Particulars

Revenue
Net Sales
Cost of Goods Sold

YYDTS Plc
Income Statement
For the three consecutive years
Year 2 ($)
Year 3 ($)

Year 1 ($)
648,000
194,400

1,644,200
493,260

Year 4 ($)

4,260,000
1,278,000

Year 5 ($)

8,520,000
1,278,000

8,520,000
1,278,000

1,150,94
Gross Margin
Operating Expenses
Adverting and Mark
Travel
Rent
Utilities
Insurance
Consultants/Contractor
s
Web Development
Depreciation
Payroll Taxes
Total personnel
Total Operating
expense
Net Income before

453,600

7,242,000

7,242,000

100,000
3,699
14,228
4,553
7,968

150,000
4254
16,363
5,236
9,163

200,000
4,892
18,817
6,021
10,537

200,000
4,892
18,817
6,021
10,537

300,000
4,892
18,817
6,021
10,537

17,074
18,591
515,750
62,500.00
350,000.0

19,635
22,309
515,750
62,500.00
350,000.0

22,580
26,771.00
515,750
50,000.00
200,000.0

22,580
26,771.00
515,750
50,000.00
200,000.0

22,580
26,771.00
490,750
50,000.00
200,000.0

1,155,21

1,055,368.0

1,055,368.0

1,926,632.0

6,186,632.0

-4,270

(267,600)

(224,900)
1,701,732.0

(37,100)
6,149,532.0

-908,363
0

-271,870
0

0
(510519.6)

0
(1844859.6)

1094363

Interest & Tax / Net

Loss

2,982,000

-640,763

1,130,368.00

6,111,632.00

(267,600
Interest (10%)
Net Income Before
Tax
Tax (30%)

6,111,632.00
(1833489.6)

1,191,212.4

4,304,672.4

Net Income after Tax

Dividend Tax (10%)
Net Income After

-908,363
0

-271,870
0

0
(119121.24)

0
(430467.24)

4,278,142.40
(427814.24)

Dividend

-908,363

-271,870

1,072,091.16

3,874,205.16

3,850,328.16

N.B.

Operating expenses are paid during the period they are incurred
100% production capacity will be used starting from year 3.
Since the company will operate at full capacity starting from year 3, it will be hard to serve the increasing demand

on the upcoming consecutive years.

As a result the company will raise its selling price for its products by 100% at year 4 and year 5 without incurring

additional cost of production.

Expatriate employees will reduce and due to the increasing production level there will be high number of local

employees.
Cost of Goods Sold is estimated to be 30% of Cost.

Particulars
Cash Collection
Beginning Cash Balance
Cash Collection from Sales
Cash Available
Disbursement
Manufacturing cost
Operating Expense
Capital Expenditure
Advertising and marketing
Business Income tax and
Dividend tax
Total Disbursement
Minimum Cash Balance
Total Cash Needed
Cash Excess/ Deficit
Financing Section
Borrowing
Repayment
Principal
Interest
Total Repayment
Net Financing
Ending Cash balance

YYDTS Plc
Cash Flow Statement
For the three consecutive years
Year 1 ($)
Year2 ($)
0
648,000

50,987
1,644,200
648,000

Year3 ($)
50,067
4,260,000

1,695,187

Year4 ($)

Year5 ($

51,049
8,520,000
4,310,067

5,604,390
8,520,000
8,571,049

194,400
478,613
2,500,000
100,000

493,260
489,460
0
150,000

1,278,000
339,618
0
200,000

1,278,000
339,618
0
200,000

1,278,000
339,618
0
300,000

0
3,273,013
50,000

0
1,132,720
50,000

0
1,817,618
50,000

629,640.84
2,447,259
50,000

2,275,326.84
4,192,945
50,000

3,323,013.00
-2,675,013.00

1,182,720
512,467

1,867,618
2,442,449

2,497,259
6,073,790

2,676,000.00
0
0

427,000
85,400

1,878,000
563,400

512,400

2,676,000.00
50,987

-512,400
50,067

371,000
148,400
2,441,400
2,441,400
51,049

0
0
519,400
-519,400
5,604,390

N.B:
Borrowing is made in multiples of 1000 birr at the beginning of a year
Repayment is made at the end of a year in multiples of 1000 birr
Minimum cash balance 50,000

