Feasibility Report

On

ZestCourse: Financial AppraisalClass: M.Com Final (Finance)

Group Number: 2Faisal Arshad (08)Arsalan Aftab (20)Naresh Kumar (25)Umair Farooqi (42)Zeeshan Qayyum (50)

Contents

Page 2 of 42

General BriefThe feasibility report is about the launching of new, unique and

enthralling soft-drink, ZEST. The beverages industry has been popular in Pakistan for the past many decades. Even though, the beverage industry has been monopolized by the 2 giants PEPSI and COKE that have completely captured the market, there still are some people, segments, and groups that have not been targeted optimally. The major focus of our team is to provide customer satisfaction to those groups and people that are still unsatisfied. There are many people clinched in the claws of diabetes, others are highly health conscious. Such are the people that are the prime target of ZEST.

For the past few years the trend of eating out has gained remarkable popularity. This trend is solely not just the contribution of people considering eating out as a luxury but it has become a part of their life style. In fact it has become a necessity and about three-fourth of the middle class in Pakistan eat outs twice in every 7 days (The Daily Mail-online, 21st December 2009). This has led to substantial increase in the demand of beverages. KFC, McDonalds, Pizza hut etc have all contributed to this boom. According to a research conducted by Pepsi cola in 2005, 63% of its sales is attributed to fast foods (Pepsi Cola – Research Studies 2005).

Apart from that, popular beverages like Pepsi and Coca Cola are available on corners of streets, off the side of interstates, airports, malls, schools, gas stations, local shopping center, and even in hospitals. This is the core reason for the massive market share of these brands and huge sales figures. Despite the complete domination of the market by these two colossal, the fast paced changing life styles and tastes of customer has opened gaps for these organizations to fill up. Mountain Dew, Pepsi Max, Pepsi Twist, Limca, Vimto and many more have emerged on the scene.

The availability of new brands like Dew and others have clearly demonstrated that market gaps are constantly emerging. If this is so, why not a new organization, like us (ZEST), fills it up rather than the existing ones.

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Project BriefThe concerned project is about providing superior taste keeping in

mind the desires of health conscious customers. The company under the name of ZEST is to launch several different products with diversified tastes as per customer requirements. The aim is to provide equally good taste to our health conscious customers that were not available to them under the PEPSI and COKE brands.

ZEST’s primary focus is to capture the market share in Karachi, with its targets extending to all major cities of Pakistan within 5 years time. Apart from making ZEST products easily available at all level of retail shops, we also intend franchises like KFC, Pizza Hut and McDonalds to endorse our product. Many regional and local fast food restaurants have developed around the main cities of Pakistan, in order to penetrate the market we will provide items that appeal to the unique regional tastes and habits at comparatively lower costs.

Including the conventional Diet Pepsi-related taste, we are also offering other tastes like ZEST Orange (Miranda), ZEST White (7-up), ZEST Lem (Lemonade), ZEST Ice (Moutain Dew), ZEST Appachino (Apple flavoured), ZEST Minwa (Mineral Water) and also new tastes never offered before, ZEST Fruit-punch and Zest Voltage (Energy Drink).

The conventional Pepsi and Coke drinks include Carbonated water, Phosphoric Acid, Caffeine, Emulsifier, Natural flavour, Artificial colour and also sugar and excessive calories. All ZEST products, on the other hand, are sugar free that reduces calories too the minimal like the Diet offerings of Pepsi and Coke. In addition, ZEST includes “SODIUM CYCLAMATE” (C

6H

12NNaO

3S) an artificial sweetener, which provides

the same good taste but does not increase calories substantially.

Page 4 of 42

Opportunity Rationale

Pakistan is a potential market for beverages industry with a population of about 160 million with a greater chunk of it being the middle-class. Approximately two-fifth (Ages ranging 5 – 65 within Middle and Upper Middle Class taken from Economic Survey of Pakistan 2007-2008) of the total population represents the potential market for processed and packaged foods, which is still rising.

Economic Survey of Pakistan 2007-2008

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Furthermore it is estimated that the middle ranged age groups will contribute to the major portion of the Pakistan’s population in the coming years. It is estimated that the productive age group i.e. Ages 15 – 60 will take the greater chunk (about 67% of total population) by 2020 (Population Projections 1998-2023, Planning Commission; NIPS).

