ABC Ltd. started its operations to manufacture Product A on 1st April 2013 with an authorized capital of INR 1.5 million (150,000 shares of INR 10 each). The 4 promoters of the company contributed INR 400,000 each for 20,000 shares issued to each one of them. In addition to the contributed capital, ABC Ltd raised INR 12,00,000 @14% per annum from State Bank on 1st April 2013. The interest rate will jump to 16% in case interest coverage ratio falls below 8.50x. The management and bank has agreed into a contract where ABC Ltd is exempted from making any payments of debt in the first year of operations. The terms of loan requires the company to repay minimum of 20% of the outstanding debt (at the start of the year), starting from its second year of operations.

For manufacturing Product A, ABC Ltd spent INR 21,00,000 for buying two machines on the second day of the year 2013. The yearly capex is estimated to INR 100,000 for 2nd and 3rd year and INR 120,000 for year 4th and 5th. Depreciation is chargeable @12% of the yearly written down value. ABC Ltd is expecting to achieve a capacity utilization ratio of 50%, while 72% of the available goods are expected to be sold in year 2013-2014. ABC Ltd. Isselling all of its goods through a commission agency, which will be paid 8% of the selling price for each unit sold. The yearly indirect expenses (rent, salaries, office exp. Etc.) are estimated be INR 11,60,000.

The goods are sold on credit and the company is expecting to recover the receipts from debtors in 35 days in the initial year, which gradually is expected to come down to 31 by the 5th year of the operations. On the other hand ABC Ltd takes about 60 days to make payments to creditors (from whom Raw material is purchased to manufacture products). ABC Ltd. has plans to give dividends to shareholders @30% in any year when net margin is above 10%.

Product A Production Capacity of 100,000 Units, with utilization ratio of 50%, 52%, 54%, 55% and 56% for year 1, 2, 3, 4, 5 respectively Sales of 72%, 74%, 76%, 78% and 80% of total available units for sale Selling price of INR 125 per unit is expected to grow @6% Raw material costs INR 45 per unit, labor expenses @ INR 20 per unit; expected growth of 4% and 10% respectively.

Others: SG&A to grow @15% for year 2 and 3 and 12% for year 4 & 5 Tax @ 30% Creditors days to come down to 55 in year 4 and 50 in year 5 Outstanding expenses account for 1.25 months Debt repayment @25% in year 3 & 4 and 33% in year 5

Requirements: 1) Prepare the Cash Flow Statement, Balance sheet and profit & loss account in Microsoft excel. Have a separate tab for assumptions and working notes.

2) Write a one-page summary on your observation of whether the company should have bought one machine at Rs. 10.5 lacs in year 1 instead of buying 2 machines at Rs. 21 lacs or you think the company's decision was right?