MF Final Project

Century Paper & Board Mills Limited

Managerial Finance Project Report

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Submitted To:

Sir, Ch. Mazhar Hussain

Submitted By:

Faisal Rasool

M. Toufique

YasirMehmood

Bilal Shahid

Reg. No:

6822-FMS/MBA/F14

6776-FMS/MBA/F14

6823-FMS/MBA/F14

6837- FMS/MBA/F14

Class:

MBA 1.5

Semester:

2nd“B”

International Islamic University Islamabad

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Acknowledgment

This project consumed huge amount of work, need data and implementation would not have been possible if we did not have a support of many individuals and organization management. Therefore we would like to extend our sincere gratitude to all of them.

First of all we are thankful to Century Paper & Board Mills Limited for their financial and Accounts support and for providing necessary information and guidance concerning projects implementation.

We are also indebted to our teacher Mr. Ch. Mazhar Hussain for his guidance and supervision, which has played a vital role in the completion of this research.

We are also extremely grateful to our parents who always wanted the best for us and encouraged us to carry on.

Our thanks and appreciations also go to my colleague in developing the project and people who have willingly helped me out with their abilities.

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Table of ContentsAcknowledgment...................................................................................................................................3

Chapter 1...............................................................................................................................................4

1.0 Introduction:....................................................................................................................................4

1.1 Objectives of the study:...................................................................................................................4

1.2 Purpose/ Scope................................................................................................................................4

1.3 Significance......................................................................................................................................4

1.4 Company Profile..............................................................................................................................4

1.4.1 Short History.................................................................................................................................4

1.4.2 Lakson Group of companies.........................................................................................................5

1.4.3 Vision Statement..........................................................................................................................6

1.4.4 Mission Statement........................................................................................................................6

1.6 Project Details..................................................................................................................................8

Chapter 2...............................................................................................................................................9

2.0 Capital Budgeting.............................................................................................................................9

2.0.1 Capital expenditures.....................................................................................................................9

2.1 Steps in capital budgeting decision making.....................................................................................9

2.2 Initial investment...........................................................................................................................10

2.3 Operational Cash Flows.................................................................................................................11

2.4 Terminal Cash Flows......................................................................................................................12

Chapter 3.............................................................................................................................................13

3.0 Net present value:.........................................................................................................................13

3.0.1 Advantages and Disadvantages..................................................................................................14

3.1 Pay Back Period:............................................................................................................................15

3.1.1 Advantages and Disadvantages..................................................................................................16

3.2 Internal rate of return....................................................................................................................17

3.2.1 Advantages and Disadvantages of IRR........................................................................................18

Chapter 4.............................................................................................................................................20

4.0 Cost of Capital................................................................................................................................20

4.1 Cost of long-term debt..................................................................................................................20

4.2 Cost of preferred stock,.................................................................................................................20

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4.3 Cost of common stock equity,.......................................................................................................21

4.4 Constant-growth valuation (Gordon growth) model.....................................................................21

4.5 Capital asset pricing model (CAPM)...............................................................................................22

4.6 Weighted average cost of capital (WACC),....................................................................................23

Chapter 5.............................................................................................................................................24

5.0 Leverage and Capital Structure:.....................................................................................................25

5.1 Operating leverage........................................................................................................................26

5.2 Financial Leverage.........................................................................................................................27

5.3 Total leverage................................................................................................................................28

Chapter 6.............................................................................................................................................29

Conclusions:.........................................................................................................................................29

RECOMMANDATION

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Chapter 1

1.0 Introduction:Project on Century Paper & Board Mills Limited

1.1 Objectives of the study: Overview of the company To get the knowledge about Product Study of the organizational structure Capital budgeting and cash-flow of the company Capital budgeting Techniques of the company Cost of Capital of the company Leverage & capital structure

1.2 Purpose/ ScopeWe are doing the financial analysis of the century paper and board mill limited for

investment purpose and want to know the value of the organization by applying the different type of analysis. It beneficial for the management decision making for the company and helpful for investors for investment decision.

