Question 1: The confectionery company intends to carry out a project to form a factory
and install machinery and equipment, these activities are expected to be completed in
year 0. Production and business activities will be conducted for the next 3 years and
resolve debts and payments, and asset management the following year. The specific
parameters are as follows:
- Investment phase:
+ Premises: rent 240 million VND/year, paid in full in the year of construction
(exemption from rent for the construction year and liquidation year), evenly
distributing premises rental costs over 3 years of operation
+ Building a business facility: 300 million VND, evenly distributing this cost over 3
years of operation
+ Purchase and installation of machinery and equipment: 1 billion VND, amortized
according to the straight-line method over a period of 5 years
- Project Debt
Year 0 1 2 3
Debt at the beginning of the period 650 457 242
Interest arises 78 55 29
Total debt repayment (A) 271 271 271
- Repayment of principal 193 216 242
- Pay interest 78 55 29
Debt at the end of the period 650 457 242 0
- Operational phase:
+ Direct costs (excluding depreciation and other fixed asset allocation costs): 50,000
VND/product, increasing annually with the rate each year being 15% higher than the
previous year.
+ Management and sales costs: 200 million VND/year of operation and 100 million
VND per year of liquidation.
+ Year 1 output is 10 thousand products and the following year increases by 10%
compared to the previous year.
+ Year 1 selling price is 140 thousand VND/product and next year will increase by
10% compared to the previous year.
+ Account Receivables: 5% of revenue, Account payables: 10% of direct costs
excluding depreciation
Other parameters: no inventory of raw materials and finished products, no cash
balance, excluding VAT and inflation issues. Corporate income tax rate: 25%/year
1. Calculate the depreciation cost of machinery and equipment each year and the
remaining value in the year of liquidation
2. Calculate premises rental costs and construction costs allocated to each year of
operation
3. Calculate direct revenue and costs each year
4. Based on the above calculations, complete the following income statement:
Year 0 1 2 3
Revenue
(-) Direct costs
(-) Management costs
(-) Depreciation
(-) Premises rental allocation
(-) Allocation of construction
money
EBIT
(-) Interest expenses
EBT
Loss carry forward
EBT calculates taxes
Corporate income tax
Earnings After Tax (EAT)
5. Fill in the missing information to complete the following working capital table:
Year 0 1 2 3 4
Accounts receivable 70 84,7 102,5
Change in accounts -70 -17,8
receivable
Accounts payable 50 63,3 80
Change accounts payable -13,3
6. Prepare a cash flow statement from the TIPV perspective. Calculating the project's
PP does not take into account currency prices
7. Calculate the NPV of the project with r = WACC = 12%. Evaluate the feasibility of
the project.
8. If the required rate of return increases to 15%, is the project feasible? Please
estimate the IRR of the project.
9. Prepare a cash flow statement from the investor's perspective (EPV).
10. Do you think the project has enough capacity to repay its debt?
Question 2: Information of a small project in the garment industry is as follows.
- Investment period: 2023; Operation period: 2024 to 2026
- Investment in machinery and equipment: 1 billion VND, economic life: 5 years.
- Premises rental: 180 million VND/year, paid annually according to operating
time. 1-year rental deposit paid in year 0 and deposit refunded in liquidation
year.
- Output: the first year is 10 thousand products, it is expected that next year's
output will be 20% higher than the previous year during the life of the project.
- Selling price: average 300 thousand VND/product in 2024, expected selling price
next year will decrease by 5% compared to last year.
- Direct production costs: (excluding depreciation) including main raw materials,
auxiliary materials, electricity, worker salaries, packaging... are estimated at
about 160 thousand VND/product and increase by 10% each year.
- Management and sales costs: 100 million VND/year, only 50% in the liquidation
year
- Loan: The project can borrow money from a bank equal to 50% of the total
investment value in year 0 with an interest rate of 15%/year. This loan will be
repaid over the next 3 years with the evenly principal payment method, paid
annually and interest will be paid according to the interest arising annually
(according to the gradually decreasing debt balance). Summary of the loan
repayment schedule is as follows:
Calendar year 2023 2024 2025 2026
Project year 0 1 2 3
Debt at the beginning of the 59
period 0
Interest arising during the 8
period 9
Debt repayment: Total 28
5
In which: * Principal 19 19 197
repayment 7 7
* Pay interest 8
9
Debt at the end of the 59 39
period 0 3
- Working capital: Accounts receivable is estimated at about 10% of revenue, accounts
payable is estimated at about 20% of direct production costs, cash balance is estimated
at about 5% of revenue
- Other information: Corporate income tax rate is 25%
Requirement
1. Calculate depreciation each year and residual value in the year of liquidation
2. Calculate total revenue and total direct costs excluding annual depreciation
3. Prepare an estimated income table
4. Prepare a working capital table
5. Prepare a cash flow statement from the perspective of total investment TIPV and
perspective EPV
6. Suppose the average cost of capital over the entire project life cycle is 23%.
Calculate the NPV of the project from the TIPV perspective and evaluate the
feasibility of the project.
7. If the discount rate increases to 55%, is the project still viable? Calculate the
project's IRR
8. Calculate the undiscounted and discounted payback period from the TIPV
perspective
9. Do you think the project has the ability to repay its debt? Why?
*** Depreciation: machinery, equipment, or factory (construction)
*** Allocation: repair existing premises, pay rent once in year 0