CHAPTER 1

1.1. About the Study

The project aims at establishing a new venture, which will be a private limited
company. The company will have the total initial investment requirements of Rs.
40,000,000.00 (FortyCrores). It is huge investment for a private limited company in
the starting phase. Company will be established in Jalalabd, Nangarhar, Afghanistan.
The land will be purchased and machines will be installed so that operations could be
started immediately. Therefore this proposal has been prepared to secure the required
amount of loan.

The project report gives details of documents and projected statements that are
essential for acquiring the loan. Thus, business plan explains the start-up activities,
various production methods, and expected financial income from sale. It also explains
the technical, capital and managerial requirement of new business.

The purpose of business plan is to secure a long-term small business loan i.e. for 10
years and interest rate 12% from the National Bank of Afghanistan, and also guide the
promoter of business enterprise in monitoring the success of newly setup business.

1.2. Statement of Problem

Water is essential for sustenance and multiplication of living organisms. Whether it is

a unicellular ameba or complex human body system water is an absolute necessity for
keeping the system functioning. Humans need clean tasty and safe drinking water free
from any microorganism. When he or she is thirsty and is ready to pay substantially if
need be. Therefore, it is necessary to establish a new drinking water bottling plant to
manufacture mineral water and sell to the people.

1.3. Purpose of study

The main purpose of this study is to secure a long-term small business loan i.e. for 10
years and interest rate 12% from the National Bank of Afghanistan. The study also
aims to help the promoter in understanding the manufacturing process and feasibility
of the new business enterprise and guidehim in monitoring the success of newly setup
business.

1
1.4. Objectives of the project

Following are the objectives of the project:

1) To study procedure of loan proposal from the stage of making an application.

2) To study the different financial statements required for loan proposal.

3) To learn how the business is practically established and expanded or

promoted.

4) To find out different financial sources available for the loan proposal.

5) To understand the manufacturing process of mineral water.

6) To study the procedure of payback of loans.

1.5. Significance of the Study

Project report is an important cornerstone for setting up an enterprise. It is a business

plan to convert a business idea into a productive venture. It is like a blue print for any
construction activity without which one would land in confusion or chaos at a later
stage. The significance of this study/ project report is as follows:

Foresees requirements

The project report enables an entrepreneur to realize what he needs for implementing
the project well in advance. It also gives a general idea of his various resource
requirements like raw materials, manpower, finance, infrastructure facilities etc. and
also the means of procuring them. Thus, it enables an entrepreneur to foresee his
requirements in advance & helps him to take suitable decisions accordingly.

Describes Direction / Road Map

A project report is like a road map. It describes the direction in which the enterprise
should go & how to reach the goal.

2
Shows Feasibility

This project report also shows the feasibility of the proposed project & the
probability of achieving profit.

Indicates Profitability-

It gives an indication of likely & benefits which the entrepreneur can get from this
venture. This profitability indication will help the entrepreneur to take an important
investment decision. Thus, the financial rewards can be visualized in advance.

1.6. Scope of the Study

1) It helps us to better understand the manufacturing process of mineral water

processing.

2) It helps to learn the loan procedure of the National Bank of Afghanistan for
business loan.

3) It promotes the business not on a large scale but comparatively on a low

scale.

4) The company will be purifying the water and packing the bottles for end use.

3
 CHAPTER 2

2.1. Research Design

The formidable problem that follows the task of defining the research problem is the
preparation of a design of the research project, popularly known as research design.
A research design is the arrangement of conditions for collection and analysis of data
in a manner that aims to combine relevance to the research purpose with economy in
procedure. In fact, the research design is the conceptual structure within which
researcher is conducted; it constitutes the blueprint for the collection, measurement
and analysis of data. As such the design includes an outline of what the researcher
will do from writing the hypothesis and its operational implications to the final
analysis of data.

2.2. Sources of Data Collection

There are two main two sources available for collection of data which are as follows:

a) Primary Source

b) Secondary Source

1) Primary Source of Collecting Data:

The primary data that has been collected for this project report were through
discussion with one of the drinking water companys finance manager located in 8 th
District of Nangrahar. The researcher has obtained important information from the
manager regarding the requirements of the project, processes involved in purifying
water which enabled the researcher to complete the project.

2) Secondary Source of Collecting Data:

Secondary data involved in the project has been collected from various sources such
as websites, previous project report, and books.

