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A

DETAILED PROJECT REPORT ON

SULEX SOLAR SYSTEMS

BY:

DIBYA RANJAN BEHERA-10211

MEINAM BHOPENDRO SINGH – 10330

ANUSHA BODDAPATI – 10303

MEGHANA VASANTHAM – 10328

T.K. NAVEEN-10228

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Contents

CASE ............................................................................................................................................................ 4

MISSION ...................................................................................................................................................... 4

VISION ........................................................................................................................................................... 4

KEYS TO SUCCESS .......................................................................................................................................... 4

PRODUCTS ..................................................................................................................................................... 5

Features of Solar Water Heating System: ................................................................................................. 6

Working of Solar Water Heating Systems ................................................................................................. 6

Benefits of Solar Systems .......................................................................................................................... 6

COST AND SAVINGS ...................................................................................................................................... 7

MARKET ANALYSIS ........................................................................................................................................ 7

Market segmentation ............................................................................................................................... 7

Market Channels ....................................................................................................................................... 8

Marketing strategy .................................................................................................................................... 8

Website Marketing Strategy ..................................................................................................................... 8

PROMOTIONAL STRATEGIES ......................................................................................................................... 9

COMPETITIVE EDGE ...................................................................................................................................... 9

TECHNICAL ANALYSIS .................................................................................................................................... 9

PLACE FOR THE COMPANY: PATANCHERU ............................................................................................. 11

Infrastructural Facilities .......................................................................................................................... 11

Expenses ..................................................................................................................................................... 12

Actual Cost Of the project: ...................................................................................................................... 14

Annexure 1(a): ............................................................................................................................................ 15

Asset valuation for the purpose of depreciation .................................................................................... 15Annexure 1(b): ............................................................................................................................................ 15

Depreciation on written down value method ........................................................................................ 15

Annexure 2: ................................................................................................................................................. 16

Calculation of working capital requirements .......................................................................................... 16

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Annexure 3: ................................................................................................................................................. 17

Calculation of interest on term loan ....................................................................................................... 17

Annexure 4: ................................................................................................................................................. 17

Profitability EstimatesSSS ....................................................................................................................... 17

Annexure 5: ................................................................................................................................................. 18

Cash flow Estimates ................................................................................................................................ 18

Annexure 6: ................................................................................................................................................. 19

Projected Balance Sheet ......................................................................................................................... 19

Ratio Analysis .............................................................................................................................................. 20

Interpretations ........................................................................................................................................ 20

Total Fixed Costs and Variable Costs .......................................................................................................... 21

Break Even Point in Units and Rupees: ................................................................................................... 22

Calculation of NPV, IRR, and ARR: ............................................................................................................... 22

Interpretations ........................................................................................................................................ 23

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CASE

Mr.X and Mr.Y are planning to start up a new private limited company, Sulex solar systems ltd,

with a distribution capacity of at least 120 solar products per annum. Mr. X is an Electrical

Engineer and has a long experience of 10 years. Mr.Y is a Mechanical Engineer with anexperience of more than 15 years in a manufacturing unit of solar products. As the demand for

the solar product is increasing day by day the company can expect more sales in the coming

years. The company will be affected directly by the other solar product manufacturers. Company

needs to concentrate more on marketing its products as there are many players in the market.

The assembling process involves the following activities are:

• Fabrication of panel and storage tanks.

• Assembly of tank, panel coil and other components

• Inspection and commissioning.

Raw materials required for the manufacturing of Solar Water Heater are Copper Aluminum

Sheet, Pipe, Glass Fibre, Glass Sheets, Thermostat, insulation material and others. Market

potential solar water heating systems are useful for both domestic & institutional segments.

MISSION

To be the premier solar water heating systems distributor, offering the highest quality products

and superior customer service contributing towards an Eco – Friendly environment.

VISION

• To drive awareness and build sales through advertising.

• To gain market penetration within few years.

KEYS TO SUCCESS

The business of Solar Water Heating Systems will be successful only if there is a long term

relationship with the manufacturers of SWHS.

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• Customer is king for any business, so maintaining a good relationship with customers

helps in the success of business.

• The business must provide different variety of Solar Water Heating Systems and

advertising and promotional activities have to be done in order to attract more number of customers.

• “After sales “service is crucial for the business and feedback from the customers have to

be accepted and necessary steps have to be taken to implement the suggestion given by

the customers.

