Group 39
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CORPORATE FINANCIAL MANAGEMENT
HIND PETROCHEMICALS COMPANY
Presented By Mally 08M79
Vinay Sandip Bhow 08M119
INTRODUCTION Ø The Hind petrochemical company plants are situated in South and East, and wanted to expend in the west. Ø The Central Government has a refinery in a backward area of West. Ø Capacity of HPC – 9.5 metric ton. Ø Capacity of Central government refinery – 3.5 metric ton. Ø The central government wants sell the refinery for Rs1550 million.
PROBLEM Executives of the company are not agree on accepting the project. Ø
Ø Financial controller reject the project because it will earn profit only in the first two years of the five year period.
Whether to acquire the central government refinery or not
?
GIVE N
Ø The company is following “Straight Line Method” of depreciation. Ø The Tax Rate is 35%. Ø Cost of Capital is 1.5%. Ø product life is five years.
ØThe sales of the Company decreased in the fourth year and again it is increased in the fifth year. ØInitial Investment - Rs 5,950 millions ØWorking Capital - Rs 300millions Ø Initial Cost - Rs 25 millions
METHOLODOLOGY We have calculated this project by two methods whether to accept or reject the project i.e.,
1) NET PRESENT VALUE METHOD.
2) PROFITABILITY INDEX METHOD.
CASH OUT FLOWS Rs(in millions) Initial investment
5950.00
working capital
300.00 6250.00 25.00
Initial Cost for workers
6275.00 For Refinery First year (15*0.870)
13.05
Cleaning Site Fifth year (200*0.497)
99.44 6387.49
CASH INFLOWS Rs(in millions)
Ø From the above table, the total Cash flows after Tax for all the five years is 7321.56. 1) NET PRESENT VALUE METHOD. NPV = CASH IN FLOWS-CASH OUTFLOWS
= 7321.56 - 6387.49 = Rs 934.07 million.
ANALYSIS According to Net Present Value method we have to accept the project because we got positive value.
2) PROFITABILITY INDEX METHOD.
Profitability index.. PI = total pv of cash inflows total pv of cash outflows
= 7321.56 = 1.146 % 6387.49
ANALYSIS Ø By profitability index method we got the value greater than 1.so we accept the project.
why this is chosen because Ø It recognizes the time value of money. Ø It is consistent with share holders value maximization principle. Ø It is a relative measure of projects profitability.
Thank u Q
HIND PETROCHEMICALS COMPANY
Presented By Mally 08M79
Vinay Sandip Bhow 08M119
INTRODUCTION Ø The Hind petrochemical company plants are situated in South and East, and wanted to expend in the west. Ø The Central Government has a refinery in a backward area of West. Ø Capacity of HPC – 9.5 metric ton. Ø Capacity of Central government refinery – 3.5 metric ton. Ø The central government wants sell the refinery for Rs1550 million.
PROBLEM Executives of the company are not agree on accepting the project. Ø
Ø Financial controller reject the project because it will earn profit only in the first two years of the five year period.
Whether to acquire the central government refinery or not
?
GIVE N
Ø The company is following “Straight Line Method” of depreciation. Ø The Tax Rate is 35%. Ø Cost of Capital is 1.5%. Ø product life is five years.
ØThe sales of the Company decreased in the fourth year and again it is increased in the fifth year. ØInitial Investment - Rs 5,950 millions ØWorking Capital - Rs 300millions Ø Initial Cost - Rs 25 millions
METHOLODOLOGY We have calculated this project by two methods whether to accept or reject the project i.e.,
1) NET PRESENT VALUE METHOD.
2) PROFITABILITY INDEX METHOD.
CASH OUT FLOWS Rs(in millions) Initial investment
5950.00
working capital
300.00 6250.00 25.00
Initial Cost for workers
6275.00 For Refinery First year (15*0.870)
13.05
Cleaning Site Fifth year (200*0.497)
99.44 6387.49
CASH INFLOWS Rs(in millions)
Ø From the above table, the total Cash flows after Tax for all the five years is 7321.56. 1) NET PRESENT VALUE METHOD. NPV = CASH IN FLOWS-CASH OUTFLOWS
= 7321.56 - 6387.49 = Rs 934.07 million.
ANALYSIS According to Net Present Value method we have to accept the project because we got positive value.
2) PROFITABILITY INDEX METHOD.
Profitability index.. PI = total pv of cash inflows total pv of cash outflows
= 7321.56 = 1.146 % 6387.49
ANALYSIS Ø By profitability index method we got the value greater than 1.so we accept the project.
why this is chosen because Ø It recognizes the time value of money. Ø It is consistent with share holders value maximization principle. Ø It is a relative measure of projects profitability.
Thank u Q
