smooth drive tyres

8/13/2019 Smooth Drive Tyres

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2/13


3/13

Calculation of Cash InflowsParticulars Year 0 Year 1Production Equipment 720,000,000(+) Working capital 211,680,000 225,255,060(-) Sales of machine 5,600,000(+)Tax on sale of existing machines 287,109

(+) Removal cost 350,000(+) Cost of layoff 643,500Sales Revenue 1,411,200,000 Add:Cost SavingsMaintenance cost (WN 3) 1,700,000 Cost of utilities 250,000Labour cost (WN 4) 1,848,000

3,798,000

Less:Incremental CostIncremental depreciation (WN 6 )(a) 178,600,000 Bad debt loss (b) NilInsurance (WN 5) 14,246,910

192,846,910

Less: Total costs 610,600,000

Earning before tax 611,551,090 Tax @ 35% 214042882Earning after tax 397,508,209

CFAT (a+b+c) 576,108,209 Add: Net salvage value of equipment (d)Add: Tax benefit on short-term capital loss Release of working capital (f)Initial Investment 927,360,609 Changes in working capital 13,575,060Terminal cash inflow (d+e+f)Net cash flow -927,360,609 562,533,149 PV Factor @ 15% 1 0.869565217PV of cash flows -927,360,609 489,159,259.57

NPV


4/13

Year 2 Year 3 Year 4

239,701,422 255,075,059

1,501,700,400 1,598,009,479 1,700,500,393

1,700,000 3,500,000 3,500,000 250,000 250,000 250,000

2,032,800 2,236,080 2,459,688 3,982,800 5,986,080 6,209,688

133,950,000 100,462,500 NilNil Nil 15,000,000

12,822,219 11,539,997 10,385,997 146,772,219 112,002,497 25,385,997

649,060,700 689,970,559 733,486,505

709,850,281 802,022,503 947,837,579248447598 280707876 331743153461402683 521314627.2 616094426

595,352,683 621,777,127 631,094,426100,000,000

70,485,625240,075,059

14,446,362 15,373,637 410,560,684

580,906,321 606,403,490 1,041,655,1100.756143667 0.657516232 0.571753246

439,248,635.72 398,720,138.23 595569690.2

995,337,115


5/13

Total cash revenues:OEM Market (4,00,000 cars*4 tyres*Rs. 1200 *0.11) 211200000Replacement Market( 1,00,00,000 tyres*Rs. 1500*0.08) 1200000000

1411200000Total Costs

Cost of tyres in OEM Market (4,00,000 cars*4 tyres*Rs. 600*0.11) 105600000Cost of tyres in Replacement Market(1,00,00,000 tyres*Rs. 600*0.08) 480000000Selling and administrative costs 25,000,000

610,600,000

Net working capital (15 % of sales) 211680000

Total cash revenues:OEM Market (4,10,000 cars*4 tyres*Rs. 1251 *0.11) 225680400

Replacement Market( 1,02,00,000 tyres*Rs. 1563.75*0.08) 12760200001501700400

Total CostsCost of tyres in OEM Market (4,10,000 cars*4 tyres*Rs. 625.50*0.11) 112840200Cost of tyres in Replacement Market(1,02,00,000 tyres*Rs. 625.50*0.08) 510408000Selling and administrative costs 25,812,500

649060700


Total cash revenues:OEM Market (4,20,250 cars*4 tyres*Rs. 1304.17 *0.11) 241153612.4Replacement Market( 1,04,04,000 tyres*Rs. 1630.21*0.08) 1356855867

1598009479Total CostsCost of tyres in OEM Market (4,20,250 cars*4 tyres*Rs. 652.08*0.11) 120576806.2Cost of tyres in Replacement Market(1,04,04,000 tyres*Rs. 652.08*0.08) 542742346.8Selling and administrative costs 26,651,406

689970559

Net working capital (15 % of sales) 239,701,422

Total cash revenues:OEM Market (4,30,756 cars*4 tyres*Rs. 1359.59 *0.11) 257687707Replacement Market( 1,06,12,080 tyres*Rs. 1699.49*0.08) 1442812686