1.3 SignificanceOur analysis beneficial for shareholder and investors. It will provide the basic

information to everyone who wants to know about the company. Our analysis will helpful for the future researchers.

1.4 Company Profile

1.4.1 Short HistoryCentury Paper & Board Mills Limited (CPBM), established in 1984, is Flagship

Company of the Lakson Group of Companies – Pakistan.

The Lakson Group was founded in 1954. Lakson Group is a well-known business group in Pakistan. The conglomerate is run by the Lakhani brothers among whom Iqbal Ali Lakhani is Chairman of the Lakson group. His siblings are Amin Lakhani, Sultan Lakhani and Zulfiqar Lakhani. Its head office is located in Karachi, Sind, Pakistan. The Group's portfolio consists of detergents and soaps, toothpaste, food products, fast food restaurants,

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insurance, internet services, software, paper and board, printing, powdered beverages and tea, packaging, publications, surgical instruments, and textiles.

1.4.2 Lakson Group of companiesMedia

Express News, Urdu-language news channel Express 24/7, English-language 24-hour news channel (closed down) Express Entertainment, Urdu-language Entertainment channel Times TV, Urdu-languageentertainment and news channel The Daily Express, No. 2 Urdu daily in Pakistan Express Tribune, English newspaper Century Publications

Other

AccuraySurgicals Limited Century Insurance Company Century Paper and Board Mills Century Power Generation Limited Clover Pakistan Colgate-Palmolive Pakistan Cybernet Internet Service (Private) Limited Ice Animations Lakson Business Solutions Limited ,Software Solution Provider LaksonInvestments Limited Merit Packaging Limited Princeton Travels (Private) Limited SIZA Foods (Private) Limited (McDonald's) Sybrid (Pvt) Limited TetleyClover Pakistan (Private) Limited Tritex Cotton Mills Limited

The Company started commercial production in 1990 and established its name as major producer of quality Packaging boards in the country. It has attained a position of Market Leader in Packaging Boards in particular and is considered as most Preferred Supplier to Printing and Packaging Industry. The Company serves many of the prestigious clientele and maintaining Strategic Business Relationships with leading Packaging and

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Converting units as well as end users, which include national and multinational companies. The Company is also in export business and its Packaging Boards are successfully competing in the international market.

The company entered into Corrugated Cartons Manufacturing Business in 2003 by installing “Agnati” Italian corrugators, renowned name in the industry. The plant is capable to cater large continuous orders for different types of boxes to serve multifarious sectors including Soaps & Detergents, Home Appliances, Dairy Products, Ice Cream, Food and Beverages, Cigarettes and Tobacco and Lubricants etc. Being vertically integrated corrugation unit with companies own Liner and Fluting supplies the plant has an edge to ensure consistency in supplies and quality.

The company is managed by a competent team of professionals in all the relevant fields like Process, Paper Technology, Engineering, Finance, Business Management and Human Resource. The Company assigns great importance to its Human Capital Development and has been managing Trainings of its professionals by sending them to Foreign and Local Training Programs / Exhibitions / Courses.

The plant comprising of Seven Paper Machines (PMs), a Complete Corrugated Cartons Manufacturing Plant, Integrated Pulp Mills (Major Inputs Wheat Straw), in house Engineering Workshop, Captive Power Generation Plant, and Chemical House etc. is situated on 162 Acres close to major business city (Lahore) of the country.

1.4.3 Vision StatementTo be the market leader and an enduring force in the paper, board and packaging

industry, positively influencing and providing value to our stakeholders, society and our nation.

1.4.4 Mission StatementTo strive incessantly for excellence and sustain our position as a preferred supplier of

quality paper, board and packaging material within a team environment and with a customer focused strategy.

