Finance: Calculation Showing Cash Flow Statement

Answer:

Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Statement showing calculation of Cost of production and Profitability (in lakhs)
	Particulars Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8
	Production (tones)	75000	80000	100000	100000	100000	100000	100000	100000

	Revenue	INR 1,57,500.00	INR 1,68,000.00	INR 2,10,000.00	INR 2,10,000.00	INR 2,10,000.00	INR 2,10,000.00	INR 2,10,000.00	INR 2,10,000.00
	Less: Expenses
	Raw material	INR 7,717.50	INR 8,232.00	INR 10,290.00	INR 10,290.00	INR 10,290.00	INR 10,290.00	INR 10,290.00	INR 10,290.00
	Depreciation	INR 28,350.00	INR 30,240.00	INR 37,800.00	INR 37,800.00	INR 37,800.00	INR 37,800.00	INR 37,800.00	INR 37,800.00
	Power Fuel Water	INR 7,875.00	INR 8,400.00	INR 10,500.00	INR 10,500.00	INR 10,500.00	INR 10,500.00	INR 10,500.00	INR 10,500.00
	Cost of Production	INR 43,942.50	INR 46,872.00	INR 58,590.00	INR 58,590.00	INR 58,590.00	INR 58,590.00	INR 58,590.00	INR 58,590.00
	Office and Administrative cost
	Salaries	INR 5,355.00	INR 5,712.00	INR 7,140.00	INR 7,140.00	INR 7,140.00	INR 7,140.00	INR 7,140.00	INR 7,140.00
	Finance Cost	INR 22,050.00	INR 23,520.00	INR 29,400.00	INR 29,400.00	INR 29,400.00	INR 29,400.00	INR 29,400.00	INR 29,400.00
	Other Expenses	INR 39,375.00	INR 42,000.00	INR 52,500.00	INR 52,500.00	INR 52,500.00	INR 52,500.00	INR 52,500.00	INR 52,500.00
	Net profit	INR 46,777.50	INR 49,896.00	INR 62,370.00	INR 62,370.00	INR 62,370.00	INR 62,370.00	INR 62,370.00	INR 62,370.00
	Tax Rate @ 27%	INR 12,629.93	INR 13,471.92	INR 16,839.90	INR 16,839.90	INR 16,839.90	INR 16,839.90	INR 16,839.90	INR 16,839.90
	Net Profit After tax	INR 34,147.58	INR 36,424.08	INR 45,530.10	INR 45,530.10	INR 45,530.10	INR 45,530.10	INR 45,530.10	INR 45,530.10

It is seen from the above table that the net profit of the company has raised in the beginning two years of its life. The profits of the company rose from 34147.58 in the year 1 to 36424.08 in the year 2. Thereafter the profit of the company rose to 45530 and became stagnant (Jansen 2016). The reason for the stagnancy in the later years is that the revenue of the company became fixed as the company started operating at 100% efficiency. As the variable expenses of the company are dependent upon the revenue, they also became constant.

Calculation showing cash flow statement
Particulars	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8
Net profit after tax	INR 46,777.50	INR 49,896.00	INR 62,370.00	INR 62,370.00	INR 62,370.00	INR 62,370.00	INR 62,370.00	INR 62,370.00
Add:
Depreciation	INR 28,350.00	INR 30,240.00	INR 37,800.00	INR 37,800.00	INR 37,800.00	INR 37,800.00	INR 37,800.00	INR 37,800.00
Cash flow from Operation/ Cash profit	INR 75,127.50	INR 80,136.00	INR 1,00,170.00	INR 1,00,170.00	INR 1,00,170.00	INR 1,00,170.00	INR 1,00,170.00	INR 1,00,170.00
Repayment of loan			INR 36,716.67	INR 36,716.67	INR 36,716.67	INR 36,716.67	INR 36,716.67	INR 36,716.67
Working capital requirement	INR 43,100.00	INR 45,973.00	INR 57,467.00	INR 57,467.00	INR 57,467.00	INR 57,467.00	INR 57,467.00	INR 57,467.00
Salvage value								310
Net Cash generated during the year	INR 32,027.50	INR 34,163.00	INR 5,986.33	INR 5,986.33	INR 5,986.33	INR 5,986.33	INR 5,986.33	INR 6,296.33
opening cash and Cash Equivalent	314500	INR 3,46,527.50	INR 3,80,690.50	INR 3,86,676.83	INR 3,92,663.17	INR 3,98,649.50	INR 4,04,635.83	INR 4,10,622.17
Closing cash balance	INR 3,46,527.50	INR 3,80,690.50	INR 3,86,676.83	INR 3,92,663.17	INR 3,98,649.50	INR 4,04,635.83	INR 4,10,622.17	INR 4,16,918.50

It can be seen from the cash flow statement of the company that the net cash generated by the company has reduced over the years. Prior to the year 3 the cash flow of the company increased from year 1 to year 2 but thereafter, the cash flow of the company has remained constant. From the ear 7 to year 8, the company was able to generate an increase in the cash flow (Petkovi?et al. 2016). The proposal will not be able to generate increasing cash flow over the years and hence shall not be profitable in the longer run as suggested by the trend.

