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Financial Analysis Case Study: Vishal Engineering

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Financial Analysis Case Study: Vishal Engineering
VISHAL ENGINEERING ENTERPRISES CASE SOLUTION
DATA GIVEN Total Assets Total Sales Growth Rate Cut‐off rate Option 1 Purchase Price Pre Tax Benefits Depreciation Option 2 Lease Rental Maintenance Post Tax Cost of Borrowing Option3 Hire Purchase Instalment Interest rate Useful Life Analysis ‐ Option 1 ‐ Ownership and Operation Rupees in Lakhs Sr. No 1 2 3 4 5 6 7 8 Particulars Intial Cost Benefits Received Depreciation (WDV @ 25%) Tax Sheild On Depreciation (3 x .35) Net Salvage value Post Tax Cash Flow (1+2+4+5) Discount Factor @ 12% Present Value (6/7) TOTAL NPV 0 ‐75.000 1 18.000 18.750 6.563 ‐75.000 1.000 ‐75.000 24.563 0.893 27.510 2 18.000 14.063 4.922 22.922 0.797 28.753 3 18.000 10.547 3.691 21.691 0.712 30.475 Year 4 18.000 7.910 2.769 20.769 0.636 32.680 222.368 5 18.000 5.933 2.076 20.076 0.567 35.382 6 18.000 4.449 1.557 19.557 0.507 38.603 7 18.000 3.337 1.168 19.168 0.452 42.374 8 18.000 2.503 0.876 6.000 24.876 0.404 61.592 270 Crores 256 Crores 23% 12% 75 Lakhs 18 Lakhs per year 25% WDV 14 Lakhs per year 1.75 Lakhs per year 9.50% 18.375 Lakhs per year 12% 8 Years

Analysis ‐ Option 2 ‐ Lease Contract Rupees in Lakhs Sr. Particulars No 1 Intial Cost 2 Depreciation (WDV @ 25%) Loss of Tax Sheild On Depreciation 3 (2 x .35) 4 Lease Payment Tax Sheild On Lease Payment 5 (4 x .35) 6 Loss of Slavage Value 7 Post Tax Cash Flow (1+3+4+5+6) 8 Discount Factor @ 9.5% 9 Present Value (6/7) 10 TOTAL NPV ‐ Cash Flow 11 LRt(1‐Tc) 12 Present value (11/8) 13 Present Value of lease 0 75.000 1 18.750 ‐6.563 ‐14.000 4.900 75.000 1.000 75.000 ‐14.663 0.913 ‐16.055 ‐9.100 ‐9.965 2 14.063 ‐4.922 ‐14.000 4.900 ‐12.022 0.834 ‐14.415 ‐9.100 ‐10.911 3 10.547 ‐3.691 ‐14.000 4.900 ‐9.791 0.762 ‐12.855 ‐9.100 ‐11.948 Year 4 7.910 ‐2.769 ‐14.000 4.900 5 5.933 ‐2.076 ‐14.000 4.900 6 4.449 ‐1.557 ‐14.000 4.900 7 3.337 ‐1.168 ‐14.000 4.900 8 2.503 ‐0.876 ‐14.000 4.900 ‐6.000 ‐7.976 0.484 ‐16.485

‐7.869 ‐6.176 ‐4.657 ‐3.268 0.696 0.635 0.580 0.530 ‐11.312 ‐9.723 ‐8.028 ‐6.168
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