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1.4.5

1.4.6

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1.4.7

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1.6 Project DetailsIn first chapter we introduce the company with vision and mission statement and also

describe the objective, purpose and significance. In chapter 2 we will describe capital budgeting cash flow and estimations, theoretically and also with analysis. In chapter 3 we will describe PBP, NPV and IRR and analysis. In chapter 4 cost of capital of the company theoretically and numerically. In chapter 5 we will describe leverage and capital structure. And in last chapter we will explain conclusion and recommendation and references.

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Chapter 22.0 Capital Budgeting:

Capital budgeting is the process of evaluating and selecting long-term investments that are consistent with the firm’s goal of maximizing owners’ wealth. Firms typically make a variety of long-term investments, but the most common is in fixed assets, which include property (land), plant, and equipment. These assets, often referred to as earning assets, generally provide the basis for the firm’s earning power and value.

Capital Budgeting is the process by which the firm decides which long-term investments to make. Capital Budgeting projects, i.e., potential long-term investments, are expected to generate cash flows over several years.

The process in which a business determines whether projects such as building a new plant or investing in a long-term venture are worth pursuing. Oftentimes, a prospective project's lifetime cash inflows and outflows are assessed in order to determine whether the returns generated meet a sufficient target benchmark.

2.0.1 Capital expenditures are made for many reasons.

The basic motives for capital expenditures are to expand, replace, or renew fixed assets or to obtain some other less tangible benefit over a long period.

2.1 Steps in capital budgeting decision making1. Proposal génération:

Proposals for new investment projects are made at all levels within a business organization and are reviewed by finance personnel. Proposals that require large outlays are more carefully scrutinized than less costly ones.

2. Review and analysis:

Financial managers perform formal review and analysis to assess the merits of investment proposals.

3. Décision making:

Firms typically delegate capital expenditure decision making on the basis of dollar limits. Generally, the board of directors must authorize expenditures beyond a certain amount. Often plant managers are given authority to make decisions necessary to keep the production line moving.

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4. Implementation:

Following approval, expenditures are made and projects implemented. Expenditures for a large project often occur in phases.

5. Follow-up:

Results are monitored and actual costs and benefits are compared with those that were expected. Action may be required if actual outcomes differ from projected ones.

If CurrentAssest>CurrentLabilitiesitmeaninflow If CurrentAssest<CurrentLabilitiesitmeanoutflow

2.2 Initial investment of proposed machinery at Century Paper & Board Mills Limited

Rupees(000) Rupees(000)

Installed Cost of New Asset

Cost of new asset200000

+ Installation Costs57000

Total Installed Cost- Proposed 257000

- After Tax Proceeds from sale of Present machine

Proceeds from sale of present machine8000

- Tax on sale of present machine-2011

Total after-tax proceeds- Present -5989

+ Change in net working capital-

Initial Investment 251011

Working 1

Tax Calculation:

Dep = 90, 00,000 x 83% = 7,47,0000

BV= Price of Asset- Dep

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BV= 9000000-7470000 = 1530000

Rep. Dep. = S.P –BV

Rep. Dep = 8000000-1530000 = 6470000

6470000 x .3109=2011523

2.3 Operational Cash Flows of Century Paper & Board Mills Limited.Amount in

(000)

Years 1 2 3 4 5 6

Revenue 110000 130000 140000 160000 170000 -

-Expenses 2160 2270 2750 3100 3510 -

EBITD 107840 127730 137250 156900 166490

-Depreciation 18478 22565 17554 11086 11086 4619

Profit Before tax 89362 105165 119696 145814 155404 -4619

-Tax 27783 32696 37213 45334 48315 -1436

Net income after tax 61579 72469 82483 100480 107089 -1436

+Depreciation 18478 22565 17554 11086 11086 4619

Net operating cash flow 80057 95034 100037 111566 118175 3183

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2.4 Terminal Cash Flows of Century Paper & Board Mills Limited

Rupees (000) Rupees (000)