4
 CHAPTER 3

3.1 Summary of the Company

Profile
No.
Ser
ial

1 Name of the Company: ZamZam Drinking Water Company

2 Address: Jalalabad,Nangarhar, Afghanistan

3 Telephone No: (+93)786374506

4 E-mail address: ask@yahoo.com

5 Proprietor: Mr.Besmallah Bahadar

6 Type of Business : Processing

7 Constitution Pvt. Ltd Company

8 Bankers National Bank , of Afghanistan

9 Year of Establishment 2017

10 Cost of Project 40,000,000.00

11 Proprietors Contribution ( 35% ) 14,000,000.00

12 Bank Finance ( 65% ) 26,000,000.00

5
3.2. Vision and Mission Statements

Vision

Our vision is to be the dominant player in the branded water business.

Mission

We are in the business to serve the customer.

He deserves the best quality and presentation for the price he is paying.

We must have high class quality, at the lowest production and distribution cost.

This will make us an unbeatable leader, and we will have satisfied loyal customers.

3.3 Market Demand

Packaged drinking water industry has grown many folds in all the developed
economics of the world. The product is targeted especially at touring and traveling
market segments. The market is also growing due to shortage of water in the cities.
Therefore, there is good opportunity to invest in the company where ordinary water
will be processed and made available for safety human consumption.

3.4 Water Processing Process

The manufacturing process of mineral water is as below:

1) Water treatment and purification

2) Mixing of negligible mineral and necessary for human life

3) Pouch filling

4) Inspection and packing

5) Dispatch

6
3.5 Concept of Capital Budgeting

3.5.1 Meaning of Capital Budgeting

Capital Budgeting is the process of making investment decision in fixed assets

or capital expenditure. Capital Budgeting is also known as investment, decision
making, planning of capital acquisition, planning and analysis of capital expenditure
etc.

3.5.2 Objectives of Capital Budgeting

The following are the objectives of capital budgeting.

1. To find out the profitable capital expenditure.

2. To know whether the replacement of any existing fixed assets gives more return
than earlier.

3. To decide whether a specified project is to be selected or not.

4. To find out the quantum of finance required for the capital expenditure.

5. To assess the various sources of finance for capital expenditure.

6. To evaluate the merits of each proposal to decide which project is best.

3.5.3 Features of Capital Budgeting

The features of capital budgeting are briefly explained below:

1. Capital budgeting involves the investment of funds currently for getting benefits in
the future.

2. Generally, the future benefits are spread over several years.

3. The long term investment is fixed.

4. The investments made in the project is determining the financial condition of

business organization in future.

5. Each project involves huge amount of funds.

6. Capital expenditure decisions are irreversible.

7
7. The profitability of the business concern is based on the quantum of investments
made in the project.

3.5.4 Limitations of Capital Budgeting

The following are the limitations of capital budgeting.

1. The economic life of the project and annual cash inflows are only an estimation.
The actual economic life of the project is either increased or decreased. Likewise, the
actual annual cash inflows may be either more or less than the estimation.
Hence, control over capital expenditure can not be exercised.

2. Capital budgeting process does not take into consideration of various non-financial
aspects of the projects while they play an important role in successful and profitable
implementation of them. Hence, true profitability of the project cannot be highlighted.

3. It is also not correct to assume that mathematically exact techniques always

produce highly accurate results.

4. All the techniques of capital budgeting presume that various investment proposals
under consideration are mutually exclusive which may not be practically true in some
particular circumstances.

3.5.5 Method of capital Budgeting:

Payback period
The payback period method of capital budgeting allows companies to calculate how
long it will take to recoup the outlay for an investment. The payback period is
calculated by taking the total cost of a project and dividing it by its anticipated annual
revenue. If a company needs to spend RS:40,000,000 on a starting of new company
the payback period here is ten year

Net present value

The net present value method of capital budgeting shows companies the difference
between the cost of a project and the cash flow it is expected to bring in. It works by
taking the initial investment amount and comparing it to the present value of the
future cash flow generated by moving forward with that investment.

8
Net present value is based on the idea that future cash is not worth as much as present
cash: Because cash in hand can be used for revenue-generating purposes, the sooner
cash is received, the more it's actually worth. For this reason, in a net present value
calculation, future cash flow is assigned a discounted or reduced rate to make up for
its lower value. This method of capital budgeting is similar to the payback period
method in that it requires a company to estimate the revenue a given project will bring
in from year to year. Once that's determined, the value of that anticipated revenue
must be discounted to see whether the investment is worthwhile or not.

