beginning of the 3rd year from the sanction of loan amount.

xii. Salaries during III year has been estimated at Rs.11 Lakh and an escalation of 5% every year has been assumed.

xiii. Dividends of 20% are assumed to be payable from the third year.

xiv. Estimates of margin money for working capital are based on 2 months provision for raw materials, 1 month stock of packing
materials, 7 days stock of work-in-progress, 1 month stock of finished goods, 2 months provision of debtors, 1 month
provision of working expenses. Bank finance for working capital required has been assumed to be 75% for raw materials,
packing materials, finished goods and debtors. For work-in-progress, bank finance has been assumed to be 60%.
xv. Number of working days have been assumed to be 300 and shifts/day to be 2.

Working Notes:
i. Sales realization: 100% capacity 14,000 tpa, Rs.81.092 lakh per 1,000 tonnes.
 Yea Capacit Production (tones) Cost (Rs.
r y Lakh)
100% 14,000 1135.29
I. 70% 9,800 794.70
II. 80% 11,200 908.23
III. 90% 12,600 1021.76

ii. Raw material cost:

Year Capacity Raw material cost (Rs.

Lakh)
100% 200
I. 70% 140
II. 80% 160
III. 90% 180

iii. Other expenses:

Year Packing material cost (Rs. Lakh)

I. 2.80
II. 3.20
III. 3.60

iv. Capitalization of pre-operative expenses and contingencies:

Rs. Lakh
Allocation
 Cost Preop. Contingencie Value after
before Exps. s capitalization
allocation
Land and Site Development 10 - - 10.00
Buildings 199 25.69 21.97 246.66
Plant & machinery (incl. technical know- 1270 163.98 140.20 1574.18
how)
Miscellaneous fixed assets 80 10.3 8.83 99.16
1559 200.00 171.00 1930.00
v. Repayment Schedule of Term Loan

(Rs. In Lakh)
Year Opening Amount Closing Interest Total
Balance Repaid Balance 14.00% Repayment
I 1248.00 0.00 1248.00 174.72 174.72
II 1248.00 0.00 1248.00 174.72 174.72
III 1248.00 156.00 1092.00 158.34* 314.34
IV 1092.00 156.00 936.00 136.50 292.50
V 936.00 156.00 780.00 114.66 270.66
VI 780.00 156.00 624.00 92.82 248.82
VII 624.00 156.00 468.00 70.98 226.98
VIII 468.00 156.00 312.00 49.14 205.14
IX 312.00 156.00 156.00 27.30 183.30
X 156.00 156.00 0.00 5.46 161.46
 Each semi-annual instalment = Rs.78 Lakh
Interest for the III year = 1170 x 14% x ½ + 1092 x 14% x ½ = Rs.158.34

Working Notes:

Computation of Working Capital and Margin Money Requirements

(Rs. In Lakh)
Particul Requirem Bank I Year II Year III Year
ars ent Finan
(Months) ce %
Worki Bank Marg Worki Bank Marg Worki Bank Marg
ng Fina in ng Fina in ng Fina in
Capit nce Mone Capit nce Mone Capit nce Mone
al y al y al y
Raw 2.0 75 23.33 17.50 5.83 26.67 20.00 6.67 30.00 22.50 7.50
materia
ls
Packing 1.50 75 0.35 0.26 0.09 0.40 0.30 0.10 0.45 0.34 0.11
materia
ls
Work- 0.23 60 4.21 2.53 1.68 4.83 2.90 1.93 5.59 3.35 2.24
in-
progres
s
Finishe 1.00 75 20.03 15.02 5.00 23.31 17.48 5.83 27.20 20.40 6.80
d goods
Receiva 2.00 75 132.45 99.34 33.11 151.37 113.5 37.84 170.29 127.7 42.57
bles 3 2
Workin 1.00 0 8.13 0.00 8.13 9.71 0.00 9.71 11.90 0.00 11.90
g
expense
s
Total 188.50 134.6 53.80 216.29 154.2 62.08 245.43 174.3 71.12
5 1 1

Working Capital required for the following is calculated as ---

Work-in-progress = Total operating cost – Depreciation

Finished goods = Total operating cost + Salaries + Admn. Overheads – Depreciation

