Topic: Time value and NPV

Samba is the CEO of ABC Logistics Limited. It based in Uganda. Mr Samba is considering increasing his fleet by 30 trucks as he expects the growth in the region to be at 5% and there is a project in the pipeline which is expected in 2012.

Background of ABC logistic limited.

It was founded by Samba in 2001. Started with two trucks which he bought second hand and over the years he grew the fleet to 50 trucks. 48 TRUCKS was purchased. Samba has a contract with three companies, two of which are Oil companies and one a food company. His revenue is mostly from Fuel sector which contributes 80% and food transport 20%. Samba policy is to depreciate the assets over 10 years and discard them for 5,000 dollars after using them for 10 years.

ABC company revenue has been declining from 2001 to 2012 period from 230$/ton to 150$/ton. The future outlook is expected to increase the rate by 2% for next five years. All the trucks capacity is 30 tons. Operating expenses is 3,000$/truck and has maintenance day schedule (1-5 years trucks - 20 days maintenance, 5-10years truck 30 days) see exhibit 3.

Exhibit 2 will illustrate the cost and revenue of truck in various years.

Exhibit 1 illustrates Income statement and Balance sheet for 2 years.

Samba has been having discussions with various brokers and manufacturers for trucks as he is looking at options to buy or lease the trucks. Best offer that Samba has is for 30,000 dollars a truck or leasing was 6,800 dollars per year and payment in four installments for 5 years.

ABC Logistics Limited is in discussions with banks to borrow 1,000,000 dollars at an interest rate of 8% for a mid-term facility of 5 years or 60months. Interest payment is quarterly with principal.

The current pipeline project is to increase the oil contract requirement by 45% currently he does 2000 trips/month. ABC has to rebid for business every two years for both food and fuel transport.

Questions the DISCOUNTING RATE 9%

1. Should Samba consider to purchase or lease 30 trucks? If ye or no provide reasons

2. What do you think of the 10 year policy of ABC Company? Give reasons

3. ABC applied for tax exemption in Uganda current rate 30%, if ABC was to get exemption for 5 years how is the outlook?

4. As the Finance Controller how would you advise Samba?

Exhibit 1Income Statement ABC Logistic Ltd

2011;2010

Revenue $ 3792,000 ;$2,880,000

Operating Expense $ (2100,000 ;$(1800,000)

EBITDA $1,692,000 ;$1,080,000

Depreciation $ (125,000) ;$ (125,000)

Finance Cost $(160,000) ;$ (200,000)

EBT(Earnings Before Tax) $(1,407,000) ;$(755,000)

TAX $ (422,100) ;$(226,500)

EAT(Earning After TAX) $ 984,900; $ 528,500

BALANCE SHEET 2011 ;2012

Current assets $952,560; $365,400

Non-Current Assets $2,050,000; $1,875,000

Total Assets $3,002,560; $2,240,400

Current Liability $189,160 ;$211,900

Non-current Liability $800,000; $1,000,000

Equity $2,013,400; $1,028,500

TotalEquity+Liability $3,002,560; $2,240,400

Exhibit 2 Forecasted Transport Rates for ABC Logistic

Exhibit 2ForecastedTransport Rates for ABC Logistic

Event Year Calendar Year Number New trucks TRIPS /MONTH % Growth AvgCharter Rate Adjustment Factor for Growth Expected Charter Rate OPEX/ truck

F G H I J K L M N O

0 0 2012 30 900 5.00% 150 - 150.00 3,400

1 1 2013 30 900 5.00% 150 1.02 153.00 3,468

2 2 2014 30 900 5.00% 150 1.02 156.06 3,537

3 3 2015 30 900 5.00% 150 1.02 159.18 3,608

4 4 2016 30 900 5.00% 150 1.02 162.36 3,680

5 5 2017 30 900 5.00% 150 1.02 165.61 3,754

6 6 2018 30 900 5.00% 150 1.02 168.92 3,829

7 7 2019 30 900 5.00% 150 1.02 172.30 3,906

8 8 2020 30 900 5.00% 150 1.02 175.75 3,984

9 9 2021 30 900 5.00% 150 1.02 179.26 4,063

1010 2022 30 900 5.00% 150 1.02 182.85 4,145

Key

F Age of truck

G Event Year

H Calendar Year

I Number New trucks

J TRIPS /MONTH

K % Growth

L AvgCharter Rate

M Adjustment Factor for Growth

N Expected Charter Rate

O OPEX/ truck

Exibit 3 Maintenance Schedule day each year

Over 5 years 20

5-10 years 30

10-15 years 40