Population Projections 1998-2023, Planning Commission; NIPS

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Electronic media has aided in the exposure to international food products and brands, which ultimately has increased their desirability amongst Pakistani consumers. The consumption of beverages in Pakistan is valued at approximately Rs. 90 to 120 billion yearly (Pepsi and Coke alone generate approximately Rs. 76 billion altogether as estimated by Pepsi in 2005 and Coke in 2006). The market has been growing at an annual rate of approximately 15% due to the substantial increase in eat-outs and it is estimated that by 2010 it would have grown by 30.5% (Pakistan Food & Drink Report Q4 2006).

ZEST is to be a complete Production based organization focusing mainly on producing and distributing its products to the potential customers via retailers and other channels. Thus, proper promotional activities carry immense importance for ZEST’s establishment as a successful organization in the beverages industry.

ZEST plans to commence its production in Korangi Industrial Area, Karachi on approximately 50,000 sq. feet of flat land near Vita Chowrangi. The space is partially to be used for installing the Manufacturing Plant, Quality Control Centre and R & D Department, and the rest for the Distribution Network Administration and a proper parking place for the Distribution Department’s Vehicles.

To start its business, ZEST is launching its products amongst the population of 18 million in Karachi only. The estimated customers of the beverage industry are 10 to 12 million out of which the potential customers (health conscious customers to start with) of ZEST would be approximately 1 to 1.5 million. This would attribute to an approximate sale of Rs 2.7 to 4 billion yearly or Rs. 7 to 11 million daily.

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The two major competitors to ZEST would be Pepsi Cola and Coke. Diet-Pepsi, Diet 7-up, and Diet Coke are the only popular drinks offered by Pepsi and Coke to health conscious people. Apart from that, Diet Drinks are not easily available to customers especially at small retail shops, and if they are they are only available in tin cans or in family packs and NO REGULAR 250ml bottles.

ZEST aims to satisfy its customer not just by providing the various new flavours, but also to make a perfect substitute of Diets easily available everywhere. The production capacity required to fulfill the demand of first year of ZEST’s launch is estimated at about 1.5 to 2 million gallons i.e. of Karachi alone. ZEST intends to market its products in the 250 ml Regular bottles package. The decided ratio for the packaging of ZEST drink is illustrated below:

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Pepsi’s only successful launch has been Mountain Dew in the past 5 years time. Pepsi Twist failed to earn Pepsi the same results. Coke hasn’t launched any new flavor in soft drinks either. Thus, in the conventional soft-drink market, new products have not been successfully launched creating a gap for ZEST to dominate.

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Economic SizeThe Pakistan beverage industry is approximately valued at Rs. 90

to 120 billion. The market has been growing at an annual rate of approximately 15% due to the substantial increase in eat-outs. The potential markets in Pakistan are: Karachi (population: 1 to 1.5 million); Lahore (population: 0.5 to 1 million); and Islamabad & Rawalpindi (approximately 1 to 1.5 million). The dramatic growth of the beverages industry in the country has been unparalleled. In recommendation of the plant capacity we considered the following stats:

Beverage industry has been growing rapidly entering into areas like Juices and Mineral Water too.

Soft-Drinks Sales has been increasing for over 15% for the past 5 years and they alone account for over 65% of beverages sales (Pepsi Statictics)

Beverages industry contributes to 25% of the total revenues of Eat-outs.

The need to have the proper production plant for producing beverages, which consists of production as well as bottling machines.

Discussions with the industry experts and entrepreneurs.

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Project Investment

A business plan provides a platform to establish a good reputed business. But to do so, one has to invest and bear heavy costs. The costs to be incurred on the following assumptions:

Human Resource

Equipment Capacity Location

68 American and Japanese

1.5–2 million gallons (daily)

in close proximity to main road

Total Project Cost

The initial investment plan proposed above is compiled based on many assumptions and calculations. Most of the information generated is from existing Beverages Industry Giants, Pepsi and Coke. Proposed costs and information is presented with Karachi as the only potential market in consideration, though later ZEST intends to expand its operations into the rest of Pakistan too.

The cost structure has been divided into 4 different heads;1) Machinery & Equipment2) Human Resource3) Office Furniture and Fixtures4) Land and Building

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Equipment and Machinery

Equipment Quantity Unit Cost Total CostIB-04 Analysis

Assembly1 25,20,000 25,20,000

Brix Controller 1 1,85,000 1,85,000

CO2 Controller 1 1,20,000 1,20,000

Remote Display Unit 1 5,58,000 5,58,000

MULTILAB III Remote Command

1 10,59,000 10,59,000

Angel 100BPH (Filling)

1 8,10,000 8,10,000

Automatic Snapcap Capping Machine

1 15,85,000 15,85,000

RGY2T-1G-Linear-Filling-Machine

1 12,63,000 12,63,000

Reverse OsmosisWater purification

Plant

1 1,500,000 1,500,000

Distribution Trucks 4 20,00,000 80,00,000

Refrigerators 2,000 12,000 2,40,00,000

TOTAL 2,012 1,16,12,000 4,16,00,000

All the machines are specialized machines for the manufacturing, filling or capping purpose. Their cost includes the cost of shipment and installations of theses machines in the Manufacturing Plant area.

