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during the construction phase is to be capitalized.
Short-term loan
If necessary, short-term financing is available to cover operating deficits at an interest
rate of 20%.
Opportunity cost of capital
The cost of capital is 12% for both the total investment and for equity. For calculation
of the MIRR, the reinvestment rate is 12% and the borrowing rate is 8%. The equity
shares have a time horizon (for Short NPV calculation of 5 years).
Corporate taxes
Profits are taxed at a flat 20% of net income. A two-year tax holiday has been granted
to the project as an incentive.
Full convertibility is assumed so that all loans can be expressed in local currency
(thousand Rs). Assigning 60% of the initial investment to the loan and 40% to equity,
the preliminary finance plan is as shown in table 8.
SOURCE OF FINANCE YEAR
1 2
Equity 435.0 283.7
Development bank loan 652.5 425.4
Total 1,087.5 709.1
Table 8: Preliminary finance plan
· Choose Data Input in the MODULE menu.
The data input browser is displayed. Data can now be entered in the SOURCES OF
FINANCE structure for equity and the loan and in the TAXES, ALLOWANCES node for the
corporate tax conditions.
II. Tomato canning 23
1. Equity
1. Extend the SOURCES OF FINANCE and then the EQUITY/RISK CAPITAL node
by successively clicking the Extend Icon with the left mouse button at
each level.
2. Choose the Table Icon for the EQUITY SHARES node (subnode of
EQUITY/RISK CAPITAL). The EQUITY SHARES window is displayed. No
entries are necessary in the PREFERRED DIVIDENDS cells as all distributions
are considered ordinary dividends.
3. Select thousand rupees in the CURRENCIES drop-down list box (default
selection).
4. Select the Local radio button (default selection).
5. Enter the equity values shown in table 8 for the first two years of the
project in the periods 1/1 and 1/2 using the iconic buttons and entry
field.
6. Accept the data with the OK pushbutton. Control returns to the browser.
Figure 18: Equity shares window
2. Development bank loan
1. Choose the Table Icon for the LONG-TERM LOANS node. The LONG-TERM
LOANS window is displayed.
2. Select thousand rupees in the CURRENCY drop-down list box (default
selection).
3. Select the Local radio button (default selection).
4. Select the Conditions radio button (default selection). The CONDITIONS
panel is displayed in the LONG-TERM LOANS window.
Figure 19: Conditions panel - long-term loans window
5. Select Constant principal in the TYPE drop-down list box.
6. Select Yearly in the REPAYMENT drop-down list box.
7. Select the FIRST REPAYMENT field and enter 31/12/5.
8. Select the NUMBER OF REPAYMENTS field and enter 3. Some information
is provided in display-only fields. MONTH INTEREST PAID is fixed by the
FIRST REPAYMENT date. The PERIOD OF REPAYMENT fields show 3 years
and 0 months as the length of the repayment phase. The LAST
REPAYMENT is on 31/12/7.
II. Tomato canning 25
9. Select the Disbursements radio button. The DISBURSEMENTS panel is
displayed in the LONG-TERM LOANS window.
Figure 20: Disbursements panel - long-term loans window
10. Select the New pushbutton and enter in the EDIT panel the following
disbursements, assuming two equal disbursements in each of the first
two years on 1/1 and 1/7. The aggregated amounts for each year
appear in the AMOUNTS list box (1/1 - 652.5 and 1/2 - 425.4). The total
amount of the outstanding loan is shown in the TOTAL display field
(1,077.90).
DATE AMOUNT
1/1/1 326.25
1/7/1 326.25
1/1/2 212.70
1/7/2 212.70
Table 9: Data for disbursements
11. Select the Interest radio button. The INTEREST panel is displayed in the
LONG-TERM LOANS window.
12. Use the EDIT panel to enter the Date (1/1/1) and the Rate (12%).
13. Select the Capitalize interest check box and accept 12/2 as the until'
date.
14. For this particular project, no depreciation of interest accrued and no
other financial costs have been defined.