Cash Flows and Net Working Capital Requirement for Year 1





6/13

1700500393Total CostsCost of tyres in OEM Market ( 4,30,756 cars*4 tyres*Rs. 679.80*0.11) 128843853Cost of tyres in Replacement Market( 1,06,12,080 tyres*Rs. 679.80*0.08) 577125074.5Selling and administrative costs 27517577

733486505



7/13

No. of cars in OEM Market (4,00,000*1.025) 410000

Selling price per tyre (1200* 1.0425) 1251No. of cars in Replacement market (1,00,00,000*1.02) 10200000Selling price per tyre (1500* 1.0425) 1563.75Variable cost per tyre (600*1.0425) 625.5Selling and administrative cost (Rs. 2,50,00,000*1.0325) 25812500

No. of cars in OEM Market (4,10,000*1.025) 420250Selling price per tyre (1251* 1.0425) 1304.17No. of cars in Replacement market (1,02,00,000*1.02) 10404000Selling price per tyre (1563.75* 1.0425) 1630.21Variable cost per tyre (625.5*1.0425) 652.08Selling and administrative cost (Rs. 2,58,12,500*1.0325) 26651406

No. of cars in OEM Market (4,20,250*1.025) 430756Selling price per tyre (1304.17* 1.0425) 1359.5946


8/13

No. of cars in Replacement market (1,04,04,000*1.02) 10612080Selling price per tyre (1630.21* 1.0425) 1699.4933Variable cost per tyre (652.08*1.0425) 679.79731Selling and administrative cost (Rs. 2,66,51,406*1.0325) 27517577

15,373,637


9/13

Working Notes:1. Tax on Profi ts From Sale of Existing MachineSales proceeds from existing machines 5,600,000Less: Book value of existing machine (Working note 6) 4,429,687Gross Profit 1,170,313Less: Removal cost (7 machines *Rs. 50,000) 350,000

Net profit 820,313Tax payable on profits 287,109

2. Cost of Laying off 34 PersonnelSalary paid as compensation 990,000Tax benefits 346500Cost of layoff 643,500

3. Savings in Maintenance Costs

Year Existing Machine New equipment1 2,500,000 800,000 2 2,500,000 800,000 3 6,500,000 3,000,000 4 6,500,000 3,000,000

4. Savings in Labour and Employee CostsExisting Costs:Unskilled labour(20*Rs. 4,000* 12 months) 960,000

Skilled personnel (20*Rs. 6,000*12 months) 1,440,000 Supervising executives (2* Rs. 7,000*12 months) 168,000 Maintenance personnel (2* Rs. 5,000*12 months) 120,000

(A) 2,688,000

Proposed CostsSkilled personnel (9* Rs.7,000*12 months) 756,000 Maintenece personnel (1* Rs. 7,000*12 months) 84,000

(B) 840,000

Savings in labour cost (A-B) 1,848,000 This cost will increase

5. InsuranceYear Existing machine New equipment

1 153090 144000002 137781 129600003 124003 116640004 111603 10497600


10/13

Cost Savings1,700,0001,700,0003,500,0003,500,000

y 10 % in subsequent years.

Incremental Insurance14246910128222191153999710385997


11/13

6. Incremental DepreciationWDV of the existing machine in the beginning of year 4:Initial cost of machines (7 machines * Rs. 15 lakh) 10500000Less: Depreciation chargesYear 1 (Rs. 10500000*0.25) 2625000Year 2 (Rs. 7875000*0.25) 1968750

Year 3 (Rs. 5906250*0.25) 1,476,5636070313

WDV of Existing machines 4429687

Depreciation base of new equipmentWDV of Existing machines 4,429,687Add: Cost of new machines 720,000,000Less: Sale value of existing machien -5,600,000

718,829,687

Base for incremental depreciation (Rs. 71,88,29,687-Rs. 44,29,687) 714,400,000


12/13

Calculation of Incremental DepreciationYear WDV Depreciation

1 714,400,000 1786000002 535,800,000 133950000

7875000 3 401,850,000 1004625005906250 4 301,387,500 Nil

Short-term capital loss (Rs. 30,13,87,500- Rs. 10,00,00,000)Tax benefit on shor-term capital loss (Rs. 20,13,87,500*0.35)


13/13

201,387,50070485625

smooth drive tyres

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