Internal rate of return

The internal rate of return method of capital budgeting is a way of measuring the rate
at which an investment breaks even. It works by setting the net present value of all
cash flows to zero and taking external factors such as inflation out of the equation.
The goal of this method is to identify projects whose internal rate of return is higher
than the cost of implementation: Theoretically, a project whose internal rate of return
is higher than its cost will be profitable. The higher the internal rate of return, the
more profitable a project is likely to be.

Profitability index

Also known as the profit investment ratio or value investment ratio, the profitability
index method of capital budgeting works by examining the relationship between the
costs of pursuing a project and its anticipated benefits. It is calculated by taking the
present value of future cash flows and dividing it by the initial investment cost. A
profitability index that's lower than 1.0 indicates that a project's present value of
future revenue is lower than the cost of the initial investment, which means it's not
worth pursuing. On the other hand, a profitability index that's greater than 1.0 means
that a project may be worthwhile from a financial perspective, and the higher the
profitability index, the more financially attractive the project will be.

9
 CHAPTER 4

4.1. Introduction to term Loan

Businesses often need to borrow money to finance business investment activities.

Term loans are the standard commercial loan, often used to pay for a major
investment in the business or an acquisition. The loans often have fixed interest rates,
with monthly or quarterly repayment schedules and a set maturity date. Whenever the
entrepreneur seeks to obtain loan from the bank or other financial institutions he/she
is required to prepare a complete business plan and submit it to the bank or financial
institution.

4.2. Meaning of Term Loan

Term loans are an important source of long-term finance for a firm. These are loans
borrowed directly from the banks and financial institutions, for medium and long-term
periods, i.e. for a period of 1 to 5 years and beyond 5 years to 15 to 20 years. Term
loans are generally obtained for financing large expansion, modernization or
diversification of projects.

4.3. Definition of Term Loan

A term loan is a loan from a bank or financial institution for a specific period of time
that has a specified repayment schedule and a fixed interest rate. The borrowing
company is required to repay the term loan with interest in equated monthly or
quarterly installment.

4.4. Features of Term Loan

Term loan is a part of debt financing obtained from banks and financial institutions.
The basic features of term loan have been discussed below:

1) Security

Term loans are secured loans. Assets which are financed through term loans
serve as primary security and the other assets of the company serve as collateral
security.

10
 2) Obligation:

Interest payment and repayment of principal on term loans is obligatory on the

part of the borrower. Whether the firm is earning a profit or not, term loans are
generally repayable over a period of 5 to 10 years in installments.

3) Interest:

Term loans carry a fixed rate of interest but this rate is negotiated between the
borrowers and lenders at the time of dispersing of loan.

4) Maturity:

As it is a source of medium-term financing, its maturity period lies between 5 to

10 years and repayment is made in installments.

5) Restrictive Covenants:

Besides asset security, the lender of the term loans imposes other restrictive
covenants to themselves. Lenders ask the borrowers to maintain a minimum
asset base, not to raise additional loans or to repay existing loans, etc.

4.5. Advantages of Term Loan

Term loans are one of the important sources of project financing. The advantages of
term loans are as follows:

A. From Point of View of the Borrower:

1) Cheaper

It is a cheaper source of medium-term financing.

2) Tax Benefit:

Interest payable on term loan is a tax deductible expenditure and thus taxation
benefit is available on interest.

3) Flexible:

11
 Term loans are negotiable loans between the borrowers and lenders. So terms
and conditions of such type of loans are not rigid and this provides some sort
of flexibility.

4) Control:

Since term loans represent debt financing, the interest of the equity
shareholders are not diluted.

B. From Point of View of the Lender:

1) Secured:

Term loans are provided by banks and other financial institutions against
securityso term loans are secured.

2) Regular Income:

It is obligatory on the part of the borrower to pay the interest and repayment of
principal irrespective of its financial positionhence the lender has a regular
and steady income.

3) Conversion:

Financial institutions may insist the borrower to convert the term loans into
equity. Therefore, they can get the right to control the affairs of the company.

4.6. Disadvantages of Term Loan

Term loans have several disadvantages which are discussed below:

A. From Point of View of the Borrower:

1) Obligation:

Yearly interest payment and repayment of principal is obligatory on the part of

borrower. Failure to meet these payments raises a question on the liquidity
position of the borrower and its existence will be at stake.

