ITCltd. is a well-diversified conglomerate operating in many different segments like tobacco, hospitality, food etc. In the food segment, they are the market leaders in Packaged wheat flour segment with their brand name of Aashirvaad. To have the synergy in operations the company has already gone for forward integration by entering into Packaged Biscuits segment with the brand name of Sunfeast and in a very short period they have become a major player in this segment. To further enhance this segment the company wants to come out with the branded breads. Mr. Sanjiv Puri the current Chief Operating officer and Director for FMCG segment called for the meeting of the top management to discuss the above issue and also requested Mr. Rajiv Tandon the Chief Financial Officer of the company and his team to prepare the financial estimates. On the day of the meeting Mr. Vineeth the head of Marketing, foods division started with his presentation and showed the available market and the market feasibility of launching the Breads segment. Next was the turn of the finance team to present the proposed investment for the project and also present the financial feasibility of the project. Finance team - Seeing to the demand supply gap and easy availability of raw material the company plans to set up a plant in northern part of the country. The annual installed capacity ut the plant would be 30 million loaves of 500 grams each. Technical aspect The process know how for the proposed project is to be supplied by Alpha Machines India Pvt Itd. A project engineering company, which will supply the main plant. ITC proposes to give a turnkey contract to Alpha Machines india Pvt. Ltd. That covers supply and commissioning of the unil along with a guarantee for a satisfactory trial run for a consideration of Rs. 60 millions. Cost of project & means of finance The proposed means of finance for the project are as follows: - The discussions with state level financing institutions and a commercial bank suggest that it should be feasible to get term loan and working capital finance for the project. The profitability and other projections for the next ten years may be prepared on the basis of the following assumptions. 1. The construction period will last for one year. 2. The company's installed capacity is 30 million bread loaves per annum 3. The company will start commercial production on April 1, 2020. The expected capacity utilization will be 50% in the first year, 60% in the second year and 70% for the third year \& beyond. 4. The average sales realization per bread loaf will be Rs. 10, net of taxes. 5. The cost of raw material and consumable will be 60% of sales, the cost of power will be 5% of sales. 6. Wages \& salaries are expected to be Rs. 10 million each for the first threeoperating years. Thereafter, they would rise at the rate of 5% per year. 7. Factory overheads will be Rs. 1 million for the first year and will increase at the rate of 5% per year subsequently. 8. Administration expenses will be Rs.1 million per year. 9. Marketing and distribution expenses will be 10% of sales. 10. The term loan will be repaid in 10 equal annual installments, with the first installment falling due at the end of the second operating year. The interest rate on the outstanding term loan will be 15% per annum. 11. Tho curront assets reauirements are expected to be as follows: 12. The suppliers of raw materials will provide trade credit for half a month. 13. The bank finance for working capital will cost 18% 14. The depreciation rates for company law purposes will be as follows. Building Plant \& machinery Miscellaneous fixed assets 5 so purposes will be as follows, under the 15. The dcoreciation rates for income tax written down value method: Plant \& Machinery 33.3% 26. The preliminary expenses may be written off in 10 equal annual installments. 27. The company plans to pay dividend from the second year onwards. The dividend rate is proposed to be 10% for the second year and thereafter would be enhanced by 5% every year. The income tax rate applicable for the company is 35% In order to obtain the Term loan from State Financial Corporation, you as the member of Finance Team of ITC Itd. Required to: Q1. Prepare the projected financial statements for the next 10 years. ITCltd. is a well-diversified conglomerate operating in many different segments like tobacco, hospitality, food etc. In the food segment, they are the market leaders in Packaged wheat flour segment with their brand name of Aashirvaad. To have the synergy in operations the company has already gone for forward integration by entering into Packaged Biscuits segment with the brand name of Sunfeast and in a very short period they have become a major player in this segment. To further enhance this segment the company wants to come out with the branded breads. Mr. Sanjiv Puri the current Chief Operating officer and Director for FMCG segment called for the meeting of the top management to discuss the above issue and also requested Mr. Rajiv Tandon the Chief Financial Officer of the company and his team to prepare the financial estimates. On the day of the meeting Mr. Vineeth the head of Marketing, foods division started with his presentation and showed the available market and the market feasibility of launching the Breads segment. Next was the turn of the finance team to present the proposed investment for the project and also present the financial feasibility of the project. Finance team - Seeing to the demand supply gap and easy availability of raw material the company plans to set up a plant in northern part of the country. The annual installed capacity ut the plant would be 30 million loaves of 500 grams each. Technical aspect The process know how for the proposed project is to be supplied by Alpha Machines India Pvt Itd. A project engineering company, which will supply the main plant. ITC proposes to give a turnkey contract to Alpha Machines india Pvt. Ltd. That covers supply and commissioning of the unil along with a guarantee for a satisfactory trial run for a consideration of Rs. 60 millions. Cost of project & means of finance The proposed means of finance for the project are as follows: - The discussions with state level financing institutions and a commercial bank suggest that it should be feasible to get term loan and working capital finance for the project. The profitability and other projections for the next ten years may be prepared on the basis of the following assumptions. 1. The construction period will last for one year. 2. The company's installed capacity is 30 million bread loaves per annum 3. The company will start commercial production on April 1, 2020. The expected capacity utilization will be 50% in the first year, 60% in the second year and 70% for the third year \& beyond. 4. The average sales realization per bread loaf will be Rs. 10, net of taxes. 5. The cost of raw material and consumable will be 60% of sales, the cost of power will be 5% of sales. 6. Wages \& salaries are expected to be Rs. 10 million each for the first threeoperating years. Thereafter, they would rise at the rate of 5% per year. 7. Factory overheads will be Rs. 1 million for the first year and will increase at the rate of 5% per year subsequently. 8. Administration expenses will be Rs.1 million per year. 9. Marketing and distribution expenses will be 10% of sales. 10. The term loan will be repaid in 10 equal annual installments, with the first installment falling due at the end of the second operating year. The interest rate on the outstanding term loan will be 15% per annum. 11. Tho curront assets reauirements are expected to be as follows: 12. The suppliers of raw materials will provide trade credit for half a month. 13. The bank finance for working capital will cost 18% 14. The depreciation rates for company law purposes will be as follows. Building Plant \& machinery Miscellaneous fixed assets 5 so purposes will be as follows, under the 15. The dcoreciation rates for income tax written down value method: Plant \& Machinery 33.3% 26. The preliminary expenses may be written off in 10 equal annual installments. 27. The company plans to pay dividend from the second year onwards. The dividend rate is proposed to be 10% for the second year and thereafter would be enhanced by 5% every year. The income tax rate applicable for the company is 35% In order to obtain the Term loan from State Financial Corporation, you as the member of Finance Team of ITC Itd. Required to: Q1. Prepare the projected financial statements for the next 10 years