PRODUCTS

Sulex solar systems will sell two versions of a solar home water heating system. One will be a

unit sold as a do-it-yourself model. The second model is sold as a unit to be installed by a

licensed installer. By providing two models, Sulex will appeal to two different customer

segments, one that likes the challenge of projects and has the skills to execute the plans, and

people who desire a solar heating system but have no desire or skills to install it themselves.

Solar power is a clean, environmentally friendly source of energy. There are no toxic

emissions. Solar water heating systems are in high demand. Typically 30%-40% of a family's

electricity bill is devoted to devoted water. Sulex solar systems can save the individual family

from 70%-90% of the total amount spent on the electricity used for heating water. During times

of decreased sunlight, the system will preheat the water then bring it up to temperature by the

conventional water heating system all ready in place.

Sulex solar products are manufactured by a large industry supplier and shipped to the factory for

partial assembly. With this procurement/manufacturing method, Sulex is able to minimize large

capital expenditures for manufacturing while being able to offer high quality products. Sulex

provides a five year warranty on the products against manufacturer's defects. Five years is the

industry standard.

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Features of Solar Water Heating System:

• Energy saving

• Large storage unit

• Maximum heat retention

• Long lasting

• Suitable for remote locations

• High quality raw material

• Cost-effective

Working of Solar Water Heating Systems

Solar water heating systems use solar panels, called collectors, fitted to the roof. These collect

heat from the sun and use it to warm water which is stored in a hot water cylinder. There are two

types of solar water heating panels; they are evacuated tubes and flat plate collectors. Flat plate

collectors can be fixed on the roof tiles or integrated into the roof. A boiler or immersion heater

can be used as a back up to heat the water further to reach the temperature set by the cylinders

thermostat when the solar water heating system does not reach that temperature.

Benefits of Solar Systems

A boiler or immersion heater can be used as a back up to heat the water further to reach the

temperature set by the cylinders thermostat when the solar water heating system does not reach

that temperature.

• Hot water throughout the year: the system works all year round, in winter season

boiler is required to heat the water.

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• Cut in electricity bills: sunlight is free, so once the initial payment is done after

installation, hot water costs will be reduced.

• Cut carbon footprint: solar hot water is a green, renewable heating system and can

reduce carbon dioxide emissions.

COST AND SAVINGS

Cost: cost of a typical solar water heating system is around 15,000 – 20,000.

Maintenance costs are very low. Most solar water heating systems come with a 5-10 year

warranty and require little maintenance. Panels have to be checked thoroughly by an accredited

installer every 3-5 years, or as specified by the installer.

MARKET ANALYSIS

Sulex has identified two distinct market segments for marketing their products. The first segment

is the "DIY" segment of handy individuals. The second is the "Convenience" segment that will

utilize a skilled installer to have the system installed at their home. There are some companies

that sell kits that must be assembled and then installed by the individual. There are other

companies that only sell professional installed systems. Some companies sell solar water heaters

specifically for swimming pools, others market their products for households.

Market segmentation

Sulex has identified two market segments to target.

DIY

these people do a lot of repairs and upgrades on their home. They have lots of building and repair

skills and like to tackle projects while learning new skills. This customer segment has a varietyof motivations for do-it-yourself work. One motivation is saving money. Another is the

satisfaction of completing the project by their own. Additionally, customizing the project may be

appealing.

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Convenience

This segment is looking for the advantages of a solar based water heating system without the

challenge of installation. They appreciate the value of the solar heating system. This group

recognizes the environmental and/or economic benefits of solar water heating and will choose a

professional installer.

Market Channels

Sulex solar products will be sold through several channels:

DIY Retailers: This channel purchases Sulex products in quantity and then resells them to

individuals to install.

Professional Installers: This channel is comprised of approved Sulex solar systems installers.

Marketing strategy

Sulex solar systems marketing campaign focuses on raising awareness about the environmental

and economic benefits of having a solar-based water heating system and also solar products.

Environmental benefits include using a renewable resource and no toxic discharge or emissions,

thus allowing individuals to make serious commitments to the Earth. Customers will also enjoy

the economic savings afforded by a solar water heating system.

Sulex solar systems marketing will focus on advertising and trade shows. In each of these venuesthey will target the DIY and professional install markets along with retailers carrying Sulex

products. In addition, Sulex solar systems will develop relationships with utilities in an attempt

to offer rebates or other financial incentives for utility customers using the alternative energy

source.

Website Marketing Strategy

The marketing and sales department will be instructed to rely heavily on the website as a

clearinghouse for information about products. Energy saving estimates, technical requirements,installations guidelines as well as product comparisons will be available. All printed materials

will refer to the website as information source.