$
Borrowing Interest Rate= 10%

Loan Repayment Schedule

Year
1
2
3
4

Face Value
2,676,000.00
2,676,000.00
2,676,000.00
2,676,000.00

Asset
Current Asset
Total Current Asset
Fixed Asset
Building
Truck
Computer & Software
Machine
Lease hold Asset
Land
Total Fixed Asset

Loan Settled
0
427,000
1,878,000
371,000

Settled

Interest

Unsettled

Interest

expense to

Interest

expense

be paid on

Unsettled

Interest

Expense

at the end

the next

Loan
2,676,000.00
2,249,000
371,000
0

Expense
267,600
267,600
224,900
37,100

to date
267,600
535,200
674,700
148,400

of the yr

year
267,600
449,800
111,300
0

YYDTS Plc
Opening Balance Sheet
As on January 1,Year 0
($)
Liability
Current Liability
0 Long term Liability
Total Liability
3,000,000
500,000
Capital
100,000
Paid In capital
1,200,000
Retained Earning

0
85,400
563,400
148,400

($)
0
2,500,000
2,500,000

2,330,000
0

30,000
4,830,000

Total Capital

2,330,000

Total Asset

4,830,000

Total Liability and Capital

4,830,000

The above balance sheet shows the total amount of Assets, Liabilities and Capital which will be there at the
beginning of year one, which is at the beginning of the project life.

Asset
Current Asset
Cash

YYDTS Plc
Balance Sheet
As on December 31 Year 1
($)
Liability
Interest Payable
50,987

Total Current Asset

Fixed Asset
Building
Accumulated Depreciation
Build
Net Building
Truck
Accumulated Depreciation
Truck
Net Truck
Computer & Software
Accumulated Depreciation
comp & sof.
Net Comp & Sof.
Machine
Accumulated Depreciation
Mach.
Net Mach
Lease hold Asset
Land
Amortization
Net Land
Total Fixed Asset
Total Asset

Long term Liability

50,987

($)
267,600
2,676,00
0
2,943,60
0

Total Liability

3,000,00
0
150,000
2,850,00
0
500,000

Capital

100,000
400,000
100,000

Paid In capital

2,330,00
0

25,000
75,000
1,200,00
0

Retained Earning

-908,363

240,000
960,000
30,000
750
29,250
4,314,25
0
4,365,23

Total Capital
Total Liability and Capital

1,421,63
7
4,365,23

Depreciation Rate:
Building
Truck
Comp & Soft wares
Lease Hold Assets

Asset
Current Asset
Cash

5%
20%
25%
40 Years

YYDTS Plc
Balance Sheet
As on December 31 Year 2
($)
Liability
Interest payable
50,067

Total Current Asset

Fixed Asset
Building
Accumulated Depreciation
Build
Net Building
Truck
Accumulated Depreciation
Truck
Net Truck
Computer & Software

Long term Liability

50,067

($)
449,800
2,249,00
0
2,698,80
0

Total Liability

3,000,00
0
300,000
2,700,00
0
500,000

Capital

200,000
300,000
100,000

Paid In capital

1,421,63

7
Accumulated Depreciation
comp & sof.
Net Comp & Sof.
Machine
Accumulated Depreciation
Mach.
Net Mach
Lease hold Asset
Land
Amortization
Net Land

50,000
50,000
1,200,00
0

-271,870

480,000
720,000
30,000
1,500
28,500
3,798,50
0
3,848,56
7

Total Fixed Asset

Total Asset

Depreciation Rate:
Building
Truck
Comp & Soft wares
Lease Hold Assets

Retained Earning

Total Capital
Total Liability and Capital

1,149,76
7
3,848,56
7

5%
20%
25%
40 Years

YYDTS Plc

Asset
Current Asset
Cash
Total Current Asset
Fixed Asset
Building
Accumulated
Depreciation Build
Net Building
Truck
Accumulated
Depreciation Truck
Net Truck
Computer & Software
Accumulated
Depreciation comp & sof.
Net Comp & Sof.
Machine
Accumulated
Depreciation Mach.
Net Mach
Lease hold Asset
Land
Amortization
Net Land
Total Fixed Asset
Total Asset

Balance Sheet
As on December 31 Year 3
($)
Liability
Current Liability
51,049
Bus. Inc. Tax. Pay.
51,049 Divid. Tax Pay
Interest Payable
3,000,00
0
Long term Liability
450,000
2,550,00
0
500,000

