Initial Data

Financing Plan

a + b + c=d where a,b,c,d are figures given in the table

Total Investments=Total Sources of Financing

a) Fixed Investment

Fixed Investment as Total = Land + Buildings + Equipment + Cars

Choose whatever figures you want

b) working capital

the figure is taken from the table 10.3.2 year 8

c) Other Current Assets

the figure is taken from table 10.3.2 year 8 as being equal with current liabilities

d) Sources of Financing

Sources of Financing as Total = Current Liabilities + Suppliers' Credit + Bank Overdraft + Equity Capital

• Current Liabilities
  • the figure is taken from table 10.3.2 year 8
• Suppliers' Credit
  • the conditions remain the same as for the Supplier's Credit (repayment of credit over 5 years)
  • Choose any figure for the suppliers credit and the interest rate
• Bank Overdraft
  • 75% = working capital
  • Choose any interest rate
• Equity Capital
  • Equity Capital = Total Investments Current Liabilities Suppliers credit Bank overdraft
  • Total investments = a) + b) +c)

e) Sales Revenue

choose any values for the number of units and the price per unit

f) Production costs in year 8

• the figures for production costs in year 8, variable costs and fixed costs are taken from table 10.3.1 in the 8th year
• the number of years regarding the lifetime of buildings, equipment, and cars remains the same

How to compute depreciation

Depreciation (linear) = 780 = 1800 (the value of buildings) / 30 (lifetime for buildings) + 5200 (the value of equipment) / (10) + 1000 (the value of Cars) / (5) =60+520+200

g) Construction Time

don't touch it

h) Corporate Tax

the conditions remain the same, except the percentage

i) Dividend on Equity capital

dividend is calculated by applying the dividend rate on equity capital (this is an anomaly, because in real life it is applied to the net income or profit net of interest)

choose any dividend rate you want

j) Start up Schedule of Production

the number of years regarding the production (operating activity) remains the same 10 years

we consider the first 3 years as being the startup years of production

Capacity Utilisation %

the figures for capacity utilisation for the first 3 years must be modified at will with a progressive rate and the percentage for the next years remains 100

Annual sales revenues

the figure for annual sales revenue in the years 4 to 10 (12,500) is taken from point e) sales revenue in year 8

Missing Data

Table 10.1.1 - Initial Fixed Investments Costs

we must start with the figure of total initial fixed investment costs in the column of total cost (= 7,800), which is calculated as follows:

7,800 = land (300) + buildings (1,800) + equipment (5,200) - Pre-production capital expenditures (500) + Cars (1,000)

Pre-production capital expenditures not a fixed investment, just a study

as for the columns of foreign currency (FC) and Local Currency (LC) we could divide the total cost of 7,800 however we want, as long as LC>FC

FC+LC=Total costs

Table 10.1.2 - Initial Fixed Investments Costs by year

no need to show each year of production

pay attention to year 8 (replacement of cars) put here the cost of replacing cars

the only thing to do is to fill in the values for the line of total

we must divide the total figure of 7,800, taken from the previous table as total the year 1 (3,000) and as total in year 2 (4,800)

each figure as for total for the first 2 years must be divided at will in FC, and LC

eg in year 1: 3,000=1,000(FC) + 2,000(LC)

we must pay attention that the figure for foreign currency in year 1, (1,000) added to the figure of Foreign Currency in the year 2 (1,800) is the same as the figure of foreign currency in table 10.1.1

FC1 + FC2 = FC => 1,000 + 1,880 = 2,880 = FC from 10.1.1

Table 10.2.1 Pre-production Capital Expenditures, by category

all we have to do is to fill in the last line of total by starting with the right-down corner

this figure (500) is taken from initial data table point a) equipment

we split at will this figure between LC and FC

no tangible assets here

Table 10.2.2 Pre-production Capital Expenditures, by year

we start to fill in the column of total with the figures from table 10.2.1

we split the figure of total (500) as for total in year 1 (300) and as total in year 2 (200)

we divide each total for each year at will

eg in year 1 we split 300 in 70 as FC and 230 as LC

FC1 + FC2 = FC

where FC1 is FC in year 1 FC1=70

FC2 is FC in year 2 FC2=50

FC is the total FC

70 + 50 = 120

Table 10.3.1 - Calculation of Working capital

I. Minimum requirements of current assets and liabilities

the figures expressing the number of days remain the same

II. Annual production cost estimate

we start to fill in this table at the intersection of column of year 8 with the line of operating costs (operating costs in year 8)