Distribution Trucks have been purchased to minimize the element of dependency on a third party or organization. Thus, ZEST’S Distribution Departmental Head directly control Distribution of the product.

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Office Furniture and Fixtures

Equipment Quantity Unit Cost Total CostTable & Chair for CEO 1 9,600 9,600

Table and chair for Manager/Department

Head

6 8,000 48,000

Table and chair for Supervisor/Officers

16 5,000 80,000

Table and chair for Other Staff Members

10 4,400 44,000

Other Staff Chairs 15 400 6,000

Personal Computer 7 25,000 1,75,000

Laser Printer 7 15,000 1,05,000

Fax Machine 4 20,000 80,000

UPS 5 9,000 45,000

Air Conditioner 5 15,000 75,000

TOTAL 66 1,11,400 6,17,600

Personal computers along with a laser printer each, would be required for the CEO, Administration Manager, Marketing and Sales Manager, Distribution Manager, Production Manager, Human Resource Manager and Finance and Accounts Manager. UPS is to be arranged for each personal computer provided.

Fax machines are to be provided to the CEO, Account and Finance Manager, Marketing and Sales Manager and Human Resource Manager. All the departments are interconnected via a local area network in order to make communication easier, faster and reliable.

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Human Resource

Designation Staff

Salary (Monthly)

Annual Cost

CEO 1 60,000 7,20,000Administration Manager 1 40,000 4,80,000

Marketing & Sales Manager

1 40,000 4,80,000

Distribution Manager 1 40,000 4,80,000

Production Manager 1 40,000 4,80,000

Human Resource Manager 1 40,000 4,80,000

Accounts and Finance Manager

1 40,000 4,80,000

Marketing Officer 5 15,000 9,00,000

Production Supervisor 2 30,000 7,20,000

Packing Supervisor 2 20,000 4,80,000

Sales Supervisor 5 30,000 18,00,000

Personal Driver 1 10,000 1,20,000

Distribution Truck Driver 4 10,000 4,80,000

Washer 2 9,000 2,16,000

Filler 5 10,000 6,00,000

Loader 6 12,000 8,64,000

Plant Helper 20 10,000 24,00,000

Packing Supervisor 2 10,000 2,40,000

Watchman 2 6,000 1,44,000

Sweeper 5 6,000 1,44,000

TOTAL 68 4,78,000 1,27,08,000

The salaries are according to the latest statistics and rates

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that are going on in the market.

A Departmental Head is assigned for each of the five independent departments that will be functioning in ZEST Organization. Departmental Heads have supervisors or officers to assist them in the daily routine tasks and to provide them with the details required.

Apart from that, there are many general and specialized labour to perform the different required jobs in order to keep the plant in a running condition. These include washer, filler loader and the plant helpers.

This is the current workforce requirement for the commencement of business in Karachi alone. In the near future, ZEST’S aim to expand its business through out Pakistan, will definitely create huge gaps that would be filled with more skillful and competitive labour.

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Land and Building

For the proposed set of Beverages Manufacturing Plant, a total of 100,000 sq. feet is required. This land requirement includes space for the installation of plant and machinery, Distribution Network and Distribution Trucks, management office, store for bottles, finished product and parking. The requirement of each of these departments is bifurcated below:

Total Covered Area Requirement

Space Requirement Area RequirementBottle Washing and Storage

Plant (50,000 bottles)10,000 sq. feet

Actual Manufacturing Plant including Quality Control

40,000 sq. feet

Finished product storage room

1,500 sq. feet

Management office 3,000 sq. feet

Distribution Network (Including Distribution Trucks Parking Area)

10,000 sq. feet

Water Filtration Plant 15,000 sq. feet

Factory Canteen 1,500 sq. feet

Factory Masjid 2,000 sq. feet

Car Parking Lot 2,000 sq. feet

TOTAL Area (Minimal) 85,000 sq. feet

The area calculated is solely of the covered area, that is why the selected site is much more than the Total required area proposed by this analysis.