12
 2) Risk:

Like any other form of debt financing term loans also increases the financial
risk of the company. Debt financing is beneficial only if the internal rate of
return of the concern is greater than its cost of capital; otherwise it adversely
affects the benefit of shareholders.

3) Interference:

In addition to collateral security, restrictive covenants are also imposed by the

lenders which lead to unnecessary interference in the functioning of the
concern.

B. From Point of View of the Lender:

1) Negotiability:

Terms and conditions of term loans are negotiable between borrower and
lenders and thus it sometimes can affect the interest of lenders.

2) Control:

Like other sources of debt financing, the lenders of term loans do not have any
right to control the affairs of the company.

4.7. List of Documents

At the time of submission of the loan from along with it certain documents are
required to be submitted to the bank. These documents are important from the point of
view of the bank to understand the financial status of the company & analyse the need
for finance by the company

13
These documents are required by the bank to assess the company:

1) Projected balance sheet

2) Project brief

3) Projected investment statement

4) Projected expenditure statement

5) Projected revenue statement

6) Projected cash flow statement

7) Projected depreciation statement

14
 CHAPTER 5

5.1. Capital Requirement

CAPITAL INVESTMENT REQUIRED FOR THE PROJECT

Sr. No. Particulars Amount

Rs.
1 Land & Buildings 20,000,000.00

Machinery Cost
2 i) Purification Plant 6,000,000.00
ii) Bottle Manufacturing section 5,000,000.00
iii) Bottling Section 3,000,000.00
iv) Labeling & packaging section 1,000,000.00
Total Cost of the Machinery = 15,000,000.00

5 Computer and Equipments 300,000.00

6 Vehicles ( 5 x 800000) 4,000,000.00
7 Furniture and Fixture 700,000.00
TOTAL COST OF THE PROJECT 40,000,000.00
Means of Finance
Own Contribution (35%) 14,000,000.00
Bank Finance (65%) 26,000,000.00
TOTAL 40,000,000.00

15
5.2. Statement of Profitability

Statement of Profitability for the Projected period

Particulars Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year
10

Total Revenue for the 18,000 19,260 20,608 22,050 23,594 25,245 27,013 28,904 30,927 33,092
projected period ,000 ,000 ,200 ,774 ,328 ,931 ,146 ,067 ,351 ,266

(As per Statement A )

Less: Total 8,988, 9,437, 9,909, 10,404 10,924 11,471 12,044 12,647 13,279 13,943
Expenditures 000 400 270 ,734 ,970 ,219 ,780 ,019 ,370 ,338

(As per Statement B )

PBIT(Profit before 9,012, 9,822, 10,698 11,646 12,669 13,774 14,968 16,257 17,647 19,148
Interest, Depreciation, 000 600 ,930 ,041 ,358 ,712 ,367 ,048 ,982 ,928
& Income Tax )
Less: - Bank Loan 3,042, 2,861, 2,656, 2,425, 2,165, 1,872, 1,541, 1,169, 750,41 277,87
Interest 860 065 214 382 275 180 914 761 0 4
(Statement "C1")
Depreciation 4,229, 3,772, 3,366, 3,104, 2,926, 2,608, 2,575, 2,295, 2,043, 1,920,
(Statement "D") 000 170 062 854 418 374 913 413 765 574
PBT (Profit before Tax) 1,740, 3,189, 4,676, 6,115, 7,577, 9,294, 10,850 12,791 14,853 16,950
140 365 654 804 664 158 ,540 ,874 ,807 ,480
Less: Income Tax 609,04 1,116, 1,636, 2,140, 2,652, 3,252, 3,797, 4,477, 5,198, 5,932,
(Rate 35%) 9 278 829 531 182 955 689 156 832 668
Net Profit / (Loss) 1,131, 2,073, 3,039, 3,975, 4,925, 6,041, 7,052, 8,314, 9,654, 11,017
091 087 825 273 482 203 851 718 975 ,812

