Horana Project Decision

Horana specific costs and savings

The costs and savings (identified so far) that would only incur if our operations were in Horana: Expenses
Rent ($20,000 x 7 acres x Rs.130/$1) Loan Interest (Rs.180mn x 15%)

Per Year (Rs.mn)

18.2 27 1.44

Savings
Transport (Rs.120,000 x 12months)

Net Amount

43.76 (Cost)

Quantitative: Is this Justifiable?

The potential new business of Tubes is excluded because we do not know what ratio of net profit to revenue it will have. If our current operations were in Horana as of now (2012/2013):
Segment PC Revenue (Rs.mn) 168 % Net Profit 9% Net Profit (Rs.mn) 15.1

TB Food
Total

98 49
315

25% 9%
14%

24.5 4.4
44

The total net profit of Rs.44mn barely covers the Rs 43.76mn net amount specific to Horana. We end up with Rs 0.3mn

Quantitative: Is this Justifiable?

The total revenue needed if our net profit were to stay at Rs.44mn with the same np to sales percentages even after the addition of Horana specific costs & savings:
Segment PC TB Food Total Revenue (Rs.mn) 335 195 98 628 % Net Profit 9% 25% 9% 14% Net Profit (Rs.mn) 30 49 9 88 (44 + 43.76)

Based on the above calculations, in Horana, our top line needs to double (from 315 to 628mn) but our true bottom line would stay the same at Rs.44mn (once Rs 43.76mn is paid off from Rs 88mn)

Quantitative: Is this Justifiable?

The calculations above do not consider unforeseen costs that would obviously occur when operations actually occur. The calculations compared to sales team projections for 2014/2015:
Segment PC TB Food Total Revenue (Rs.mn) 335 195 98 628 Sales Team Projections 300 150 150 600 Difference (Rs.mn) - 35 - 45 + 52 - 28

Qualitative: Is this Justifiable?

The primary reason for relocating to Horana is anticipated increase in sales and orders from neighbouring USL The Risks are:
We cannot accurately estimate by how much USL will increase orders because we relocated to Horana Previous years of experience with USL (in Toothbrushes) show that no matter how much our quality or standards rise, we lose orders to Polypak due to Sohlis personal connection with USL

Our sales projections could be too optimistic. In project analysis, it is not advisable to only look at the best case scenario.