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Total Land Cost & Construction Cost

Total Land Cost100,000 sq. feet 6,00,00,000

Covered Area Requirement 85,000 sq. feet

Time required for civil works 11 months

Construction RatesBottle Washing and Storage Plant 10,000

sq. feet @ Rs. 600 per feet60,00,000

Actual Manufacturing Plant including Quality Control 40,000 sq. feet @ Rs. 600

per feet

2,40,00,000

Finished Product Storage Room 1,500 sq. feet @ Rs. 600 per feet

9,00,000

Management Office 3,000 sq. feet @ Rs. 600 per feet

18,00,000

Distribution Network (Including Distribution Trucks Parking Area) 10,000

sq. feet @ Rs. 600 per feet

60,00,000

Water Filtration Plant 15,000 sq. feet @ Rs. 600 per feet

90,00,000

Factory Canteen 1500, sq. feet @ Rs. 500 per feet

7,50,000

Factory Masjid 2,000 sq. feet @ Rs. 500 per feet

10,00,000

Car Parking Lot 2,000 sq. feet @ Rs. 30 per feet

60,000

TOTAL Area (Minimal) 4,95,10,000

The area calculated is solely of the covered area, which is why the selected site is much more than the Total required area proposed by this analysis.

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Utilities Requirement

Utility Monthly ChargesElectricity 7,50,000

Water 20,000

Gas 4,00,000

Telephone 25,000

TOTAL COST 11,95,000

The expenditures quoted above have been estimated after considering the actual expense of similar organizations that have been in operation for a considerable duration of time.

Working Capital Requirement

Expenditures 2 Months CostUtilities 23,90,000Salaries 9,86,000

Raw Materials (1 week inventory only)

3,50,000

Other Expenditures (Fuel, etc.)

74,000

TOTAL COST 38,00,000

To ensure the smooth running of a business for the first few months, the above-mentioned cost should be well kept in mind.

The other expenditure head includes the diesel consumption and the maintenance of the Distribution Trucks and other preliminary expenditures that should not be overlooked.

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Marketing and Advertising Strategy

Marketing is a very important part of successful business operations. Thus, it is essential to properly implement carefully formulated strategies.

Product

ZEST will not only be according to the needs of the people but also according to the quality and standards that are to be maintained by us in our publicity campaigns. The services attached with the product would be regular and sufficient supply. In addition, we will see that the product reaches the customers in good order and condition.

Overall, the product’s main core benefits are that it is a premium indulgent product and customers’ value propositions are constantly changing, as depicted through launching of various brands.

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Pricing

ZEST will keep its prices at par with existing brands of the market. We will exert in lowering the cost of the raw materiel by obtaining it from the source markets as far as possible, so our prices will be more affordable compared to others without any compromise on quality and standard.

More over, we will try our best to reduce our fixed cost and all these factors will have a favorable balance on the price structure. ZEST does not intend to enter the market with a penetrating strategy, it rather will enter as a brand that is of a good quality and fine standard.

The following prices are proposed for the Zest Products:

Zest, Zest White, Zest Orange, Zest AppachinoZest Lem, Zest Ice and Zest Fruitpunch: Junior 175 ml Rs. 10Regular 250 ml Rs. 15Can 330 ml Rs. 25Youth500 ml Rs. 20Family 1.5 ltr Rs. 50Jumbo 2.5 ltr Rs. 70

Promotion

For a product like carbonated soft drink, the importance of promotion in the marketing strategy is immense. Promotion will assume the most important position in the marketing mix of ZEST. ZEST’s promotion will be in the hands of Marketing Department, which will work in coordination with Sales Department, Accounts and Finance Department and Production department.

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Promotion will include activities directed towards increase in sales in different areas such as sales promotion letters to restaurants and marriage halls including existing multinational caterers like KFC and McDonald and also new entrants like Pizzeria.

More and more food streets are opening in Karachi; such as that at Powerhouse chowrangi, North Karachi. This provides an opportunity for ZEST to cater for the needs of growing soft drink market.

ZEST labeled refrigerators will serve for merchandizing part of promotion. ZEST posters will also be placed at points of sale.

Placement

Since our products will be new to the market and the tag they would carry that of “ZEST” is not known, its important to build up awareness of our products. The Distribution Network will directly distribute the product to the retail shops by means of our delivery trucks. This, apart from ensuring proper placement, will also provide chances of shopkeepers and customer of interacting with our Sales Supervisors regarding the product details.