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PROMOTIONAL STRATEGIES

• Website, will be designed where we provide product knowledge/ applications/ usage etc.

• Builders/ renovators/architects/ etc that can influence the usage will be targeted.

• Demos will be conducted at the local shopping centers / offer special discounts to the

buyers.

• Joint promotions with selected/ well known home builders and offer a special deal to the

home buyers.

COMPETITIVE EDGE

Sulex solar systems have two competitive edges that will distinguish them from the competition.

First, it serves both the DIY market and the professional install market. This is a competitive

edge because it can reconfigure one product for both market segments, immediately increasing

the number of potential customers, at minimal costs to Sulex. The equipment is the same with

minor changes to packaging and installation instructions. The DIY system will also include some

tools.

TECHNICAL ANALYSIS

Name of the Promoter Age

• Mr. X 37

•

Mr. Y 42

Schedule of Implementation

• Acquisition of land: Land is owned by Mr. X

• Construction of Buildings: Dec 2011

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• Procurement of Plant & Machinery: June 2012

• Trail Assembling of solar systems: Sep 2012

• Commercial Production: Dec 2012

Materials Required

These components include:

• Charge controller

• Lead acid deep cycle batteries

• DC disconnect

• AC breaker panel

• Power inverter

• Kilowatt hour meter

• System meter

Sources of Supply

• Ad solar energy group co.ltd

• Geo solar

• Wenzhou solar energy ltd.

• CNBM international corporation materials

Minimum Purchase Quantity

Minimum purchase quantity from the suppliers is 8 and it also depends on the seasonality. The

inventory maintained in winter is more rather than in summer as the sales percentage will be high

during winter for water heaters and for other products summer has high demand as the capacity

of energy stored in summer is high.

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Man Power

Assembling 8

Marketing 6

Financing & Accounting 2

General Management 2

Supervisors 3

Skilled & Unskilled workers 5

Administrative Staff 2

Others 5

Total 35

PLACE FOR THE COMPANY: PATANCHERU

The sulex solar systems will be located at patancheru, in Hyderabad. As patancheru is the major

industrial hub of Andhra Pradesh and also there are many industries in patancehru. We have

chosen this place for the company as it is 15kms from HITECH city and also as it is surrounded

with many other industries it would be easy for customers to find the company.

Patancheru is in Medak district which has good network of roads, the national high way No.9

Connecting Hyderabad to Mumbai passes through the district, thereby connecting Hyderabad to

Places in Karnataka and Maharastra. There are many manufacturing plants in Maharashtra and it

would be easy for the company to get the products from them and assemble them in the

company.

Infrastructural Facilities

Transport facilities

Patancheru is in Medak district which has good network of roads, the national high way No.9

Connecting Hyderabad to Mumbai passes through the district, thereby connecting Hyderabad to

Places in Karnataka and Maharastra.

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Electric power

Arrangements made Power Requirement: The power required is generated through the solar

products

Water Requirement:

A small amount of water is also necessary for panel washing. However, because it directly gener

ates electricity from sunlight.

Expenses

Production

First year 122

Second year 230

Third year 294

Fourth year 294

Fifth year 294

Cost of Raw Material

First year 130714

Second year 246428

Third year 315000

Fourth year 315000

Fifth year 315000

Repairs & Maintenance

First year 75000

Second year 80000

Third year 85000

Fourth year 90000

Fifth year 95000

Power & Telephone

Chargers

First year 20748

Second year 39116

Third year 50000

Fourth year 50000

Fifth year 50000

Rent and insurance

First year 1040000

Second year 1040000

Third year 1040000

Fourth year 1040000

Fifth year 1040000

wages and salaries

First year 53946

Second year 101701

Third year 130000

Fourth year 130000

Fifth year 130000

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Revenue

First year 2928000

Second year 5520000

Third year 7056000

Fourth year 7056000

Fifth year 7056000

Administration

expenses

First year 50000

Second year 60000

Third year 70000

Fourth year 80000

Fifth year 90000

selling expenses

First year 12200

Second year 23000

Third year 29400

Fourth year 29400

Fifth year 29400

Office equipment 250000

Furniture 160000

Building 400000

Thermostat 100000

Insulation material 25000

Total 935000

share of preliminary expenses

Office equipment 71958.56

Furniture 46053.48

Building 115133.7

Thermostat 28783.42

Insulation material 7195.856

Total 269125

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Actual Cost Of the project:

Total cost of the project is 1350000

Less: Margin for Working Capital 115000

Actual cost of project 1235000

Write off preliminary expenses 30875

Remaining amount to be capitalized 269125

Proportionately to fixed assets

preliminary expenses 100000Contingencies 200000

300000

Share Capital 500000

Term Loan 850000

Total 1350000

Particulars Amount

Office equipment 250000

Furniture 160000

Building 400000

Thermostat 100000

Insulation material 25000

Preliminary Expense 100000

Contingencies 200000

Margin of WC 115000

Total 1350000

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Annexure 1(a):

Asset valuation for the purpose of depreciation

Annexure 1(b):

Depreciation on written down value method

Items cost of Fixed assets

share of preliminary expenses

and contingencies Total cost

Office equipment

250000 71958.55615 321958.5561

Furniture 160000 46053.47594 206053.4759

Building 400000 115133.6898 515133.6898

Thermostat 100000 28783.42246 128783.4225

Insulation material25000 7195.855615 32195.85561

Total 1204125

Items Percentage Total cost First year Second year Third year Fourth year Fifth year

Officeequipment 5% 321958.5561 16097.92781 15293.03142 14528.37985 13801.96085 13111.8628

Furniture 5% 206053.4759 10302.6738 9787.540107 9298.163102 8557.980381 7702.18234

Building 7% 515133.6898 36059.35829 33535.20321 31187.73898 29004.59726 24943.9536

Thermostat7% 128783.4225 9014.839572 8383.800802 7796.934746 7251.149314 6235.98841

Insulationmaterial 7% 32195.85561 2253.709893 2095.950201 1802.517172 1696.881282 1585.4941

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305860.6283 290567.5969 276039.2171 262237.2562 249125.3934

195750.8021 180457.7707 171159.6076 162601.6272 154899.4449

479074.3316 445539.1283 414351.3894 385346.7921 360402.8385

119768.5829 111384.7821 103587.8473 96336.69803 90100.7096229942.14572 27846.19552 26043.67835 24346.79707 22761.30296

Annexure 2:

Calculation of working capital requirements

Items

Norms in

months First year Second year

Third

year

Fourth

year Fifth year

Stock of Raw material 2 22086.207 41637.93103 52500 52500 52500

Stock of work-in-progress 0.75 98015.086 109849.1379 116562.5 116875 117187.5

Stock of finished material 1.5 202280.17 227198.2759 241875 243750 245625

Sales 1 244000 460000 588000 588000 588000

Total CA 566381.47 838685.3448 998937.5 1001125 1003312.5

Less: margin for working

capital 141595.37 209671.3362 249734.38 250281.25 250828.13

424786.1 629014.0086 749203.13 750843.75 752484.38

Less: Creditors 10 3630.6094 6844.591403 8630.137 8630.13699 8630.137

Balance for which loan is

given 421155.49 622169.4172 740572.99 742213.613 743854.24

Particulars First year

Second

year Third year

Fourth

year Fifth year

Raw material 132517.2414 249827.59 315000 315000 315000

power, telephone charges 21034.48276 39655.172 50000 50000 50000

repairs and maintenance 75000 80000 85000 90000 95000

rent, insurance 1040000 1040000 1040000 1040000 1040000

wages and salaries 54689.65517 103103.45 130000 130000 130000

Depreciation 245000 245000 245000 245000 245000

factory cost(WIP) 1568241.379 1757586.2 1865000 1870000 1875000

administrative expenses 50000 60000 70000 80000 90000finished goods 1618241.379 1817586.2 1935000 1950000 1965000

Debtors 2928000 5520000 7056000 7056000 7056000

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Annexure 3:

Calculation of interest on term loan

Year of

production

Outstanding atthe beginning of

first half year

Outstanding atthe end of first

half year

Outstanding atthe end of

second half year

Interest forfirst half

year

Interest forsecond half

year

Totalinterest on

term loan

First year 850000 750000 650000 53125 46875 100000

Second year 650000 550000 450000 40625 34375 75000

Third year 450000 350000 250000 28125 21875 50000

Fourth year 250000 150000 50000 15625 9375 25000

Fifth year 50000 0 0 3125 0 3125

Annexure 4:

Profitability EstimatesSSS

Particulars First year Second year Third year Fourth year Fifth year

Installed capacity 320 320 320 320 320

Production 122 230 294 294 294

Production% of installed

capacity 38.125 71.875 91.875 91.875 91.875

Sales 2928000 5520000 7056000 7056000 7056000

Raw material 132517.241 249827.586 315000 315000 315000

power, telephone charges 21034.4827 39655.1724 50000 50000 50000

repairs and maintenance 75000 80000 85000 90000 95000

rent, insurance 1040000 1040000 1040000 1040000 1040000


Depreciation 245000 245000 245000 245000 245000

Manufacturing expenses 1568241.37 1757586.20 1865000 1870000 1875000

Administrative expenses 50000 60000 70000 80000 90000

selling expenses 12200 23000 29400 29400 29400

interest on working capital

loan 63173.3234 93325.4125 111085.948 111332.042 111578.135Interest on term loan 100000 75000 50000 25000 3125

225373.323 251325.412 260485.948 245732.042 234103.135

Total cost 1793614.70 2008911.61 2125485.94 2115732.04 2109103.13

Net profit before tax 1134385.29 3511088.38 4930514.05 4940267.95 4946896.86

Preliminary expenses (10%) 3087.5 3087.5 3087.5 3087.5 3087.5

Tax at 10% 113438.529 351108.838 493051.405 494026.795 494689.686

Net profit after tax 1017859.27 3156892.04 4434375.14 4443153.66 4449119.67

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Annexure 5:

Cash flow Estimates

Cumulative net profit

(Reserves and surplus) 1017859.26 4174751.31 8609126.45 13052280.1 17501399.8

net profit before interest and

tax 1297558.62 3679413.79 5091600 5076600 5061600

Particulars

Construction

period First year Second year Third year Fourth year Fifth yea

Sources

Share capital 500000

Net profit after depreciation

and before interest & tax 1297558.62 3679413.793 5091600 5076600 5061600

Depreciation 245000 245000 245000 245000 245000

Preliminary expenses 3087.5 3087.5 3087.5 3087.5 3087.5

Term loan 850000

Increase in Creditors 3630.60935 3213.98205 1785.54558 0 0

Increase in Working capitalloan 421155.49 201013.9274 118403.571 1640.625 1640.625

Total 1350000 1970432.22 4131729.203 5459876.62 5326328.125 5311328.1

Applications

Fixed assets 1204125

Loan repayment 200000 200000 200000 200000 200000

Preliminary expenses 30875

Increase in current assets 566381.466 272303.8793 160252.155 546.875 546.875

Interest 163173.323 168325.4126 161085.948 136332.042 114703.13

Tax 113438.53 351108.8381 493051.405 494026.7958 494689.68

Total 1235000 1042993.32 991738.1299 1014389.51 830905.7128 809939.69

Opening balance of cash 115000 1042438.901 4182429.97 8627917.082 13123339.

Net surplus 115000 927438.901 3139991.073 4445487.11 4495422.412 4501388.4

Closing balance of cash 115000 1042438.9 4182429.974 8627917.08 13123339.49 17624727.

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Annexure 6:

Projected Balance Sheet

Particulars First year Second year Third year Fourth year Fifth year

Liabilities

Share capital 500000 500000 500000 500000 500000

Reserves and surplus 1017859.27 4174751.31 8609126.46 13052280.1 17501399.8

Term loans 650000 450000 250000 50000 0

Working capital loan 421155.49 622169.4172 740572.988 742213.613 743854.238

Provisions 3087.5 251175 499262.5 748990.625 848718.75

Creditors 3630.60935 6844.591403 8630.13699 8630.13699 8630.13699

Total 2595732.87 6004940.319 10607592.1 15102114.5 19602602.9

Assets

Fixed Assets 1204125 1204125 1204125 1204125 1204125

Less: Depreciation(cumulative

straight line) 245000 245000 245000 245000 245000

Net Fixed assets 959125 959125 959125 959125 959125

Current assets 566381.466 838685.3448 998937.5 1001125 1003312.5

Preliminary expenses 27787.5 24700 21612.5 18525 15437.5

Cash and bank balances(closingbalance of cash) 1042438.9 4182429.974 8627917.08 13123339.5 17624727.9

Total 2595732.87 6004940.319 10607592.1 15102114.5 19602602.9

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Ratio Analysis

Ratios First year Second Year

Third

Year

Fourth

Year Fifth YearLoan safety or Appraisal

ratios

Debt-equity ratio 0.42823469 0.096261805 0.027445 0.00368942 0

Debt service coverage ratio 4.54286422 12.64324379 18.917501 20.9473496 23.1248969

Profitability ratios

PBILD to total income interest 0.52683013 0.710944528 0.7563209 0.75419501 0.75206916

