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(Rs MN.) : Case 10.1: Hind Petrochemicals Company

Hind Petrochemicals Company is planning a capital investment of Rs 7,500 million for a refinery and machinery. The total cash outlay will be Rs 7,800 million including working capital of Rs 300 million. The project is expected to generate positive cash flows over 5 years. The net present value of the cash flows at a 15% discount rate is Rs 1,365 million, with an internal rate of return of 22% and a payback period of 3.25 years.

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341 views1 page

(Rs MN.) : Case 10.1: Hind Petrochemicals Company

Hind Petrochemicals Company is planning a capital investment of Rs 7,500 million for a refinery and machinery. The total cash outlay will be Rs 7,800 million including working capital of Rs 300 million. The project is expected to generate positive cash flows over 5 years. The net present value of the cash flows at a 15% discount rate is Rs 1,365 million, with an internal rate of return of 22% and a payback period of 3.25 years.

Uploaded by

lefteris82
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Case 10.

1: Hind Petrochemicals Company

Cost of refinery
Cost of machinery
Total capital investment
Working capital
Total cash outlay

(Rs mn.)
1,550
5,950
7,500
300
7,800

Discount rate

15%

Cash flows
0
Sales
Less: Wages and salaries
Selling and distribution costs
Materials and consumables
Depreciation (WDV)
Corporate office costs
Survey costs
Total expenses
Profit (loss) before tax
Less: tax @ 35%
Profit after tax
Plus: depreciation
CFO
Cash outlay
Working capital released
Salvage value
Book value
Lost DTS on (SV -BV)
Net cash flows
NPV at 15%
IRR
Cumulative casf flows
Payback (years)

1
5,730
1,450
760
180
1,875
100
15
4,380
1,350
473
878
1,875
2,753

2
5,930
1,500
770
270
1,406
100
4,046
1,884
659
1,224
1,406
2,631

3
5,870
1,850
1,080
290
1,055
100
4,375
1,495
523
972
1,055
2,027

4
3,790
1,030
530
200
791
100
2,651
1,139
399
740
791
1,531

(Rs mn.)
5
4,500
1,210
650
230
593
100
2,783
1,717
601
1,116
593
1,709
300
3,600
1,780
-430
5,179

-7,800

-7,800
1,365
22%

2,753

2,631

2,027

1,531

-7,800

-5,048

-2,417

-390

1,141
3.25

6,320

Note: (1) Only Rs 15 million of survey cost is relevant. (2) All corporate office costs are not relevant for the
project; Rs 100 million costs relate to the project. (3) Interest is a financing cost. Free cash flows are calculated,
ignoring the interest charges.

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