After tax proceeds from sale of proposed machine =

Proceeds from sale of proposed machine 180000

- Tax on sale of proposed machine (Working # 1) 52853

Total after tax proceeds---- Proposed 127147

-AfterTaxProceedsfrom sale of Present machine

Proceeds from sale of present machine -

- Tax on sale of present machine -

Total after-tax proceeds--- Present -

+ Change in net working capital -

Terminal Cash Flow 127147

Working 2

Cost Price of new machine = 200000

Accumulated Depreciation:

(20%+32%+19%+12%+12%) ×200000 = 190000

Book Value = Initial Cost- Accumulated Depreciation

Book Value = 200000 - 190000

Book Value = 10000

Recaptured Depreciation = Sale Price - Book Value

Recaptured Depreciation = 180000 – 10000

Recaptured Depreciation = 170000

Tax = Recaptured Depreciation × Tax rate

Tax = 170000× 35.09%Tax = Rs. 5285316


Chapter 3

Capital Budgeting Techniques

Capital budgeting (or investment appraisal) is the process of determining the viability of long-term investments on purchase or replacement of property, plant and equipment, new product line or other projects.

Capital budgeting consists of various techniques used by managers such as:

Net Present Value Payback Period Discounted Payback Period Internal Rate of Return Accounting Rate of Return

Profitability Index

3.0 Net present value:The difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyse the profitability of an investment or project.

Where:

Ct = net cash inflow during the period

Co= initial investment

r = discount rate, and

t = number of time periods

Acceptaproject if its NPV > 0; Rejectaproject if its NPV < 0; Indifferentwhere NPV = 0.

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Calculate the value of NPV Century Paper & Board Mills Limited we assumed Discount rate 11%

Years Cash Inflows (000) Present Value (000) Discount Rate

1 110000 99099 11%

2 130000 105511 11%

3 140000 102367 11%

4 160000 105397 11%

5 170000 100886 11%

NPV=∑t=1

5

513260−500000

NPV= 13260

The NPV value of the project is > 0 so it show project will accepted.

3.0.1 Advantages and DisadvantagesAdvantages of Net Present Value (NPV)

1. NPV gives important to the time value of money.2. In the calculation of NPV, both after cash flow and before cash flow over the life span

of the Project are considered.3. Profitability and risk of the projets are given high priority.4. NPV helps in maximizing the firm's value.

Disadvantages of Net Present Value (NPV)

1. NPV is difficult to use.2. NPV cannot give accurate decision if the amount of investment of mutually exclusive

projects are not equal.3. It is difficult to calculate the appropriate discount rate.4. NPV may not give correct decision when the projects are of unequal life.

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3.1 Pay Back Period:The payback period, PP, is the length of time it takes to recover the initial investment of the project. To apply the payback period criterion, it is necessary for management to establish a maximum acceptable payback value PP*. In practice, PP* is usually between 2 and 4 years. In determining whether to accept or reject a particular project, the payback period decision rule is:

Accept if PP < PP* Reject if PP > PP* Indifferentwhere PP = PP* For mutually exclusive alternatives accept the Project with the lowest PP if PP<PP*

Formula:

If annual cash inflow is the same for every year then we use this formula

Payback Period= Total InvestmentCashinflow (net profit )

If the cash inflow is not same then we calculate PP by using this formula

PBP=[a+ {b−c }d ]

a= number of recovery year of initial investment

b= initial investment

c= cumulative cash inflow in recovery year

d= cash inflow of the next year

PP tells us how much time will be required to recover the initial investment. By helping this technique, we can select the best project for investment and recover the initial investment in minimum time period.

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Calculation of Payback period for Century Paper & Board Mills Limited

Years

Cash Inflows (000) Cumulative Cash inflows (000)

0 (500000)

1 110000 110000

2 130000 240000

3 140000 380000

4 160000 520000

5 170000 690000

PBP=[3+ 500000−380000160000

]

PBP= 3.75

Payback period tells us about in how much time period we will get back our initial investment. As we analyze our data by applying payback period technique we got that the project will get back its initial investment in 3.75 years. Therefore, we will accept this project without any hesitation.

