Capital Budgeting of a CNG Station
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Transcript of Capital Budgeting of a CNG Station
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Managing DirectorSyed Abrar Zaidi
Senior R&D officerM. ALI HASSAN
Chief AccountantHassan Bashir
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Syed Abrar Zaidi 35%M. Ali Hassan 35%Hassan Bashir 30%
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To be a model utility, providing qualityServices by maintaining a high level of ethicalAnd professional standards and through theOptimum use of resources
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To meet the energy requirements ofCustomers through reliable,
environmentFriendly and sustainable supply of
CNG,While conducting company business
Professionally, efficiently, ethically andWith responsibility to all our stake
holders,Community and the nation.
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MAJOR ACTIVITIES OF THE PROJECT
1. Search and Purchase of suitable land2. License from OGRA3. NOC from TMA4. Agreement with SNGPL
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6. Agreement with WAPDA7. Import of CNG Plant8. Construction of UNIT9. Installation of Plant10.Hiring Human Resource11.Start of Filling the Cartridges
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No Human Resource * Persons Work Hrs. Salary/Month
1 Manager 1 8 10,000
2 Accountant 1 8 8,000
3 Cashier 1 8 6,000
4 Fillers 6 8 4,000
5 Supervisors 1 8 4,000
6 Machine operators 2 12 5,000
7 Car screen cleaner 2 8 3,000
8 Sweeper (On Contract) 2 8 2,000
9 Gunman 2 12 4,000
Human Resource
* Note: all employees are on the duty of 8 hours shift in a day, and there are three shifts in a single day.
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CAPITAL CAPITAL BUDGETINGBUDGETING
The process of evaluating and selecting the long term investments that are consistent with the firms goal of maximizing owner’s wealth.
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IMPLEMENTATIONOF
PROJECT MANAGEMENT
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Activities Of The CNG Pump Launching Project
ACTIVITY DESCRIPTION Normal cost (Rs)
A Search and Purchase of suitable land 100 lac B License from OGRA 25 lac C NOC from TMA 10 lac D Agreement with SNGPL 50 lac E Agreement with WAPDA 5 lac F Import of CNG Plant 145 lac G Construction of Building 30 lac H Installation of Plant 5 lac I Hiring Human Resource 1 lac J Start of Filling the Cartridges
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The Implementation Plan
Time duration Approximately two years
CostApproximately 40 Million Rupees
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INSTALLED COST OF NEW CNG STATION
Purchase of land [Rs250000x40 Marla] 100,00,000
Building construction cost 30,00,000
Equipment cost 145,00,000
Installation cost 5,00,000
Installed cost of new asset 280,00,000
Agreement securities 90,00,000
Hiring of HR 1,00,000
Initial investment…………………………..……..……371,00,000
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REVENUESREVENUES
Avg. No of Cars = 500 cars/day
Avg. CNG filled = 200Rs
Per day revenue = 100000
Total revenue = 36000000
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Description Rs. Rs.
Revenues 36000000
Less: Operative Expenses-------------
Gas Bill 16,600,000
Utilities 900,000
Salaries to employees 960,000
Electricity bills 2,880,000
CITY CNG STATION
Projected Income Statement
For the end of 1st Year
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Site Expanse 1,640,000
Repair & maintenance 100,000
Labor messing 160,000
Advertisement 150,000
Stationary 10,000
Total Expenses (23400000)
Profit 12600000
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Operating cash flowsOperating cash flows
The incremental after tax cash inflows resulting from implementation of a project during its life
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CITY CNG STATIONCITY CNG STATION
OPERATING CASH FLOWSOPERATING CASH FLOWS Year 1 2 3 4 5 6
Revenues 36000000 39600000 43560000 47916000 52707600 57978360
-Expenses (23400000) (25740000) (28314000) (31145400) (34259940) (37685934)
EBDT 12600000 13860000 15246000 16770600 18447660 20292426
-Depreciation
(5600000) (8960000) (5320000) (3360000) (3360000) (1400000)
NPBT 7000000 4900000 9926000 13410600 15087660 18892426
-Tax (20%) (1400000) (980000) (1985200) (2682120) (3017532) (3778485)
NPAT 5600000 3920000 7940800 10728480 12070128 15113941
+ Depreciation
5600000 8960000 5320000 3360000 3360000 1400000
Cash Flows 11200000 12880000 13260800 14088480 15430128 16513941
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Payback periodPayback period
The amount of time required to recover its initial investment from cash inflows of a proposed project
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CITY CNG STATION Payback Period
Year Cash Flows Balance Payback Period
0 (371,00,000) (371,00,000) 1 11200000 (25900000) 1
2 12880000 (13020000) 1
3 13260800 NIL .984 14088480
5 15430128
6 16513941
Payback
Period 2.98 Years
Payback Period = 2 Years , 11 Months and 23 days
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Net present valueNet present value
A sophisticated capital budgeting technique found by subtracting a profits initial investment from the present value of its cash inflows
discounted at rate equal to the firms cash of capital
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CITY CNG STATIONCITY CNG STATION
NPV (Net Present Value) & IRR (Internal Rate of Return) NPV (Net Present Value) & IRR (Internal Rate of Return) Years Cash
FlowsPVIF (10%)
NPV PVIF (20%)
NPV PVIF
(30%)
NPV
0 (371,00,000)
1.000 (371,00,000)
1.000 (371,00,000)
1.000 (371,00,000)
1 11200000 .909 10180800 .833 9329600 .769 8612800
2 12880000 .826 10638880 .694 8938720 ..592 7624960
3 13260800 .751 9958861 .579 6391706 .455 6033664
4 14088480 .683 9622432 .482 6790647 .350 4930968
5 15430128 .621 9582111 .402 6202911 .269 4150704
6 16513941 .564 9313863 .335 5532170 .207 3418386
NPV 22196946 6085754 (2328518)
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Internal rate of return(IRR)Internal rate of return(IRR)
The discount rate that equate the NPV with zero
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CITY CNG STATIONCITY CNG STATION INTERNAL RATE OF RETURN (IRR) INTERNAL RATE OF RETURN (IRR)
IRR = 20% + [20% / 20% -- 30% * 30% -- 20%]
IRR = 20% + [6085754/6085754 + 2328518 * 10%]
IRR = 20% + [6085754/8414272 * 10%]
IRR = 20% + [0.7232 *10%]
IRR = 20%+ 7.232
IRR = 27.232%
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