Background Alpha Ceramics Ltd is a newly set up public Ltd. Company, promoted by Mr. Ramesh Gupta \& Mr. Kamal Goel. Mr. Ramesh Gupta is a qualified Chartered Accountant where as Mr. Kamal Goel has worked for more than 20 years as Head of Operations \& Marketing in one of the leading ceramics company. Alpha Ltd. proposes to set up manufacturing plant at Balabgarh in Haryana. The Indian ceramics market is growing at 12% per annum for the last 4 years and is expected to grow even at a higher rate in the future. Presently there are 10 big players in the organised sector, which accounts for 60% of the total market. Alpha Ltd is initially eyeing on around 5% of the market share. Technical \& Marketing The process know how for ceramics plant is proposed to be set up by Machines India Ltd. Alpha Ltd. proposes to give a turnkey contract to Machines India Ltd. which will cover the supply \& commissioning of the unit along with a guarantee for a satisfactory trial run, all this for a consideration of Rs. 20 million. Raw material for ceramics would not be a problem for Alpha Ltd. As enquiries in Haryana uggest that there is requisite quantity of raw material available. lpha Ltd. plans to market its Ceramics bathroom tiles under the brand name of Alpha tiles. The eliminary market survey suggests that the product should be targeted at mid-price segment where proximately Alpha Ltd can eye on 5% of the market share. The expected price the product mld fetch would be around Rs. 60/sq. ft. Cost of Proiect \& Means of Financing The cost of the proiect is estimated at R.s. 40 millions, the breakup of which is as follow, Tetal The proposed reans of finance for the project are as follows:- The discussion with state level financial institutions and commercial banks suggest that it should be feasible to get term loan and working capital finance for the project. BasicAssumptionsUnderlyingFinancialProjections The profitability and other projections may be prepared on the basis of the following assumptions: i) The set up period for the project will be 1 year. ii) The installed capacity of the plant is 4 million sq.ft of ceramics tiles. iii) The company will start commercial production on April 1, 20018. The utilization will be 50% in the first year, 60% in the second year, and 70% for the thisd year and beyond. iv) The average sales realization per sq.ft of ceramics tiles will be Rs. 60 net of Gst. v) The cost of raw materials and consumables will be 60% of sales, the cost of power wil. be 5% of sales. vi) Wages and salaries are expected to be Rs. 6 million for the first three years a thereafter will increase at the rate of 5% per annum. xiv) The depreciation rates for company law purposes and for income tax purposes are as follows : xv) The preliminary expenses may be written off in 10 equal annual installments. xvi) The income tax rate applicable is 33%. xvii) The firm plans to pay dividend from the second year, rate being proposed at 10% for the second year and 15% for the third year and beyond. Q1. In order to obtain the Term loan from state Financial Corporation, you have been hired by Alpha Ltd. to prepare the projected financial statements for the next 10 years. Background Alpha Ceramics Ltd is a newly set up public Ltd. Company, promoted by Mr. Ramesh Gupta \& Mr. Kamal Goel. Mr. Ramesh Gupta is a qualified Chartered Accountant where as Mr. Kamal Goel has worked for more than 20 years as Head of Operations \& Marketing in one of the leading ceramics company. Alpha Ltd. proposes to set up manufacturing plant at Balabgarh in Haryana. The Indian ceramics market is growing at 12% per annum for the last 4 years and is expected to grow even at a higher rate in the future. Presently there are 10 big players in the organised sector, which accounts for 60% of the total market. Alpha Ltd is initially eyeing on around 5% of the market share. Technical \& Marketing The process know how for ceramics plant is proposed to be set up by Machines India Ltd. Alpha Ltd. proposes to give a turnkey contract to Machines India Ltd. which will cover the supply \& commissioning of the unit along with a guarantee for a satisfactory trial run, all this for a consideration of Rs. 20 million. Raw material for ceramics would not be a problem for Alpha Ltd. As enquiries in Haryana uggest that there is requisite quantity of raw material available. lpha Ltd. plans to market its Ceramics bathroom tiles under the brand name of Alpha tiles. The eliminary market survey suggests that the product should be targeted at mid-price segment where proximately Alpha Ltd can eye on 5% of the market share. The expected price the product mld fetch would be around Rs. 60/sq. ft. Cost of Proiect \& Means of Financing The cost of the proiect is estimated at R.s. 40 millions, the breakup of which is as follow, Tetal The proposed reans of finance for the project are as follows:- The discussion with state level financial institutions and commercial banks suggest that it should be feasible to get term loan and working capital finance for the project. BasicAssumptionsUnderlyingFinancialProjections The profitability and other projections may be prepared on the basis of the following assumptions: i) The set up period for the project will be 1 year. ii) The installed capacity of the plant is 4 million sq.ft of ceramics tiles. iii) The company will start commercial production on April 1, 20018. The utilization will be 50% in the first year, 60% in the second year, and 70% for the thisd year and beyond. iv) The average sales realization per sq.ft of ceramics tiles will be Rs. 60 net of Gst. v) The cost of raw materials and consumables will be 60% of sales, the cost of power wil. be 5% of sales. vi) Wages and salaries are expected to be Rs. 6 million for the first three years a thereafter will increase at the rate of 5% per annum. xiv) The depreciation rates for company law purposes and for income tax purposes are as follows : xv) The preliminary expenses may be written off in 10 equal annual installments. xvi) The income tax rate applicable is 33%. xvii) The firm plans to pay dividend from the second year, rate being proposed at 10% for the second year and 15% for the third year and beyond. Q1. In order to obtain the Term loan from state Financial Corporation, you have been hired by Alpha Ltd. to prepare the projected financial statements for the next 10 years