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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.

  1. 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

  1. 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

  1. 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

  1. 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.

  1. 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

  1. 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.
  2. 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.

  1. Other Indirect Costs

The business entity budgets a sum of Rs. 25,000 p.m. on account of all other indirect expenses

  1. 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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