CS International (Pvt) Ltd is a building material manufacturing company situated in Puttalam. It is planning a
CS International (Pvt) Ltd is a building material manufacturing company situated in Puttalam. It is planning a new project of producing a special type of brick for an overseas construction project. The project has to supply 1 million units of bricks for the next 5 years. The initial investment of the project is estimated as Rs. 25 million, which includes the cost of machines, equipment license fee of the project and working capital worth 5 million. The license of the project has to be renewed in every 3 years. This renewal fee after 3 years will be Rs. 2 million for the next term. The selling price of a brick is estimated at Rs.200 for the first 2 years and Rs.220 thereafter. The unit variable cost is 60% of the selling price. Annual fixed cost is estimated as Rs. 2.5 million for the first 2 years and 3 million thereafter. According to the sales agreement the bricks should be supplied as follows. Year Required quantity 1 st year 10% of total requirement 2 nd and 3rd year 30% of total requirement 4 th year 20% of total requirement 5 th year 10% of total requirement The overseas company will not make the payments to Gama International annually. Instead, they make an advance payment of Rs 5 million in the mid of each year and the balance amount in the following year. However, the balance payment of the 5th year will be done at the end of the 5th year. Gama International is planning to finance the whole project by utilizing their retained profit for which they expect a minimum of 10% rate of return. You are required to;
1. Calculate the Net Present Value, Payback Period and the Net Benefit Investment Ratio of the above project.
2. By considering the above calculated values and other qualitative aspects of project appraisal, write one page (not more than 250 words) report on the project feasibility.