Receivables = Sales

Working expenses = Total operating cost – Raw material – Rent + Salaries + Admn. Overheads – Packing materials – Depreciation

COST OF THE PROJECT

The project has been appraised by The Ahmedabad Urban Co-op. Bank Ltd., vide their appraisal report dated 29 th March, 1994 for the
purpose of granting term loan/Issue. The estimated cost of project and means of finance as appraised by The Ahmedabad Urban Co-op.
Bank Ltd. is given as under:

Particulars Rs. In lakhs

Land & Land Development 24.10
Building 151.35
Plant & Machinery 242.06
Furniture & Fixtures 4.56
Misc. Fixed Assets 17.09
Preliminary Expenses 6.25
Pre-operative Expenses 13.29
Contingencies 43.04
Margin for working capital 18.26
 (Based on working capital requirement
for I Yr. of operation) _
Total 520.00

MEANS OF FINANCING

The company proposed to finance the project in the debt-equity ratio of 1:4.

WORKING CAPITAL

Working capital requirements in the first three years are assessed as follows:
(Rs. lakhs)
Sl. Particulars Period MM Total BF MM Total BF MM Total BF MM
No. (months) (%)
1. Raw 1.50 25 25.44 19.0 6.36 29.35 22.0 7.34 33.26 24.9 8.32
Materials 8 1 5
2. Processed 0.25 25 6.06 4.55 1.51 7.42 5.57 1.86 8.47 6.35 2.12
 goods
3. Finished 0.50 25 13.64 10.2 3.41 16.57 12.4 4.14 18.84 14.1 4.71
goods 3 3 3
4. Receivables 1.0 25 44.88 33.6 11.2 51.78 38.8 12.9 58.69 44.0 14.67
6 2 3 5 2
90.02 67.5 22.5 105.1 78.8 26.2 119.2 89.4 29.82
2 0 2 4 9 6 4
5. Less: 1.0 25 16.96 12.7 4.24 19.57 14.6 4.89 22.17 16.6 5.54
Creditors 2 7 3
73.06 54.8 18.2 85.55 64.1 21.4 97.09 72.8 24.28
0 6 7 0 1

1. Summarized Cost of Project

Rs. in lakhs
a. Land 1.91
b. Site development and building 51.27
c. Plant and machinery 199.31
d. Miscellaneous Fixed Assets 41.75
e. Pre-operative expenses 70.00
f. Provision for contingencies 34.60
g. Margin Money for working capital _39.74
(I Yr.)
438.58

2. Means of Finance
a. Promoters equity 90.00
b. Public issue 269.00
c. Govt. subsidy 30.00
d. Term loan _50.00
439.00

1. Cost of project

Land 12.16
Buildings and Site 77.84
Development
Plant and Machinery 214.00
Miscellaneous Fixed Assets 238.00
Preliminary expenses 16.50
Pre-operative expenses 69.50
Contingency 34.40
Margin Money _57.28
719.68

Computation of Working Capital and Margin Money Requirements

(Rs. lakhs)
Component Months BF I Year II Year III Year
(%
)

WC BF MM WC BF MM WC BF MM

Raw 2.00 75 86.59 64.94 21.6 101.0 75.77 25.2 129.8 97.41 32.46
material 5 2 5 9

Consumable 2.00 75 0.33 0.25 0.08 0.39 0.29 0.10 0.50 0.38 0.12

Work-in- 0.50 75 24.4 18.3 6.12 28 .44 21. 33 7.11 36.43 27.32 9.11
process 6 5

Finished 1.00 75 51.36 38.52 12.8 59.68 44.76 14.9 76.29 57.22 19.07
goods 4 2

Debtors 0.50 75 34.63 25.97 8.66 40.40 30.30 10.1 51.94 38.96 12.98
0

197.3 148.0 49.3 229.9 172.4 57.2 295.0 221.2 73.76

7 3 5 3 5 8 5 9

2. Means of Finance

Given DER = 0.321 : 1

Total debt = 719.68 x 0.321 = 174.78 i.e. Rs.175 lakhs (rounded off to the nearest lakh) 1.321
Promoters’ contribution = 719.68 – 365 -175 = Rs.179.68 lakhs

The means of finance are:

Debt : Rs.175.00 lakhs

Equity : Rs.544.68 lakhs

Rs.719.68 lakhs