3.1.1 Advantages and DisadvantagesAdvantages of payback period are:

1. Payback period is very simple to calculate.2. It can be a measure of risk inherent in a project. Since cash flows that occur later in a

project's life are considered more uncertain, payback period provides an indication of how certain the project cash inflows are.

3. For companies facing liquidity problems, it ,provides a good ranking of projects that would return money early.

Disadvantages of payback period are:

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1. Payback period does not take into account the time value of money which is a serious drawback since it can lead to wrong decisions. A variation of payback method that attempts to remove this drawback is called discounted payback period method.

2. It does not take into account, the cash flows that occur after the payback period.

3.2 Internal rate of returnThe internal rate of return (IRR) is the discount rate that equates the NPV of an investment opportunity with $0 (because the present value of cash inflow equals the initial investment). It is the rate of return that the firm will earn if it invests in the project and receives given cash inflow.

If the IRR is greater than the cost of capital, accept the project. If the IRR is less than the cost of capital, reject the project.

PVat low rate = I (PVIFA) + MV (PVIF)

PVat high rate = I (PVIFA) + MV (PVIF)

IRR formula

IRR= iL+[( iH−iL) (PvL−Initial Investment )

Pv L−PvH

]

We assumed the Discount factor @ 8% and the NPV of the project is calculated as below

Years Discount Rate

Cash Inflows (000)

1 27% 110000

2 27% 130000

3 27% 140000

4 27% 160000

5 27% 170000

PV L=¿557,746.33

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We assumed the Discount factor @ 13% and the NPV of the project is calculated as below

Years Discount Rate

Cash Inflows (000)

1 13% 110000

2 13% 130000

3 13% 140000

4 13% 160000

5 13% 170000

PV H=¿486,581.41

Now the IRR value can be calculated using the interpolation formula, i.e.

IRR=0.08+[ (0.13−0.08 ) (557,746−500000 )(557,746−486,581 ) ]

IRR=0.08+[ (0.05 ) (57747 )(71165 ) ]

IRR=0.08+[ 2887.3571165 ]

IRR=12.05 %

We will accept the project because the internal rate of return is greater than the opportunity cost or the

cost of capital.

3.2.1 Advantages and Disadvantages of IRRAdvantages

1. Tells whether an investment increases the firm's value

2. Considers all cash flows of the project

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3. Considers the time value of money

4. Considers the risk of future cash flows (through the cost of capital in the decision rule)

Disadvantages

1. Requires an estimate of the cost of capital in order to make a decision

2. May not give the value-maximizing decision when used to compare mutually exclusive

projects

3. May not give the value-maximizing decision when used to choose projects when there is

capital rationing

4. Cannot be used in situations in which the sign of the cash flows of a project change more than

once during the project's life

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Chapter 4

4.0 Cost of CapitalThe Rate of return that a firm must earn on the project in which it invests it maintain its market value and attract funds.

Types of Cost of Capital

There are basically three main types of cost of capital

1. Cost of debt2. Cost of preferred stock3. Cost of equity

4.1 Cost of long-term debtThe financing cost associated with new funds raised through long-term borrowing.

Net proceeds

Funds actually received by the firm from the sale of a security

Flotation costs

The total costs of issuing and selling a security.

Kd= I+

par value−N d

nNd+ par value

2

KdGiven in Annual Report that is Kd=¿10.73%

4.2 Cost of preferred stock,The ratio of the preferred stock dividend to the firm’s net proceeds from the sale of preferred stock.

Cost of preferred stock can be calculated as follows:

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K ps=D ps

N ps

Where:

Np= (sales proceeds - flotation cost)

Kp= Cost of preferred stock

Dp= Annual dividend

Calculation Kp for Century Paper & Board Mills Limited

K ps=1.5

53.43

K ps=2.81%

4.3 Cost of common stock equity,The rate at which investors discount the expected dividends of the firm to determine its share value.

