Question: Prepare projected profitability estimates for the first five years (details are given below) CKC Pharmaceuticals Ltd
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Question: Prepare projected profitability estimates for the first five years (details are given below)
CKC Pharmaceuticals Ltd is embarking upon a bulk drugs project. The following information and assumptions are provided:
- The installed capacity of the project works out to be 8500 KG P.A The expected capacity utilization will be 70% in the first year, 80% in the second year, and 90% in the third year and beyond. After taking into account the inventory of stock-in-process and finished goods, the quantity to be sold works out to 56,200 KG in the first year, 67500 KG in the second year, and 76000 KG in the third year, 76500 KG in the fourth year onward. Closing and operating inventory will be the same in the 4th year and afterward.
- The sales realization will be 3585 per KG
- The cost of Raw materials will be 2340 per KG of sales
- The cost of power will be 50 Lakhs at 70 % capacity utilization
- Wages and factory salaries are expected to be 92.45 lakh for the first operating year, thereafter, they would rise at the rate of 10% per year
- Factory overhead expenses will be 29.35 lakh in the first year. Thereafter they would rise at the rate of 5% per year
- Administration expenses including salaries will be 120 Lakh for the first year at an increase of 10% is expected thereafter every year
- Selling expenses will be 12% of sales
- SLM depreciation as per company law will amount to 17.12 lakh PA
- Preliminary expenses of 18 Lakh have to be written off over 5 years equally
- Interest on the term loan will be 20 Lakh in the first year. 18 Lakh in the second year, 16 lakh in the third year, 14 lakh in the fourth year, and 12 Lakh in the fifth year
- Interest on bank finance for working capital works out to 24.50 lakh in the first year, 28.50 lakh in the second year, 31.50 Lakh in the third year, 31.65 lakh for the fourth year, 31.90 lakh in the fifth year
- WDV depreciation as per income tax for the first 5 years will amount to 53.71 lakh, 45.90 Lakh, 39.24 lakh, 33.55 lakh, and 28.70 lakh respectively
- Income tax has to be provided for @30%, ignoring surcharge and MAT
- The dividend has to be provided for the second year onward @ 15% (including a surcharge on a share capital of 400 Lakh divided into 40 lakh shares of 10 rs. face value)
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