15. Accept the data in the LONG-TERM LOANS window with the OK pushbutton.
Control returns to the input browser.
Figure 21: Interest panel - long-term loans window
3. Profit distribution
1. Choose the Table Icon for the PROFIT DISTRIBUTION node (subnode of
the SOURCE OF FINANCE node). The PROFIT DISTRIBUTION window is displayed.
2. Use the iconic buttons to enter 100 for the RETAINED PROFIT (IN %) line
of the list box in order to keep all the profit within the project.
3. Accept the data with the OK pushbutton.
4. Choose the Compress Icon of the SOURCES OF FINANCE node.
II. Tomato canning 27
4. Income (corporate) tax
1. Choose the Table Icon for the INCOME (CORPORATE) TAX node (subnode
of TAX, ALLOWANCES node). The INCOME (CORPORATE) TAX window is
displayed with a column for one tax bracket (> 0.00, in %) to be applied
to all net income.
Figure 22: Income (corporate) tax window
2. Enter 20% as the tax applicable for all years of the production phase
with the iconic buttons and entry field.
3. Choose the Tax conditions pushbutton. The TAX CONDITIONS modal
window is displayed.
Figure 23: Tax conditions modal window
4. Select the TAX HOLIDAYS entry field and enter 2 years. Alternatively,
select 12/4 in the UNTIL drop-down list box.
5. Accept the data in the INCOME (CORPORATE) TAX window with the OK
pushbutton.
Control returns to the browser. Prior to saving the project file the PROJECT
DESCRIPTION in the PROJECT IDENTIFICATION node is changed to indicate that this
version includes the initial finance plan.
1. Choose the Table Icon for the PROJECT IDENTIFICATION node.
2. Change the text in the PROJECT DESCRIPTION multiple-line entry field to
indicate that this version includes the finance plan for the project.
3. Accept the new project identification with the OK pushbutton in the
PROJECT IDENTIFICATIOn window.
The project is now saved as described before. The FILENAME for this version is should
be TOMCAN1 (please refer to the note given in chapter II. Tomato canning).
F. DIVIDEND DISTRIBUTION PLAN
Calculations are now performed on the file TOMCAN1 to determine the effects of
defining the finance plan.
These calculations are performed as described above for the TOMCAN file. When calculations
are complete, the show results browser is automatically displayed. The results
are reviewed to determine:
· If any financing problems remain, such as a cumulative deficit of funds.
· An appropriate income distribution plan (dividends distribution) within the limits
of available profits and funds.
The first question is resolved by reviewing the cash flow for financial planning.
1. Extend the BUSINESS RESULTS node and the CASH FLOW FOR FINANCIAL
PLANNING node successively by choosing the respective Extend Icon.
2. Choose the Table Icon for the Total subnode of the CASH FLOW FOR
FINANCIAL PLANNING node.
The CASH FLOW FOR FINANCIAL PLANNING result is displayed. Use the vertical scroll
bar and horizontal scroll bar to review the lines SURPLUS/DEFICIT and CUMULATIVE
CASH BALANCE. As there are no cumulative deficits, the finance plan is considered
acceptable.
The second issue can be resolved by jointly reviewing the SURPLUS/DEFICIT and
CUMULATIVE CASH DEFICIT for each period in the CASH FLOW FOR FINANCIAL
PLANNING - TOTAL and the NET PROFIT in the INCOME STATEMENT AND RATIOS.
II. Tomato canning 29
It is possible to switch to another schedule (result) from the active RESULTS window
without returning to the show results browser using the drop-down list boxes at the top
of a RESULTS window. In this case the INCOME STATEMENT & RATIOS result is to be
displayed.
1. Select Income Statement & Ratios in the second drop-down list box.
The NET INCOME STATEMENT is displayed.
2. Use the vertical and horizontal scroll bars to review the NET PROFIT for
each year of the production phase.