Calculation Ke for Century Paper & Board Mills Limited

Cost of Equity = Do (1+g )

Po+g

Ke=1.5 (1+0.09 )

53.83+0.09

Cost of Equity =12.03%

4.4 Constant-growth valuation(Gordon growth) modelAssumes that the value of a share of stock equals the present value of all future dividends (assumed to grow at a constant rate) that it is expected to provide over an infinite time horizon.

Calculation for Century Paper & Board Mills Limited

Gordan Formula

P0= D0(1+g)(Ke−g)

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= 1.5 (1+0.09 )

(0.1203−0.09)

= 53.96

4.5 Capital asset pricing model (CAPM)Describes the relationship between the required return, rs, and the non-diversifiable risk of the firm as measured by the beta coefficient, b.

CAPM= Rf +B (Rm−Rf )

Calculation for Century Paper & Board Mills Limited with Assumed Value

= 5%+.70(14%-5%)

= 11.3%

4.6 Weighted average cost of capital (WACC),Reflects the expected average future cost of capital over the long run; found by weighting the cost of each specific type of capital by its proportion in the firm’s capital structure.

WACC= (WeKe )+(WpKp )+(KdWd )(1−T )

Source of capital Weight Cost

Debt 0.48 10.71 %

Common 0.52 12.03 %

Calculation of WACC for Century Paper & Board Mills Limited

= (.58*12.03) + (0) + (.42*10.73) (1-0.3109)

WACC= 10.09%

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Chapter 5

5.0 Leverage and Capital Structure:Leverage involves the use of fixed costs to magnify returns. Its use in the capital

structure of the firm has the potential to increase its return and risk. Leverage and capital structure are closely related concepts that are linked to capital budgeting decisions through the cost of capital. These concepts can be used to minimize the firm’s cost of capital and maximize its owners’ wealth.

Capital structure the mix of long-term debt and equity maintained by the firm can significantly affect its value by affecting return and risk. Unlike some causes of risk, management has almost complete control over the risk introduced through the use of leverage. Because of its effect on value, the financial manager must understand how to measure and evaluate leverage, particularly when making capital structure decisions.

The three basic types of leverage

1. Operating leverage is concerned with the relationship between the firm’s sales revenue and its earnings before interest and taxes, or EBIT

2. Financial Leverage is concerned with the relationship between the firm’s EBIT and its common stock earnings per share (EPS).

3. Total leverage is concerned with the relationship between the firm’s sales revenue and EPS

5.1 Operating leverageOperating leverage results from the existence of fixed operating costs in the firm’s income stream. Operating leverage as the potential use of fixed operating costs to magnify the effects of changes in sales on the firm’s earnings before interest and taxes.

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The degree of operating leverage (DOL) is the numerical measure of the firm’s operating leverage. It can be derived using the following equation

DOL=%change∈EBIT%change∈sales

Calculation of DOL for Century Paper & Board Mills Limited

The EBIT and SALES of Century Paper & Board Mills Limited for the year 2013 and 2014 is given as below:

Year EBIT in Millions %Change EBIT Sales in Millions % Change in sales

2014 Rs.2350 11.96% Rs.17132 3.75%

2013 Rs.2099 Rs.16513

DOL= 11.963.75

DOL= 3.19

DOL is 3.19 ≥ 1

This show operating cost of Century Paper & Board Mills Limited covers from Operating leverage.

Whenever the percentage change in EBIT resulting from a given percentage change in sales is greater than the percentage change in sales, operating leverage exists. This means that as long as DOL is greater than 1, there is operating leverage.

A more direct formula for calculating the degree of operating leverage

DOL= QX (P−VC)

QX (P−VC )−FC

5.2 Financial LeverageFinancial leverage results from the presence of fixed financial costs in the firm’s income stream. Financial leverage as the potential use of fixed financial costs to magnify the effects of changes in earnings before interest and taxes on the firm’s earnings per share. The two

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fixed financial costs that may be found on the firm’s income statement are (1) interest on debt and (2) preferred stock dividends. These charges must be paid regardless of the amount of EBIT available to pay them.

