Anandpriya Office Equipments Ltd$.$ is embarking upon a project to manufacture personal

printers. Following information and assumptions are provided:

A$.$Cost of Project

$1$

$2$

$3$

$4$

Land and site development

Other fixed assets

Preliminary expenses

Capital cost......

$`$ In lakh

$41\mathrm{.}60$

$383\mathrm{.}40$

$25\mathrm{.}00$

$450\mathrm{.}00$

Margin money for working capital

Total...

B$.$Means of Finance

$1$

$2$

Promoters$$ Equity capital $($FV $`10\mathrm{.}00)$

Term loan

$300\mathrm{.}00$

$750\mathrm{.}00$

$`$ In lakh

$500\mathrm{.}00$

$250\mathrm{.}00$

Total...

$750\mathrm{.}00$

$324$

Project Appraisal and Financing

C$.$Further Information:

$1.$ Project has useful life of $5$ years after $1$ year of gestation.

$2.$ The installed capacity of the project works out to be $1,00,000$ printers P$.$A$.$ The

expected capacity utilization will be $75\%$ in the first year, $85\%$ in the second year,

and $95\%$ in the third year and beyond.

$3.$ After taking into account the inventory of stock$-$in$-$process and finished goods, the

quantity to be sold works out as under:

First year

Second year

Third year

$68050$ printers

$84100$ printers

$94000$ printers

Fourth year onwards

$95000$ printers

Closing and opening inventory will be the same in the $4$th year and afterwards.

$4.$ The sales realization will be $`3650$ per printer.

$5.$ The cost of raw materials will be $`1825$ per printer.

$6.$ The cost of power will be $`55$ lakh at $75\%$ capacity utilization.

$7.$ Wages and factory salaries are expected to be $`103\mathrm{.}56$ lakh for the first operating

year. Thereafter, they would rise at the rate of $10\%$ per year.

$8.$ Factory overhead expenses will $`45\mathrm{.}65$ lakh in the first year. Thereafter they would

rise at the rate of $7\mathrm{.}50\%$ per year.

$9.$ Administration expenses including salaries will be $`180$ lakh for the first year. An

increase of $10\%$ is expected thereafter every year.

$10.$ Selling expenses will be $15\%$ of sales.

$11.$ SLM depreciation as per company law will amount to $`28\mathrm{.}34$ lakh PA$.$

$12.$ Preliminary expenses of $`25$ lakh have to be written off over $5$ years equally.

$13.$ Term loan carries interest rate of $12\%$ PA and is redeemable within $5$ years in

annual instalments at the year end.

$14.$ Interest on term loan will be $`30$ lakh in the first year, $`27$ lakh in the second

year, $`24$ lakh in the third year, $`21$ lakh in the fourth year and $`18$ lakh in the

fifth year.

$15.$ Bank finance for working capital also carries interest rate of $12\%.$

$16.$ Interest on bank finance for working capital works out to $`36\mathrm{.}75$ lakh in the first

year, $`42\mathrm{.}75$ lakh in the second year, $`47\mathrm{.}25$ lakh in the third year, $`47\mathrm{.}50$ lakh

in the fourth year and $`47\mathrm{.}85$ lakh in the fifth year.

$17.$ Following is the build$-$up of projected net current assets and bank finance for

working capital:

Y$1$

Net current assets

$606\mathrm{.}00$

Y$2$

Y$3$

Y$4$

$661\mathrm{.}00$

Working capital finance

$306\mathrm{.}00$

$356\mathrm{.}00$

$703\mathrm{.}00$

$394\mathrm{.}00$

$704\mathrm{.}00$

Y$5$

$710\mathrm{.}00$

$396\mathrm{.}00$

$399\mathrm{.}00$

$18.$ WDV depreciation as per income tax for the first $5$ years will amount to $`84\mathrm{.}55$

lakh, $75\mathrm{.}41$ lakh, $67\mathrm{.}85$ lakh, $58\mathrm{.}90$ lakh and $51\mathrm{.}20$ lakh respectively.

$19.$ Income tax has to be provided for @ $30\%.$ Ignore surcharge and MAT.

$20.$ Dividend has to be provided for second year onwards @ $16\%$ plus dividend tax

thereon @ $20\%.$

Required:

Please make the following projected financial statements together with necessary working notes:

$1.$ Profitability estimates for $5$ operating years

$2.$ Balance sheets for gestation period and $5$ operating years

$3.$ Cash flow statements for gestation period and $5$ operating years.