Statement showing calculation of cost of equity
Particulars	Amount
Risk free rate	8%
Market Rate	18%
Beta	1.17
Cost of Equity	20%

Using the method of CAPM the cost of equity has been computed to be 20%

Statement showing calculation of Weighted Average cost of capital
Source of fund	Cost (C )	Amount	Weightage (W)	CXW
Equity	20%	94200	30%	6%
Debt	9%	220300	70%	6%
WACC		314500		12%

Calculation showing Net Present Value
Particulars	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Total
Cash generated During the Year	INR 32,027.50	INR 34,163.00	INR 5,986.33	INR 5,986.33	INR 5,986.33	INR 5,986.33	INR 5,986.33	INR 6,296.33
Discounting rate	0.890531771	0.793046836	0.706233403	0.628923284	0.560076166	0.49876562	0.444166631	0.395544497
Discounted Cash flow	INR 28,521.51	INR 27,092.86	INR 4,227.75	INR 3,764.94	INR 3,352.80	INR 2,985.78	INR 2,658.93	INR 2,490.48	INR 75,095.05
Initial Investment									INR 3,14,500.00
Net Present Value									INR (2,39,404.95)

From the analysis of the net present value of the proposal, it is seen that after discounting the future cash flows expected to be generated the proposal is going to give a negative return. The gap between the initial investment and the cash flow expected is immense and hence there is no chance that the proposal will be able to generate returns for the company (Zimmermann and Jørgensen 2015).

Hence, the proposal should not be carried forward to the level of execution.

Calculation showing Debt Service Covergae ratio
Particulars	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8
Repayment of Loan	INR –	INR –	INR 36,716.67	INR 36,716.67	INR 36,716.67	INR 36,716.67	INR 36,716.67	INR 36,716.67
Interest	INR 22,050.00	INR 23,520.00	INR 29,400.00	INR 29,400.00	INR 29,400.00	INR 29,400.00	INR 29,400.00	INR 29,400.00
Total Debt Service (A)	INR 22,050.00	INR 23,520.00	INR 66,116.67	INR 66,116.67	INR 66,116.67	INR 66,116.67	INR 66,116.67	INR 66,116.67
EBITDA (B)	INR 97,177.50	INR 103,656.00	INR 129,570.00	INR 129,570.00	INR 129,570.00	INR 129,570.00	INR 129,570.00	INR 129,570.00
Debt Service Coverge Ratio (A/B)	4.41	4.41	1.96	1.96	1.96	1.96	1.96	1.96

It is a measure for determining the amount cash flow that is available with the company for paying off its obligations. The ratio draws relationship between the net operating income and the total debt service of the entity (Yemshanovet al. 2015). The lenders make use of the DSCR for determining the loan repayment capability of the company.

Reference and Bibliography

Dinagar, D.S. and Kamalanathan, S., 2015. A note on maximize fuzzy net present value with new ranking. Intern. J. Fuzzy Mathematical Archive, 7(1), pp.63-74.

Gu, H., Schutt, A., Stuckey, P.J., Wallace, M.G. and Chu, G., 2015. Exact and heuristic methods for the resource-constrained net present value problem. In Handbook on Project Management and Scheduling Vol. 1 (pp. 299-318). Springer, Cham.

Hopkinson, M., 2017. Net Present value and risk modelling for projects. Routledge.

Jansen, J.G.J., 2016. Dredge Mining Sequence Optimization: Maximizing the Net Present Value (NPV).

Leyman, P. and Vanhoucke, M., 2016. Payment models and net present value optimization for resource-constrained project scheduling. Computers & Industrial Engineering, 91, pp.139-153.

Petkovi?, D., Shamshirband, S., Kamsin, A., Lee, M., Anicic, O. and Nikoli?, V., 2016. Survey of the most influential parameters on the wind farm net present value (NPV) by adaptive neuro-fuzzy approach. Renewable and Sustainable Energy Reviews, 57, pp.1270-1278.

Petkovi?, D., Shamshirband, S., Kamsin, A., Lee, M., Anicic, O. and Nikoli?, V., 2018. Retraction notice to “Survey of the most influential parameters on the wind farm net present value (NPV) by adaptive neuro-fuzzy approach”[Renewable and Sustainable Energy Reviews (2016) page range from 1270-1278 of retracted article]. Renewable and Sustainable Energy Reviews, 83, p.177.

Tabner, I.T., 2016. Buying versus renting–Determinants of the net present value of home ownership for individual households. International Review of Financial Analysis, 48, pp.233-246.

Willems, C.J.L., Nick, H.M., Goense, T. and Bruhn, D.F., 2017. The impact of reduction of doublet well spacing on the Net Present Value and the life time of fluvial Hot Sedimentary Aquifer doublets. Geothermics, 68, pp.54-66.

Yemshanov, D., McCarney, G.R., Hauer, G., Luckert, M.M., Unterschultz, J. and McKenney, D.W., 2015. A real options-net present value approach to assessing land use change: A case study of afforestation in Canada. Forest Policy and Economics, 50, pp.327-336.

Zhao, C., Ke, H. and Chen, Z., 2016. Uncertain Resource-Constrained Project Scheduling Problem with Net Present Value Criterion. Journal of Uncertainty Analysis and Applications, 4(1), p.12.

Zimmermann, F. and Jørgensen, C., 2015. Bioeconomic consequences of fishing-induced evolution: a model predicts limited impact on net present value. Canadian Journal of Fisheries and Aquatic Sciences, 72(4), pp.612-624.

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