The degree of financial leverage (DFL) is the numerical measure of the firm’s financial leverage. Computing it is much like computing the degree of operating leverage. The following equation presents one approach for obtaining the DFL.

DFL=%change∈EPS%change∈EBIT

Calculation of DFL for Century Paper & Board Mills Limited

The EBIT and EPS of Century Paper & Board Mills Limited for the year 2013 and 2014 are given as below:

Year EBIT (Million) %Change EBIT EPS % Change in EPS

2014 2350 11.96% 6.46 21.89%

2013 2099 5.3

DFL= 21.89 %11.96%

DFL= 1.83

The value of DFL is 1.83 ≥ 1

Thethis shows that Century Paper & Board Mills Limited have greater financial leverage or Century Paper & Board Mills Limited financial cost cover from financial leverage.is shows that Century Paper & Board Mills Limited have greater financial leverage or Century Paper & Board Mills Limited financial cost cover from financial leverage.

A more direct formula for calculating the degree of financial leverage:

DFL = EBIT

EBIT−I−(PDX1

1−T)

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5.3 Total leverageTotal leverage, can be defined as the potential use of fixed costs, both operating and financial, to magnify the effect of changes in sales on the firm’s earnings per share. Total leverage can therefore be viewed as the total impact of the fixed costs in the firm’s operating and financial structure.

The degree of total leverage (DTL) is the numerical measure of the firm’s total leverage. It can be computed much as operating and financial leverage is computed. The following equation presents one approach for measuring DTL

DTL= %change∈EPS%change∈Sales

Calculation of DTL for Century Paper & Board Mills Limited

The EPS and Sales of Century Paper & Board Mills Limited for the year 2013 and 2014 are given as below:

Year Sales in Millions % Change in sales EPS % Change in EPS

2014 Rs.17132 3.75% 6.46 21.89%

2013 Rs.16513 5.3

DTL= 21.89 %3.75 %

DTL= 5.84

If Century Paper & Board Mills Limited sales increase by 10%, the company's EPS will increase by 58.4% (10%)(5.84).

Direct formula for calculating the degree of total leverage:

DTL= QX (P−VC )

QX (P−VC )−FC−I−(PDX 11−T

)

We can also calculate the DTL By:

Calculation of DTL for Century Paper & Board Mills Limited by this equation

DTL= DOL x DFL

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DTL= 3.19 X 1.83

DTL= 5.84

Chapter 6

Conclusions:After analysing cash flow statement we came to know that the project of Century Paper & Board Mill Limited will be the best project they ever had.

We calculate the initial investment, Operational Inflows and Terminal cash flows and after looking on results we can say that all the things are going in right directions. The terminal cash flow is approx. half then the initial investment this is little bit confusing thing but the operation inflows fulfil this drawback.

The techniques which we used to analyze Century Paper & Board Mills Limited is following:

Payback period IRR Net present value

The results we got by applying these techniques are discussed in previous pages.

We will accept this project due to reasons which are mention below:

Company got back its investment before its time period. IRR was greater than its cost of capital.

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Net present value of the project was over zero. Ratio between present value and future cash flow of the project was over one.

Afterward we calculated WACC, it clearly states that this is the best project ever created. The Century Paper & Board Mill Limited is showing rapid growth. The IRR of this project is over WMCC so this project is helpful for Century Paper & Board Mill Limited. Now we calculated leverage it clearly states that increasing trend is covering its expenses in a better shape and showing positive results of this project.

RECOMMANDATION

They must continue this hard work in the same passion for future concerns. The things which is useful for project are following

Keep the work at the same pace for future Progress Keep an eye on your IRR of the Project consistantly Avoid all equity structure as its increas esexpected EPS and its deviation

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Documents

MF Final Project