Our Sales Supervisors will visit the 18 towns of Karachi on regular basis on the directions of our Sales Manager who will ensure smooth and consistent supply of Zest.

Thus, ZEST’s marketing team intends to blend with the distribution team to carry out this difficult task of creating awareness and recognition of ZEST as a well-reputed drink in the market.

The map on the following page provides an idea of the distribution of the 18 towns of Karachi.

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Advertising

ZEST will approach both print and electronic media for advertising its products. However, since ZEST’s current market is Karachi, more emphasis will be placed on Karachi-bound advertising such as:

Radio channels Fm 100, Fm 101, Fm103, Fm 89 and Fm 96 Signboards Daily Newspapers Television & the Internet

The advertising will follow once our sales team has reached all retailers and proposed supply is accounted for throughout Karachi. The marketing personnel employed by ZEST will prepare the ZEST’s advertising plan. The advertising budget will be based as a percentage of sales.

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Projected Cash flowsProjected cash flows of ZEST for the first five years are as follows:

Total Revenue Generations

Years Projected Cash flows1 Rs. 1,642,000,0002 Rs. 2,053,000,0003 Rs. 5,475,000,0004 Rs. 9,125,000,0005 Rs. 14,600,000,000

Assumptions

The estimated customers of the beverage industry in Karachi are 10 to 12 million out of which the potential customers (health conscious customers to start with) of ZEST would be approximately 1 to 1.5 million. This would attribute to an approximate sale of Rs 1 to billion yearly on the assumption that every second individual consumes a ZEST product worth Rs. 15 daily. Due to the increase in the middle-age group in the upcoming years, beverages market is bound to increase. Thus, ZEST’s sales are expected to rise each year.

Year 1 Targeted Customer 1.5 m, 1 out of every 5 consumes ZESTYear 2 Targeted Customer 1.5 m, 1 out of every 4 consumes ZESTYear 3 Targeted Customer 3.0 m, 1 out of every 3 consumes ZESTYear 4 Targeted Customer 5.0 m, 1 out of every 3 consumes ZESTYear 5 Targeted Customer 8.0 m, 1 out of every 3 consumes ZEST

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Working Capital Management

RequirementsCash 11,400,000

Inventory:Zest Cola 75,0000

Zest White 50,000Zest Orange 50,000

Zest Appachino 50,000Zest Lem 35,000Zest Ice 50,000

Zest Fruitpunch 35,000Zest Minwa 25,000Zest Voltage 10,000

The cash amount posted above has been derived keeping in mind the expenses that ZEST might have to pay as well as the normal daily routine expenditures.

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Equity-Debt Financing

The project requires about 175 million to be commenced. The funds generation is illustrated in the table below:

Source AmountEQUITY

Arsalan Aftab Rs. 25,000,000Faisal Arshad Rs. 25,000,000Umair Farooqi Rs. 30,000,000

Zeeshan Qayyum Rs. 15,000,000Naresh Kumar Rs. 10,000,000

DEBT26% Debentures Rs. 20,000,00022% Debentures Rs. 50,000,000

Both the Debentures are to be redeemed after 10 years under normal circumstances.

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Projected Cash FlowsYear 1 Year 2 Year 3 Year 4 Year 5

Fixed Assets (Cost)

176,000,000 176,000,000 176,000,000 176,000,000 176,000,000

Working Capital

275,584,510 376,552,318 294,130,880 376,842,820 361,722,220

Revenue 1,642,000,000 2,053,000,000 5,475,000,000 9,125,000,000 14,600,000,000

COGS (1,082,548,815) (1,365,265,518) (3,625,459,621) (5,750,017,380) (9,195,288,234)

Depreciation (133,520) (133,520) (133,520) (133,520) (133,520)

Selling & Admin

Expenses(120,000,000) (128,000,000) (208,000,000) (288,000,000) (416,000,000)

Interest Expense

(16,200,000) (16,200,000) (16,200,000) (16,200,000) (16,200,000)

Profit before Tax

423,117,665 543,400,962 1,625,206,859 3,070,649,100 4,972,378,246

Tax (21%) (88,854,710) (114,114,202) (341,293,440) (644,836,311) (1,044,199,432)

Net Income 334,262,955 429,286,760 1,283,913,419 2,425,812,789 3,928,178,814

Terminal In FlowRecovery

from Working Capital

361,722,220

Recovery from Sale

(Fixed Assets)

29,617,169

Cash Flows 334,262,955 429,286,760 1,283,913,419 2,425,812,789 3,928,178,814

Depreciation Expense

8,423,520 7,719,520 7,156,320 6,705,760 6,345,310

Cash Flows 342,686,475 437,006,280 1,291,069,739 2,432,518,549 4,325,863,513

Total Terminal In flow 4,315,863,513

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Additional Information and AssumptionsFixed Assets have been recorded under historical cost methods,

thus, shown in Balance sheet at cost.

