Problem in Financial Analysis Magna Industries Ltd. is being setup to manufacture industrial gears. The expected outlays
Question:
Problem in Financial Analysis Magna Industries Ltd. is being setup to manufacture industrial gears. The expected outlays and proposed financing during construction and the first two operating years are shown below.
Rs. ‘000
| Cost Outlays | Construction Period | Year 1 | Year 2 |
|---|---|---|---|
| Land | 1220 | ------ | ------ |
| Building | 6110 | ------ | ------ |
| Plant & M/cy | 24440 | ------ | ------ |
| Misc Fixed Assets | 4720 | ------ | ------ |
| Prelim Exp. | 860 | ------ | ------ |
| Pre. Op | 4800 | ------ | ------ |
| Current Assets | ------ | 22804 | 2500 |
| Total | 42140 | 22804 | 2500 |
Financing
| Cost Outlays | Construction Period | Year 1 | Year 2 |
|---|---|---|---|
| Equity Capital | 16300 | ----- | ----- |
| Term loan | 29000 | 5704 | 500 |
| Bank Borrowing | ---- | 17100 | 2000 |
| Total | 45300 | 22804 | 2500 |
The following information is available :
(a)The construction period will last for one year (Year0) beginning on 1st April and ending on 31st March the following year.
(b)The operating years would be year 1 and year 2 from April to March.
(c) Interest on Term loan would be10% p.a. Each disbursement of loan would be repaid in 16 equal semi-annual instalments beginning from end of year 1. Interest on term loan for construction period is included in the pre-op. Expenses. Interest there after is payable at the end of 6 months. Term loan disbursement would be at the beginning of the year.
(d)Bank borrowing in year 1 and year 2 will be at the beginning of the year and carry interest @ 8% payable at the end of the year.
(e) Pre-op exps would be allocated to land, building, plant & m/cy and MFA in proportion to their values. Prelim. Exps would be written off @10% per annum.
(f) Net sales is Rs.420 lakh in year 1 and Rs.600 lakh in year 2. Cost of Sales is (excluding depreciation, other amortisation and interest) are Rs.280 lakh and Rs.400lakh. There is no tax liability in these two years.
(g) Depreciation is @3.34% on buildings and 10.34% on other assets in the straight line method. Prepare the following :
1) Projected income statements for Year 1 and Year 2
2) Projected cashflow statements for Year 0, Year 1 and Year 2
3) Projected balance sheets for the year ends of Year 0, Year 1 and Year 2
Expert Answer:
1 Magna Industries Limited Projected Income Statement Rs 000 Particulars Year 1 Year 2 Sales 4200000 6000000 Cost of Sales 2800000 4000000 Gross Profi... View the full answer
