Capital Investment Decision

On 22 December, 2010 the company has informed

that the Board of Directors of the company has
decided to Acquire sizable amount of land to setup new Pharma
facilities.
Approximate cost for acquisition of land is Tk. 300.00
million.

Capital Investment Decision

Assumptions 10 year project
The production and sales target is 50,000,000
pcs of medicine
Cost of Capital- 15%

Particulars

Assumptions

Cost of Capital

15%

Year

10

Investment

Year 2010 (Taka)

Year (2011-2021)

300,000,000.00

Quantity

50,000,000.00

50,000,000.00

Price

100.00

100.00

Revenue

5,000,000,000.00

VC

70%

3,500,000,000.00

FC

3.00%

150,000,000.00

Depreciation

30,000,000.00

EBIT

1,320,000,000.00

Tax

30%

396,000,000.00

Net Income

924,000,000.00

Cash flow

954,000,000.00

Sensitivity Analysis
Particulars
Quantity
Price
Revenue
VC

FC
Depreciation
EBIT
Tax
Net Income
Cash flow
NPV
Relative

Amount in Taka
50,000,000.00
100.00
5,000,000,000.0
0
3,500,000,000.0
0
150,000,000.00
30,000,000.00
1,320,000,000.0
0
396,000,000.00
924,000,000.00
954,000,000.00
4,487,905,269.00

Amount in Taka
40,000,000.00
100.00
4,000,000,000.
00
2,800,000,000.
00
150,000,000.00
30,000,000.00
1,020,000,000.
00
306,000,000.00
714,000,000.00
744,000,000.00
3,433,963,858.00

Change
(0.25)
(0.25)

(0.29)
(0.29)
(0.29)
(0.29)
(0.31)

1.10

Scenario Analysis
Particulars

Pessimistic (-20%)

Normal

Optimistic (+ 20%)

Quantity

40,000,000.00

50,000,000.00

60,000,000.00

Price

100.00

100.00

100.00

4,000,000,000.00

5,000,000,000.0
0

6,000,000,000.00

2,800,000,000.00

3,500,000,000.0
0

4,200,000,000.00

FC

150,000,000.00

150,000,000.00

150,000,000.00

Depreciation

30,000,000.00

30,000,000.00

30,000,000.00

1,020,000,000.00

1,320,000,000.0
0

1,620,000,000.00

Tax 30.0%

306,000,000.00

396,000,000.00

486,000,000.00

Net Income

714,000,000.00

924,000,000.00

1,134,000,000.00

Cash flow

744,000,000.00

954,000,000.00

1,164,000,000.00

NPV

3,433,963,858.00

4,487,905,269.00

5,541,846,681.00

Revenue
VC

EBIT

Calculation of the future stock price

for these three scenarios
Description

Pessimistic
372.50

Normal
372.50

Optimistic
372.50

19714756

19714756

19714756

Current Capitalization
(A)

7,343,746,610.00

7,343,746,610.00

7,343,746,610.00

NPV (B)

3,433,963,858.00

4,487,905,269.00

5,541,846,681.00

(A + B)

10,867,927.72 E3 11,921,869.13 E3

MKT Price
No. Of Share
Outstanding

New Share Price

With Project

551.25

604.72

12,975,810.54 E3
658.18

Breakeven Quantity Based on NPV:

PVIFAn=10, i=15%
5.018768626
Initial Investment
300,000,000.00
EAC
59,775,618.75
Fixed Cost
150,000,000.00
VC/unit
70.00
Price/unit
100.00
Tax
0.30
1-Tc
0.70
Depreciation
30,000,000.00
After Tax Fixed
155,775,618.80
Charge
After Tax Contribution
21.00
BEP Quantity
7,417,886.61

Particulars
Investment
Quantity
Price/unit
Revenue
VC
FC
Depreciation
EBIT
Tax
Net Income
Cash flow

Year (2011-2021)
30,000,000.00
7,417,886.61
100.00
741,788,661.00
519,252,062.70
150,000,000.00
30,000,000.00
42,536,598.30
12,760,979.49
29,775,618.81
59,775,618.81

So, the project NPV at 2010 is, NPV2009 =

-300,000,000.00+ (59,775,618.81 X PVIFAn=10, i=15%)
NPV = --300,000,000.00+ (59,775,618.81* 5.018768626)
= 0.00

Breakeven Price Based on NPV:

TVC= 3,500,000,000.00
TFC= 150,000,000.00
TR=3,722,536,598.00
Depreciation= 30,000,000

EBIT= (NI/ 0.70)=42,536,598.21

Net Income= 29,775,618.75
OCF= 29,775,618.75+30,000,000
EAC= 59,775,618.75

Particulars
Revenue
VC
FC

Amount in Taka
3,722,536,598.00
3,500,000,000.00
150,000,000.00

Depreciation
EBIT
Tax
Net Income
Cash flow

30,000,000.00
42,536,598.21
12,760,979.46
29,775,618.75
59,775,618.75

We know,
Revenue = Price X Quantity
Price = Revenue / Quantity
Price = 3,722,536,598.00 / 50,000,000.00
Price = 74.45