Moon limited is in business of manufacturing copper rods. The copper rods are sold to various cable wires manufacturers across the country. The growth in economy, especially the power sector, has led to a sharp increase in demand of cable wires and copper rods. The company is considering an opportunity to set up its own copper wire manufacturing plant and gain a share of cable wire’s market. A detailed study was carried out to understand the market of cable wires, market growth, competitive landscape, financial feasibility etc. The Chairman has asked the Director of Finance to review the financial feasibility study and highlight concerns, if any.

The following paragraphs contain summarised information of financial study carried out

• The project of setting up a new cable wire manufacturing plant is expected to yield a Net Present Value of `200 crores considering a project life of 20 years. The initial cost of setting up the plant is `500 crores which is readily available with the company. The project would yield an IRR of 17.5% which is higher than the IRR of other plants under operation. The plant would employ about 70% of labour on contractual basis. These labours would mostly comprise immigrants from neighbouring countries. The feasibility study has assumed that the immigrants labours would be paid 15% less wage than that paid to other workers. However, the wage paid to immigrants would still be higher than the minimum wage requirements. The contribution to retirement funds is also not considered in the project evaluation. The company feels that immigrant workers would not stay beyond a period of a year and thus there is no requirement to contribute to retirement funds. The existing plants of the company do not have free space available and hence the company will need to buy land adjacent to its existing plant. A part of the proposed land to be acquired falls under the forest reserve area where no commercial activity is allowed. The company officials are in liaison with the government officials to get the land parcel approved. A certain amount of the value of land would be paid to certain government officials through a consultant. This cost is not a part of the project evaluation report. The new plant would also produce certain chemically harmful waste which would be disposed off into a nearby river after treatment. The company however does not have any technology to treat the waste fully. A new treatment plant would cost about `100 crores. The finance director has forwarded the entire report to you for comments. List various non-financial and ethical consideration in decision making. The company officials are in liaison with the government officials to get the land parcel approved. A certain amount of the value of land would be paid to certain government officials through a consultant. This cost is not a part of the project evaluation report. The new plant would also produce certain chemically harmful waste which would be disposed off into a nearby river after treatment. The company however does not have any technology to treat the waste fully. A new treatment plant would cost about `100 crores. The finance director has forwarded the entire report to you for comments.

Answer rating: 100% (QA)

Solution The project is financial viable with a very good NPV and IRR The amount required to build t... View the full answer