The data for determining an appropriate dividend distribution policy are shown in table
10 (from the NET INCOME STATEMENT and the CASH FLOW FOR FINANCIAL PLANNING -
TOTAL schedules). The cumulative net profit and all the data concerning the dividends
are not calculated by the program.
YEAR 3 4 5 6 7
Net profit (76.73) 152.02 304.62 384.94 425.27
Cumulative net profit (76.73) 75.29 379.91 764.85 1,190.12
Cash surplus/deficit 1.77 281.68 12.13 84.92 123.19
Cumulative cash surplus/deficit 1.77 283.45 295.57 380.50 503.68
Retained profit (% of net profit) 100.00 70.00 70.00 70.00 70.00
Profit distributed (% of net profit) 0.00 30.00 30.00 30.00 30.00
Dividend distribution plan 0.00 45.61 91.38 115.48 127.58
Cumulative dividends 0.00 45.61 136.99 252.47 380.05
Table 10: Data for determining an appropriate dividend distribution policy
Assuming that 30% of the net profit is available for distribution as dividends with the
further restriction that dividends cannot exceed the cumulative cash available, a distribution
plan is developed as shown in table 10. The dividend distribution data are
entered in the PROFIT DISTRIBUTION window.
1. Choose Data Input in the MODULE menu. The input browser is displayed.
2. Extend the SOURCES OF FINANCE node by clicking the Extend Icon with
the left mouse button.
3. Choose the Table Icon for the PROFIT DISTRIBUTION node. The PROFIT
DISTRIBUTION window is displayed.
4. In the PROFIT DISTRIBUTED (IN %) line of the list box enter the percentage
of dividends as shown in table 10 (the RETAINED PROFIT line automatically
is adjusted to 100 less PROFIT DISTRIBUTED, %). The equity
shares are to receive 100% of the distribution, as shown in the last line
of the list box of the PROFIT DISTRIBUTION window.
5. Accept the data with the OK pushbutton.
Control returns to the browser. Prior to calculations, the descriptive text for the file
should be changed to indicate that this version includes the profit distribution. The
PROJECT DESCRIPTION in the PROJECT IDENTIFICATION window is modified accordingly
in a manner similar to that for the TOMCAN1 file as described above.
The file is saved using Save Project as in the FILE menu, as in the case of the previous
version, under the name TOMCAN2 (please refer to the note given in chapter II.
Tomato canning).
Prior to calculation it is normally necessary to select required results which are not
default selections. In this case all necessary results are default selections. However,
CASH FLOW FOR FINANCIAL PLANNING - FOREIGN is selected as an exercise.
1. Choose Select Results in the MODULE menu. The select results
browser is displayed. The icon at the left of each node is used for
selection. A check appears in the icon when the node is selected. All
subnodes of a selected node are automatically selected.
2. Extend the BUSINESS RESULTS node one level by clicking the Extend
Icon.
3. Extend the CASH FLOW FOR FINANCIAL PLANNING node one level by clicking
the Extend Icon with the left mouse button.
4. Select the FOREIGN subnode of CASH FLOW FOR FINANCIAL PLANNING by
clicking the icon at the left with the mouse (a check appears in the icon
when it is selected).
Perform the calculation by choosing Calculation in the MODULE menu as in the previous
version of the file. When calculations are complete, control returns automatically to
the show results browser.
Any result can now be reviewed by choosing the (numerical) Results Icon or the
Graphics Icon for its node. The general procedure is as follows:
1. Extend the section of the show results browser containing the node of
interest by successively clicking the Extend Icon with the left mouse
button until reaching the desired level of the structure.
2. Choose the Results Icon or the Graphics Icon for the node.
The schedule or graph is displayed. Alternatively, any available schedule or graph can
be selected from the series of drop-down list boxes at the top of each RESULTS window,
which are numbered in order of position in the structural hierarchy.
The project files TOMCAN, TOMCAN1 and TOMCAN2 are included in the COMFAR III
Expert diskettes and may be loaded and reviewed
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