Working Capital has been posted after the following calculations: Yr1 Yr2 Yr3 Yr4 Yr5

Inventory (End) 175,584,510 226,552,318 69,130,880 126,842,820 86,722,220 Cash Requirements 100,000,000 150,000,000 225,000,000 250,000,000 275,000,000

The Sales revenue and Cost of Goods Sold had already been calculated earlier and is posted as it is.

Depreciation mentioned is related to the Administration and Selling (example furniture and office equipment) and has been taken from the “Depreciation Schedule (Office Equipment)”.

Selling and Administration Expenses are calculated as follows: Yr1 Yr2 Yr3 Yr4 Yr5

Adv. On Cable TV 80,000,000 80,000,000 160,000,000 240,000,000 320,000,000 Adv. On FM 32,000,000 32,000,000 32,000,000 32,000,000 64,000,000Adv. on Newspaper 8,000,000 16,000,000 16,000,000 16,000,000 32,000,000

In the first 2 years, advertisement was only posted on 2 channels, in the 3rd Year in 3 channels, and 4 channels in the fourth year all showing ZEST advertisements thrice a week.

The increase in the cost of advertising through FM is also because of the increase in the frequency of advertisements being done.

Advertisements on newspaper is also being done, the major increase in the last year is due to the posting of advertisements in Sunday Dawn too.

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The interest expense was calculated as per the rate mentioned on Debentures:

22% Debentures 50,000,000 = 50,000,000 x 0.22 = 11,000,00026% Debentures 20,000,000 = 20,000,000 x 0.26 = 5,200,000

Total Interest 16,200,000

Recovery from sale of Fixed Assets is an amount driven from the book value summation of the Fixed Assets.

The depreciation amount being added back is the summation of depreciation calculated earlier and the depreciation of office equipments.

The repayment of loan is being done at the end of 5th year because of the liquidation of the business, otherwise the Debentures payable were after 10 years.

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Weighted Average Cost of

CapitalWACC = Cost of Equity (E/A) + Cost of Debt (D/A) (1-Tax)

Cost of Debt:

Debentures Rs. 20,000,000 (26%)Debentures Rs. 50,000,000 (22%)

As the Debentures bear different interest rates as well as different amounts, the Cost of Debt must be calculated as under:

20,000,000/70,000,000 x 26 = 7.428550,000,000/70,000,000 x 22 = 15.7142Total Cost of Debt (Average) = 23.142 %

Cost of Equity:

Cost of Equity is considered to be the “Cost of Debt” + “Risk Premium”, where the “Risk Premium” is considered 7%.

Cost of Equity will be =23.142% + 7%Total Cost of Equity = 30.142% or 30%

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Weighted Average Cost of Capital

WACC = [(105,000,000/175,000,000)](30%)+[(70,000,000/175,000,000)](22%)(79%)

= 0.18 + 0.06952 = 0.24952

WACC = 24.952%

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Net Present Value

NPV = PV inflow – PV outflow

Year Cash Inflows PV Cash Inflows

1 330,196,305 265,022,076.062 409,125,652 263,558,116.803 1,277,817,698 660,691,054.754 2,411,952,215 1,000,940,057.505 4,310,297,180 1,435,675,957.44

Total 8,739,389,050 3,625,887,263

NPV = 3,625,887,263 – 175,000,000

NPV = Rs 3,450,887,262.55

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IRR:

IRR is the rate where Net Present Value becomes “0”. Thus, it’s the rate where the:-PV inflow = PV outflow

175,000,000 = 330,196,305 + 409,125,652 + 1,277,817,698 + 2,411,952,215 + 4,310,297,180 (1+i) (1+i)2 (1+i)3 (1+i)4 (1+i)5

The rate “I” calculated is:IRR= 257%

Pay Back Period 0 1 2 3 4 5

(175,000,000) 330,196,305 409,125,652 1,277,817,698 2,411,952,215 4,310,297,180

(155,196,305)

Pay Back Period

= Years Before fill recovery + Unrecovered amount of Beg of the year Cash flow of the year

= 0 + 175,000,000 330,196,305

= 0 + 0.52998776

Pay Back Period = 0.53 years

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Discounted Pay Back Period

0 1 2 3 4 5

(175,000,000) 265022076.1 263558116.8 660691054.8 1000940058 1435675957

(90,022,076.1)

Discounted Pay Back Period

= Years before fill recovery + Unrecovered amount of Beg of the year

Cash flow of the year

= 0 + 175,000,000265,022,076.1

Discounted Pay Back Period = 0.6603 years

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Sensitivity Analysisof Project

Along with new opportunities, organizations are constantly facing new challenges in the market. The success of an organization is in its capability of handling such challenges and changing accordingly.

