Beta Plywood 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 plywood company.

Beta Ltd. proposes to set up manufacturing plant at Sib Sagar in Assam. The Indian Plywood 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. Beta Ltd is initially eyeing on around 5% of the market share.

Technical & Marketing

The process knows how for plywood plant is proposed to be set up by Machines India Ltd. Beta Ltd. proposes to give a turn key 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. 10 million.

Raw material for plywood would not be a problem for Beta Ltd. As enquiries in Assam suggest that there is requisite quantity of raw material available.

Beta Ltd. plans to market its plywood under the brand name of Beta. The preliminary market survey suggests that the product should be targeted at mid price segment where approximately Beta Ltd can eye on 5% of the market share. The expected price the product would fetch would be around Rs. 30/sq.ft.

Cost of Project & Means of Financing The cost of the project is estimated at Rs. 20 millions, the break up of which is as follows Land & site development Rs. 3 millions Building Rs. 2 millions Plant & Machinery Rs. 10 millions Miscellaneous fixed assets Rs. 2.5 millions Preliminary expenses Rs. 1 million Working Capital Margin Rs. 1.5 millions

Total Rs. 20 millions

The proposed means of finance for the project are as follows :- Equity share capital 12 millions Term loan 8 millions

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.

Basic Assumptions Underlying Financial Projections

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 2 million sq.ft of plywood.

iii) The company will start commercial production on April 1, 2008. The capacity utilization will be 50% in the first year, 60% in the second year, and 70% for the third year and beyond.

iv) The average sales realization per sq.ft of plywood will be Rs. 30 net of excise duty.

v) The cost of raw materials and consumables will be 60% of sales, the cost of power will be 5% of sales.

vi) Wages and salaries are expected to be Rs. 3 million for the first three years and thereafter will increase at the rate of 5% per annum.

vii) Factory overheads will be Rs. 3 lakhs for the first year and will thereafter increase by 5% per annum.

viii) Administrative expenses will be Rs. 3 lakhs per year.

ix) Selling expenses are expected to be 10% of sales per annum.

x) The term loan will be repaid in 10 equal yearly installments, with the first installment falling due at the end of the second operating year. The interest rate on the term loan will be 16% per annum. xi) The current asset requirement are expected to be as follows : Raw material & consumables 1.5 month Stock in process 0.25 months Finished goods 0.5 months Book Debts 1 month xii) The suppliers of raw material and consumables will provide trade credit for half a month.

xiii) The bank finance for working capital will cost 16% per annum.

xiv) The depreciation rates for company law purposes and for income tax purposes are as follows : CLB (straight line method) CBDT (WDV method)

Building 3.34% 10% Plant & Machinery 8.09% 33.3% Miscellaneous fixed assets 5.15% 33.3% xv) The preliminary expenses may be written off in 10 equal annual installments.

xvi) The income tax rate applicable is 35%.

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.

# In order to obtain the Term loan from state Financial Corporation, you have been hired by Beta Ltd. to prepare the projected financial statements for the next five years.( BALANCE SHEET, PROFITABILITY STATEMENT, CASH FLOW STATEMENT, WORKING CAPITAL, INTEREST, TAX, DEPRECIATION)