we choose the figure of operating costs in year 8 at will, but considering the figure of sales revenue in year 8 as we find it in initial data table point e) (= 12,500)

the figure of operating costs must be lower than the figure of sales revenue (costs

eg. the operating cost = 9,000 < 12,500

Factory costs = Raw Materials + Labour + Utilities + Repair + Maintenance Spare parts + Factory overhead Costs

the figures for the years 6 to 12 are the same figures as in the year 8, including operating costs

for the year 3 to 5, we have to consider the calculation of variable costs and fixed costs

Fixed Costs = Factory overhead costs + Maintenance spare parts + Administrative costs + sales costs

the figure of fixed costs (maintenance - spare parts, factory overhead costs, administrative overhead costs, and sales costs) remains the same as in the year 8

Variable Costs are calculated by applying the capacity utilisation percentage in that year to the figure in the year 8

Financial costs are calculated by considering the value of interest by year for suppliers' credit and bank overdraft

Eg. financial costs in year 3

375 = 240 (interest on suppliers' credit in year 3) + 135 (interest on bank overdraft in year 3)

Financial costs are zero in year 8

Depreciation is taken from initial data table point f)

Table 10.3.2 Working capital

!!! We start with the year 8

working capital = current assets - current liabilities

coefficient of turnover = Y = 360days / X

X=minimum days of coverage

the figures in the columns X and Y remain the same

I. Current assets

A. Accounts receivable

Accounts receivable = (operating costs from table 10.3.1)/(Y)

eg. in the third year: Account receivable = 6,000 / 12 = 500

B. Inventory

1. Raw Materials

• local material A = (costs of local material A taken from 10.3.1)/(Y)
• eg in the 4th year: local material A = (1,240) / (12) = 100
• similarly, we calculate the Local material B and imported material using the formula from above

2. Spare parts

• Spare parts = (maintenance spare parts table, 10.3.1)/(Y)

• eg in the third year: spare parts = 250/2

3. Work in progress

• work in progress = (factory costs, table 10.3.1)/(Y)

4. Finished products

• Finished products = (factory costs + Administrative overhead costs 10.3.1)/(Y)

C. Cash in hand

this is calculated below, starting with the line IV. Total Production Costs

line 4, total production costs, is taken from 10.3.1 the last line

Cash in Hand = Total Production Costs Raw Material Utility Depreciation

raw material = local material a + local material b + imported material (10.3.1)

eg in the 3rd year: raw material = 910 + 275 + 1,265 = 2,450

total production costs - utility - depreciation = 7,155 2,450 250 780 = 3,675

V required cash balance

required cash balance = (total production costs - raw material utility-depreciation) /(Y=24) look a row above for Y

eg in the 4^th year 3,675 / 24=153

we put the figures from the line 5, required cash balance, as the figures in the line C (Cash in hand)

D. Total current assets

D = A + B + C

II. Current liabilities

Account Payables = (Total raw materials + Utilities) / Y

Total raw materials = A + B + Imported (Table 10.3.1)

eg in year 6:

Account Payables = (1,650 + 500 + 2,300 + 450) / (12) = 408

III. Working Capital

1. Net working capital

• Net working capital = Current assets - Current liabilities = I - II

2. B. Increase in Working Capital

• Increase in Working Capital = Net Working capital in the current year - - Net Working capital in the previous year

Missing Data

Table 10.6.1

Look at the explanations from the pdf

Table 10.7.1

Initial fixed investment Costs

• See initial fixed assets

the first two lines are the same as in table 10.6.1

current assets = current liabilities

LC = working capital

Table 10.7.2

the first 2 lines are the same as in table 10.6.2

current assets increase = current assets in current year - - current assets in previous year

eg in year 4

current assets increase = 1,971 - 1,588 = 383 (the values in the pdf are rounded up)

LC (Local Currency) = increase in working capital (from table 10.6.2)

FC (Foreign Currency) = total Increase of current assets - LC

eg in year 3

FC = 1,590 - 1,410 = 180