It is important to check whether a project is stable enough to bear economic, political as well as social changes and the influences that these changes bring about. To do so, Sensitivity Analysis is carried out in which one variable is disturbed to examine the impact of the change on the overall project.

There are many variables that can be changed to check the sensitivity and stability of the project. We are considering only two variables for our Project “ZEST”.

Variables Disturbed:

1) Sales Volume (being decreased by 20%), and

2) Cost of Labour (being increased by 25%).

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Sales Volume (decreased by 20%)

The sales in units is decreased by 20% to check

the stability and margin of safety of the project.

Accordingly, factors directly related to Sales like

COGS also change. Thus, COGS is reduced due to the

reduction in the variable costs, but fixed costs remain

same.

This impact enables an Analyst to foresee the

problems that may arises if certain disturbances occur

in the project, allowing precautionary solutions to be

drafted out.

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Cost of Labour (increased by 25%)

The labour cost is increased by 25% to see what

impact the increased cost would bring about in revenue

generations. The increase in Labour Cost only

increases the Manufacturing Cost and the COGS.

This impact enables an Analyst to foresee the

problems that may arises if certain disturbances occur

in the project, allowing precautionary solutions to be

drafted out.

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Projected Cash FlowsYear 1 Year 2 Year 3 Year 4 Year 5

Fixed Assets (Cost) 176,000,000 176,000,000 176,000,000 176,000,000 176,000,000

Working Capital 275,584,510 376,552,318 294,130,880 376,842,820 361,722,220

Revenue 1,313,600,000 1,642,400,000 4,380,000,000 7,300,000,000 11,680,000,000

COGS (834,337,736) (1,095,721,298) (2,945,337,555) (4,593,308,227) (7,380,122,751)

Depreciation (133,520) (133,520) (133,520) (133,520) (133,520)Selling &

Admin Expenses (120,000,000) (128,000,000) (208,000,000) (288,000,000) (416,000,000)Interest Expense (16,200,000) (16,200,000) (16,200,000) (16,200,000) (16,200,000)

Profit before Tax 342,928,744 402,345,182 1,210,328,925 2,402,358,253 3,867,543,729

Tax (21%) (89,521,880) (110,690,238) (341,758,088) (643,356,653) (1,042,719,773)

Net Income 336,772,785 416,406,132 1,285,661,378 2,420,246,455 3,922,612,481

Terminal In FlowRecovery

from Working Capital

361,722,220

Recovery from Sale

(Fixed Assets)

29,617,169

Net Income 336,772,785 416,406,132 1,285,661,378 2,420,246,455 3,922,612,481

Depreciation Expense

8,423,520 7,719,520 7,156,320 6,705,760 6,345,310

Cash Flows 345,196,305 424,125,652 1,292,817,698 2,426,952,215 4,320,297,180

Repayment of Loans

(15,000,000) (15,000,000) (15,000,000) (15,000,000) (10,000,000)

Total Terminal In flow 4,310,297,180

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Projected Cash FlowsYear 1 Year 2 Year 3 Year 4 Year 5

Fixed Assets (Cost)

176,000,000 176,000,000 176,000,000 176,000,000 176,000,000

Working Capital

275,584,510 376,552,318 294,130,880 376,842,820 361,722,220

Revenue 1,642,000,000 2,053,000,000 5,475,000,000 9,125,000,000 14,600,000,000

COGS (1,082,901,815) (1,365,618,518) (3,625,812,621) (5,750,370,380) (9,195,641,234)

Depreciation (133,520) (133,520) (133,520) (133,520) (133,520)

Selling & Admin

Expenses(120,000,000) (128,000,000) (208,000,000) (288,000,000) (416,000,000)

Interest Expense

(16,200,000) (16,200,000) (16,200,000) (16,200,000) (16,200,000)