Return on capital employed 1.40862062 3.278839841 4.1042325 4.08673673 4.0692871

Interest coverage ratio 9.45349759 23.3144463 33.128898 39.0341106 46.2637745

Turn over ratios

Current assets holding ratio 2.32123551 1.82322901 1.6988733 1.70259354 1.70631378

Capital turnover ratio 1.92394142 3.082135987 3.6195152 3.61545818 3.61141028

Operating Ratio 0.87434686 0.874894739 0.8774464 0.88385484 0.88900347

Interpretations

1. Debt-Equity Ratio - A high debt/equity ratio generally means that a company has

been aggressive in financing its growth with debt. So since this is a service industry

(not capital intensive) the Debt-equity ratio is less than 0.5. So the ratio is less than

one signifies that equity provides a majority of financing and when there is an

increase in interest expense the company may not be in a risky position.

2. Debt service coverage ratio – This ratio signifies the amount of cash flow available to

meet annual interest and principal payments on debt. Higher is the ratio, higher is the

acceptance.

3. Return on capital employed – This ratio indicates the efficiency and profitability of a

company's capital investments. ROCE should always be higher than the rate at

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which the company borrows. In this case the return on capital employed is significant

from second year onwards.

4. Interest coverage ratio – This ratio is used to determine how easily a company can

pay interest on outstanding debt. Higher the ratio, higher the acceptance. In this case

the Interest coverage ratio is high.

5. Capital turnover ratio – This ratio signifies, how efficiently the capital is invested in

the business is being used and how many times the capital invested is turned into

sales. Higher the ratio, better the efficiency of utilization of capital and leads to higher

profitability. In this case the ratio is higher and is increasing each year.

6. Operating ratio – From the above calculations we can say that there is a consistency

in managing the operational costs of the company which shows a positive sign for

bankers.

Total Fixed Costs and Variable Costs

Items First year Second year Third year Fourth year Fifth year

variable costs

Raw material 132517.241 249827.5862 315000 315000 315000

power and telephone charges 21034.4828 39655.17241 50000 50000 50000


Interest on Working capital loan 63173.3235 93325.41258 111085.95 111332.042 111578.136

selling expenses 12200 23000 29400 29400 29400

Total 283614.703 508911.6195 635485.95 635732.042 635978.136

fixed costs

Repairs and maintenance 75000 80000 85000 90000 95000

Rent and insurance 1040000 1040000 1040000 1040000 1040000

administration expenses 50000 60000 70000 80000 90000

Interest on Term loan 100000 75000 50000 25000 3125

Depreciation 245000 245000 245000 245000 245000

Total 1510000 1500000 1490000 1480000 1473125

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Break Even Point in Units and Rupees:

Items First year Second year Third year Fourth year Fifth year

variable cost per unit 2324.71068 2212.659215 2161.516831 2162.353884 2163.190938

Selling price per unit 3000 3100 3300 3500 4000

contribution per unit 675.289321 887.3407849 1138.483169 1337.646116 1836.809062

BEP(units) 2236.0786 1690.444106 1308.758917 1106.421185 802.0022496

P/V ratio 0.74535953 0.54530455 0.396593611 0.316120338 0.200500562

BEP(Rupees) 2025867.96 2750756.433 3756994.459 4681761.405 7347236.249

Calculation of NPV, IRR, and ARR:

First year Second year Third year Fourth year Fifth year

Future cash flows 1017859.267 3156892.042 4434375.147 4443153.662 4449119.7

PV 925326.6068 2609001.688 3331611.68 3034733.736 2762553.3

Initial investment 1350000

NPV 28814626.78

Years IRR Cost of capital

First year -25% 10%

Second year 53% 10%

Third year 49% 10%

Fourth year 35% 10%

Fifth year 27% 10%

Items

Net Operating profit 4041354.48

Average Investment 786342

ARR 5.13943613

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Interpretations

NPVNPV analysis is sensitive to the reliability of future cash inflows that an investment or project

will yield. From the above calculations it can be said that the NPV is positive and is significant

in this case.

IRR

The discount rate often used in capital budgeting that makes the net present value of all cash

flows from a particular project equal to zero. Generally speaking, the higher a project's internal

rate of return, the more desirable it is to undertake the project. In the first year the IRR is

negative which is not significant but from second year onwards the IRR is positive and the main

thing is than the cost of capital which shows a good sign.

ARR

ARR provides a quick estimate of a project's worth over its useful life. ARR is derived by

finding profits before taxes and interest. From the above calculations it shows a positive sign.

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