Question
A new Company in Training domain projects an initial enrolment of 140 participants in the first year, with an average fees of Rs. 18,000 p.a.,
A new Company in Training domain projects an initial enrolment of 140 participants in the first year, with an average fees of Rs. 18,000 p.a., per participant. It expects a 10% of Gross Fees revenue by way of other income every year.
It expects the enrolment to increase by 10% every year, while the average fees are expected to align with the GDP Growth. GDP is expected to grow @6% on a year on year basis for the next 10 years.
Its other project related parameters, outlays and expenses are as follows.
- Non Current Assets
DESCRIPTION | QTY | Price (00000) | Cost of Equipment (00000) |
Computers & accessories | 4 | 0.32 | 1.28 |
Fan & Light fitting | 4 | 0.03 | 0.10 |
Tables, Chairs and File racks at office | 0.51 | ||
TOTAL | 1.90 |
- Deposits
Training hall that is to be hired on a lease rent of Rs. 10,000
( Rs. In '00000)
Sr. No | Description | Amount |
RENTAL DEPOSITS | 1.50 |
- Pre-Operative Expenses
The business entity estimates the pre-operative expenses as below.
Sl No | Nature of Expense | Rs. (in 00000s) |
1 | Salary and Wages, Telephone Expenses | 0.30 |
2 | Conveyance Expenses | 0.25 |
3 | Bank Loans Processing Fees | 0.40 |
4 | Legal Charges | 0.40 |
- Capital Structure
The promoters plan to structure the capital on a 2:1 Debt Equity ratio. Long Term Loans can be raised at an interest cost of 12% p.a. Principal amount of the Loan is repayable on a five year period, on a quarterly instalment basis, with a six month holiday period.
- Working Capital Structure
The business expects to maintain its current assets / current liabilities as below.
Nature | Proportion / Ratio |
Inventory of Study Materials | 0.25 Requirement |
Creditors | 1.50 Months |
- Study Materials & Reference Books: Study Materials costing Rs. 200 per subject would be distributed. The same is considered as part of the fees. One copy of reference book based on a strength of 200 participants would be procured as a part of the project cost. Average cost of the reference book is estimated to be Rs. 600 per copy. Reference books are to be considered as Non-Current Assets and are to be charged @20% on SLM basis. 50% of the Books would be replaced on write off with an additional cost of 10% on account of inflation.
- Human Resources
The courses would require two faculty members who will be paid a honorarium of Rs. 3000 on a clock hour basis. Each course would require 60 hours of involvement by the faculty members. Administrative staff (Two) would be paid a total of 50000 per month.
- Other Indirect Costs
The business entity budgets a sum of Rs. 25,000 p.m. on account of all other indirect expenses
- Other costs: Depreciation is to be charged on SLM basis @15%. An income tax rate of 25% can be considered. You may also make additional assumptions wherever required.
Inflation is expected to hover around 7% for the next 6 years. This has to be factored in reference to the expenses.
You are required to prepare Projected Financial Statements and Evaluate the Project based on a Cost of Capital of 15% and determine the IRR. Assume that at the end of six year period, 20% of the initial cost of the project, subject to a tax rate of 15% would be received as cash inflow.
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