Profit before Tax

422,764,665 543,047,962 1,624,853,859 3,070,296,100 4,972,025,246

Tax (21%) (88,780,580) (114,114,202) (341,293,440) (644,836,311) (1,044,199,432)

Net Income 333,984,085 428,933,760 1,283,560,419 2,425,459,789 3,927,825,814

Terminal In FlowRecovery

from Working Capital

361,722,220

Recovery from Sale

(Fixed Assets)

29,617,169

Net Income 333,984,085 428,933,760 1,283,560,419 2,425,459,789 3,927,825,814

Depreciation Expense

8,423,520 7,719,520 7,156,320 6,705,760 6,345,310

Cash Flows 342,407,605 436,653,280 1,290,716,739 2,432,165,549 4,325,510,513

Repayment of Loans

(15,000,000) (15,000,000) (15,000,000) (15,000,000) (10,000,000)

Total Terminal In flow 4,315,510,513

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Scenario Analysisof Project

The Scenario is based on an optimistic as well as a pessimistic approach. It provides an environment within which the stability and flexibility of the project can be measured and evaluated.

The first Scenario is based on Inflation (of about 10%) which causes the general rise in prices of all things.

The Second one is based on increased competition.

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Projected Cash FlowsYear 1 Year 2 Year 3 Year 4 Year 5

Fixed Assets (Cost)

176,000,000 176,000,000 176,000,000 176,000,000 176,000,000

Working Capital

275,584,510 376,552,318 294,130,880 376,842,820 361,722,220

Revenue 1,806,200,000 2,258,300,000 6,022,500,000 10,037,500,000 16,060,000,000

COGS (1,190,803,697) (1,501,792,070) (3,988,005,583) (6,325,019,118) (10,114,817,057)

Depreciation (133,520) (133,520) (133,520) (133,520) (133,520)

Selling & Admin

Expenses(132,000,000) (140,800,000) (228,800,000) (316,800,000) (457,600,000)

Interest Expense

(16,200,000) (16,200,000) (16,200,000) (16,200,000) (16,200,000)

Profit before Tax

467,062,784 599,374,410 1,789,360,897 3,379,347,362 5,471,249,423

Tax (21%) (98,083,185) (114,114,202) (341,293,440) (644,836,311) (1,044,199,432)

Net Income 368,979,599 485,260,208 1,448,067,457 2,734,511,051 4,427,049,991

Terminal In FlowRecovery

from Working Capital

361,722,220

Recovery from Sale

(Fixed Assets)

29,617,169

Cash Flows 368,979,599 485,260,208 1,448,067,457 2,734,511,051 4,427,049,991

Depreciation Expense

8,423,520 7,719,520 7,156,320 6,705,760 6,345,310

Cash Flows 377,403,119 492,979,728 1,455,223,777 2,741,216,811 4,824,734,690

Total Terminal In flow 4,814,734,690

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Projected Cash FlowsYear 1 Year 2 Year 3 Year 4 Year 5

Fixed Assets (Cost)

176,000,000 176,000,000 176,000,000 176,000,000 176,000,000

Working Capital

275,584,510 376,552,318 294,130,880 376,842,820 361,722,220

Revenue 1,436,750,000 1,796,375,000 4,790,625,000 7,984,375,000 12,775,000,000

COGS (866,039,052) (1,092,212,414) (2,900,367,697) (4,600,013,904) (7,356,230,587)

Depreciation (133,520) (133,520) (133,520) (133,520) (133,520)

Selling & Admin

Expenses(150,000,000) (160,000,000) (260,000,000) (360,000,000) (520,000,000)

Interest Expense

(16,200,000) (16,200,000) (16,200,000) (16,200,000) (16,200,000)

Profit before Tax

404,377,428 527,829,066 1,613,923,783 3,008,027,576 4,882,435,893

Tax (21%) (84,919,260) (114,114,202) (341,293,440) (644,836,311) (1,044,199,432)

Net Income 319,458,168 413,714,864 1,272,630,343 2,363,191,265 3,838,236,461

176,000,000 176,000,000 176,000,000 176,000,000 176,000,000

Terminal In FlowRecovery

from Working Capital

361,722,220

Recovery from Sale

(Fixed Assets)

29,617,169

Cash Flows 319,458,168 413,714,864 1,272,630,343 2,363,191,265 3,838,236,461

Depreciation Expense

8,423,520 7,719,520 7,156,320 6,705,760 6,345,310

Cash Flows 327,881,688 421,434,384 1,279,786,663 2,369,897,025 4,235,921,160

Total Terminal In flow 4,225,921,160

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