A Note On The Financial Evaluation Of Projects
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CASH FLOWS FROM LONG TERM FUNDS POINT OF VIEW Contd..Depreciation Schedule
|
Year
|
1
|
2
|
3
|
4
|
5
|
6
|
7
|
8
|
|
Written down value
|
230
|
195.5
|
166.18
|
141.25
|
120.06
|
102.06
|
86.76
|
73.76
|
|
Depreciation @ 15%
|
34.5
|
29.32
|
24.93
|
21.19
|
18
|
15.3
|
13
|
11.06
|
Calculation of Interest on long term loans
|
Year
|
1
|
2
|
3
|
4
|
5
|
6
|
7
|
8
|
| Amount Outstanding |
120 |
120 |
120 |
100 |
80 |
60 |
40 |
20 |
| Interest @ 15% |
18 |
18 |
18 |
15 |
12 |
9 |
6 |
3 |
| Amount Repaid |
0 |
0 |
20 |
20 |
20 |
20 |
20 |
20 |
CASH FLOWS FROM EQUITY FUNDS POINT OF VIEWWhen cash flows are computed from the equity funds point of view, only the funds contributed by the equity holders towards the project are considered as an initial investment. The operating cash flow includes profit after taxes, depreciation, other non-cash charges and preference dividend. The terminal flow will be equal to the net salvage value of fixed assets and the net salvage value of current assets minus repayment of term loans, redemption of preference capital, repayment of working capital advances, and retirement of trade credit and other dues.
Consider the same example given above. The net cash flows from the equity point of view
would be |
|
Cash Flows (Equity Funds Point of View)
|
Year |
0 |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
|
Investment
|
-135
|
|
|
|
|
|
|
|
|
|
Initial flow
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
340
|
340
|
340
|
340
|
340
|
340
|
340
|
340
|
|
Op. costs
|
|
145.5
|
150.68
|
155.07
|
158.81
|
162
|
164.7
|
167
|
168.94
|
|
Depreciation
|
|
34.5
|
29.32
|
24.93
|
21.19
|
18
|
15.3
|
13
|
11.06
|
|
Int. LT
|
|
18
|
18
|
18
|
15
|
12
|
9
|
6
|
3
|
|
Int. WC
|
|
9.12
|
9.12
|
9.12
|
9.12
|
9.12
|
9.12
|
9.12
|
9.12
|
|
PBT
|
|
132.88
|
132.88
|
132.88
|
135.88
|
138.88
|
141.88
|
144.88
|
147.88
|
|
Tax
|
|
53.15
|
53.15
|
53.15
|
54.35
|
55.55
|
56.75
|
57.95
|
59.15
|
|
PAT
|
|
79.73
|
79.73
|
79.73
|
81.53
|
83.33
|
85.13
|
86.93
|
88.73
|
|
Op. Flow*
|
|
114.23
|
109.05
|
104.66
|
102.72
|
101.33
|
100.43
|
99.93
|
99.79
|
|
NSV of F. Assets
|
|
|
|
|
|
|
|
|
62.7
|
|
Net Salvage value of current assets
|
|
|
|
|
|
|
|
|
126
|
|
Repayment of T.L
|
|
|
|
20
|
20
|
20
|
20
|
20
|
20
|
|
Repayment of STBB**
|
|
|
|
|
|
|
|
|
57
|
|
Repayment of creditors
|
|
|
|
|
|
|
|
|
44
|
|
Terminal Flow
|
|
|
|
|
|
|
|
|
67.7
|
|
NCF
|
-135
|
114.23
|
109.05
|
84.66
|
82.72
|
81.33
|
80.43
|
79.93
|
167.49
|
|
(Rs. in millions) |
*Operating Flow = PAT + Depreciation – Repayments on long and short-term
loans
** Short term bank borrowings
CASH FLOWS FROM TOTAL FUNDS POINT OF VIEW
CHOICE OF DISCOUNT RATE
APPRAISAL CRITERIA
DISCOUNTED CASH FLOW/TIME ADJUSTED TECHNIQUES
NET PRESENT VALUE
APPRAISAL TECHNIQUES IN PRACTICE FOR VARIOUS TYPES OF PROJECTS
CONCLUSION
EXHIBIT I ASPECTS OF PROJECT APPRAISAL
EXHIBIT II PROJECT EVALUATION TECHNIQUES
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