($)
510,519.60
119,121.24
111,300
371,000

Total Liability

1,111,941

Capital

300,000
200,000
100,000

Paid In capital

75,000
25,000
1,200,00
0

Retained Earning

1,149,767

1,072,091.1
6

720,000
480,000
30,000
2,250
27,750
3,282,75
0
3,333,79
9

Total Capital
Total Liability and Capital

2,221,85
8
3,333,79
9

Depreciation Rate:

Building
Truck
Comp & Soft wares
Lease Hold Assets

Asset
Current Asset
Cash
Total Current Asset
Fixed Asset
Building
Accumulated
Depreciation Build
Net Building
Truck
Accumulated
Depreciation Truck
Net Truck
Computer & Software
Accumulated
Depreciation comp & sof.
Net Comp & Sof.
Machine

5%
20%
25%
40 Years

YYDTS Plc
Balance Sheet
As on December 31 Year 4
($)
Liability
Current Liability
5,604,39
0
Bus. Inc. Tax. Pay.
5,604,39
0 Dividend Tax Pay
Long term Liability
3,000,00
0
Total Liability
600,000
2,400,00
0
500,000

Capital

400,000
100,000
100,000

Paid In capital

100,000
0
1,200,00
0

Retained Earning

($)
1,844,859.6
0
430,467.24
0
2,275,32
7

2,221,858

3,874,205.1
6

10

Accumulated
Depreciation Mach.
Net Mach
Lease hold Asset
Land
Amortization
Net Land

960,000
240,000
30,000
3,000
27,000
2,767,00
0
8,371,39
0

Total Fixed Asset

Total Asset

Depreciation Rate:
Building
Truck
Comp & Soft wares
Lease Hold Assets

Total Liability and Capital

5%
20%
25%
40 Years

YYDTS Plc
Balance Sheet
As on December 31 Year 5
($)
Liability
Current Liability

Asset
Current Asset
Cash
Total Current Asset
Fixed Asset

6,096,06
3
8,371,39
0

Total Capital

9,931,44
5
9,931,445

Bus. Inc. Tax. Pay.

Dividend Tax Pay
Long term Liability

($)
1,833,489.6
0
427,814.24
0

11

Building
Accumulated
Depreciation Build
Net Building
Truck
Accumulated
Depreciation Truck
Net Truck
Computer & Software
Accumulated
Depreciation comp &
sof.
Net Comp & Sof.
Machine
Accumulated
Depreciation Mach.
Net Mach
Lease hold Asset
Land
Amortization
Net Land
Total Fixed Asset

3,000,00
0

Total Liability

750,000
2,250,00
0
500,000

Capital

500,000
0
100,000

Paid In capital

100,000
0
1,200,00
0
1,200,00
0
0

6,096,063

3,850,328.1
6

30,000
3,750
26,250
2,276,250
12,207,69
5

Total Asset

Depreciation Rate:
Building
Truck
Comp & Soft wares
Lease Hold Assets

Retained Earning

2,261,304

Total Capital
Total Liability and Capital

9,946,391
12,207,69
5

5%
20%
25%
40 Years

12

Year

Asset, Liability& Capital 5yrs Trend

Total Liability
Total Capital
Total Asset
1
2,943,600
1,421,637
4,365,237
2
2,698,800
1,149,767
3,848,567
3
1,111,941
2,221,858
3,333,799
4
2,275,327
6,096,063
8,371,390
5
2,261,304
9,946,391
12,207,695

13

14000000
12000000

12,207,695

10000000

9,946,391
Year

8,371,390

8000000

Total Liability
Total Capital

6,096,063

6000000
4,365,237

4000000

3,848,567

2,943,600
2000000

3,333,799

2,698,800

1,421,637

Total Asset

2,275,327

2,221,858

1,149,767

2,261,304

1,111,941

0
1

14

As it can be seen on the above line graph the project's capital increases regardless of the total liability

Revenue, Gross margin and Earning after

dividend and Tax for 5 Yrs Trend
Net Income After
Year
1
2
3
4
5

Revenue
648,000
1,644,200
4,260,000
8,520,000
8,520,000

Gross Margin
453,600
1,150,940
2,982,000
7,242,000
7,242,000

Tax
-908,363
-271,870
1,191,212.40
4,304,672.40
4,278,142.40

15

10000000
8,520,0008,520,000
8000000

7,242,0007,242,000

6000000
Year
4,260,000

4,304,6724,278,142

4000000

Revenue
Gross Margine

2,982,000

Net Income After Tax

1,644,200
1,150,940 1,191,212

2000000

648,000
453,600
0
1

2
-271,870

-908,363
-2000000

16

As it can be inferred from the above graph, the revenue net income of the project will rise
up from year to year without

NPV (Net Present Value)

Is the summation of the present value of cash Proceeds(Cash Flow After Tax (CFAT)) in each year minus
the present value of cash outflow. ( Initial Investment)

Where:

= Summation
CFATt= Cash Flow After Tax at time t
i= Discounting Rate

17

t= Time
PVCO= Present Value of Cash
Outflow

Decision Rule/Accept and Reject Criteria

IF NPV is +Positive
Accept the Project
IF NPV is -Ve
Reject the Project
IF NPV is equal to Zero
Indifferent

Cash Inflow After

Year

Tax
1
2
3
4
5

Total Cash Inflow

-908,363
-271,870
1,072,091.16
3,874,205.16
3,850,328.16
7,616,391.5

Cash Outflow
3,830,000

18

Year

Cash Proceeds

Present Value of
cash Proceeds

-908,363

-825,785

-271,870

-224,686

1,191,212.40

894,975.5
1

4,304,672.40

2,646,134

4,278,142.40

2,390,751

5
Summation of Present value of cash
proceeds

Present value of cash out flow (Initial

Investment)

4,881,390

2,330,000

Therefore:

=
=
DECISION:

4,881,390
2,551,390

2,330,000

ACCEPT THE PROJECT SINCE NPV IS POSITIVE

19

PROFITABILITY INDEX (PI)

This index is commonly known as benefit to cost ratio
It is a method of appraising investment proposals which measures the present value of the returns
received per dollar
invested.

Decision Rule/Accept and Reject Criteria

If PI is greater than 1
Accept the Project
If PI is less than 1
Reject the Project
If PI is equal to zero
Indifferent
PI

=
=

DECISION:

2,551,390
2,330,000
1.0950171
7

ACCEPT THE PROJECT SINCE PROFITABILITY INDEX IS

GREATHERTHAN ONE

PAY BACK PERIOD (PBP)

It refers to the range of time period it takes for an investment to be returned back from
operation
Pay Back Period

Total Investment
Total cash Inflow

We use the above formula to calculate the PBP under those cases where the expected cash inflow is uniform
throughout the consecutive periods.
But under this project the expected cash inflows are uneven through out the 5 consecutive years. Therefore we
use the following schedule to calculate the payback period.
Pay Back Period

20

Investment
to be
Year
1
2

Initial Investment
2,330,000

Cash Inflow

Returned

returned

After Tax
-271,870
-271,870

Investment

back
2,601,870
2,873,740

0
0
1,191,212.4

1,191,212.40

0
2,319,020.6

1,682,527.6
-

4
5

4,304,672.40
4,278,142.40

1,985,651.8
0.0

Therefore the investment will be returned approximately on average within 4 years time
PBP = 4 Years
On the 4th year after returning the initial investment fully the project will provide an excess return of 1,985651.8

ACCOUNTING RATE OF RETURN (ARR)

Accounting rate of return (also known as simple rate of return) is the ratio of estimated
accounting profit of a project to the average investment made in the project. ARR is used in
investment
appraisal.
Formula:
Accounting Rate of Return is calculated using the following formula:
ARR =
Average Accounting
Profit

21

Average Investment
Average accounting profit is the arithmetic mean of accounting income expected to be
earned during each year of the project's life time. Average investment may be calculated
as the sum of the beginning and ending book value of the project divided by 2. Another
variation of ARR formula uses initial investment instead of average investment.
Decision Rule:
Accept the project only if its ARR is equal to or greater than the required accounting rate of return.
In case of mutually exclusive projects, accept the one with highest ARR.

Average Profit = Profit After Tax/Life of Investment

Average
Accounting Profit
=
Average Investment
=

Beginning Investment + Ending Investment

2
=
=

ARR

-908,363-271,870+1,191,212.40+3,874,205.16+3,850,328.16
5
976,278.02

2,330,000
+2,330,000
2
2,330,000.00

976,278.02
2,330,000.00
=
0.419003442
Therefore the Accounting rate of the project is 42%.

22