16
5.3. Cash Flow Statement

Cash Flow statement for the Projected period

Particulars Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Opening balance of Cash 0 3,926,658 8,156,686 12,742,494 16,771,709 21,287,591 27,333,055 32,027,439 39,306,038 47,278,893
Net Profit as per Profitability 1,131,091 2,073,087 3,039,825 3,975,273 4,925,482 6,041,203 7,052,851 8,314,718 9,654,975 11,017,812
Statement
Add: Depreciation 4,229,000 3,772,170 3,366,062 3,104,854 2,926,418 2,608,374 2,575,913 2,295,413 2,043,765 1,920,574
Add: Interest 3,042,860 2,861,065 2,656,214 2,425,382 2,165,275 1,872,180 1,541,914 1,169,761 750,410 277,874
Add: Amount of Loan disbursement 26,000,000 0 0 0 0 0 0 0 0 0
Add : Initial Own Contribution 14,000,000 0 0 0 0 0 0 0 0 0
Therefore, Cash Inflow 48,402,951 12,632,980 17,218,787 22,248,003 26,788,885 31,809,349 38,503,733 43,807,331 51,755,187 60,495,153
Less: 1. Bank Installment with 4,476,294 4,476,294 4,476,294 4,476,294 4,476,294 4,476,294 4,476,294 4,476,294 4,476,294 4,476,294
Interest
2. Capital Expenditure 40,000,000 0 0 1,000,000 1,025,000 2,000,000 25,000 0 1,000,000
( As per Statement of Capital
Investment)
Therefore, Closing balance of Cash 3,926,658 8,156,686 12,742,494 16,771,709 21,287,591 27,333,055 32,027,439 39,306,038 47,278,893 55,018,860

17
5.4. Balance Sheet

Balance Sheet

Particulars Year Year Year Year Year Year Year Year Year Year
1 2 3 4 5 6 7 8 9 10

LIABILITIES

Owner 14,00 15,13 17,20 20,24 24,21 29,14 35,18 42,23 50,55 60,20
Contribution 0,000 1,091 4,178 4,003 9,275 4,757 5,960 8,811 3,529 8,503

Add: Profit 1,131, 2,073, 3,039, 3,975, 4,925, 6,041, 7,052, 8,314, 9,654, 11,01
091 087 825 273 482 203 851 718 975 7,812

Proprietors 15,13 17,20 20,24 24,21 29,14 35,18 42,23 50,55 60,20 71,22
Capital 1,091 4,178 4,003 9,275 4,757 5,960 8,811 3,529 8,503 6,315

Bank Loan 24,56 22,95 21,13 19,08 16,76 14,16 11,23 7,924, 4,198, 0
6,567 1,339 1,259 0,347 9,329 5,216 0,836 303 419

Total 39,69 40,15 41,37 43,29 45,91 49,35 53,46 58,47 64,40 71,22
7,657 5,514 5,259 9,619 4,081 1,170 9,640 7,824 6,914 6,305

ASSETS

Fixed Assets 35,77 31,99 28,63 26,52 24,62 22,01 21,44 19,17 17,12 16,20
0,999 8,828 2,765 7,910 6,490 8,115 2,201 1,786 8,020 7,446

Current Assets 3,926, 8,156, 12,74 16,77 21,28 27,33 32,02 39,30 47,27 55,01
658 686 2,494 1,709 7,591 3,055 7,439 6,038 8,893 8,860

Total 39,69 40,15 41,37 43,29 45,91 49,35 53,46 58,47 64,40 71,22
7,657 5,514 5,259 9,619 4,081 1,170 9,640 7,824 6,914 6,305

18
5.5. Financial Ratios

5.5.1. Debt Service Ratio

Calculation of Debt service Coverage Ratio

Debt Service Coverage Ratio= PAT+Depreciation+Interest on long Term Loan

Installment of Term Loan

Particulars Year Year Year Year Year 5 Year 6 Year 7 Year 8 Year 9 Year
1 2 3 4 10

PAT 1,131 2,073 3,039 3,975 4,925, 6,041, 7,052, 8,314, 9,654, 11,017
,091 ,087 ,825 ,273 482 203 851 718 975 ,812

Depreciation 4,229 3,772 3,366 3,104 2,926, 2,608, 2,575, 2,295, 2,043, 1,920,
,000 ,170 ,062 ,854 418 374 913 413 765 574

Interest on Term 3,042 2,861 2,656 2,425 2,165, 1,872, 1,541, 1,169, 750,41 277,87
Loan ,860 ,065 ,214 ,382 275 180 914 761 0 4

Total 8,402 8,706 9,062 9,505 10,017 10,521 11,170 11,779 12,449 13,216
,951 ,322 ,101 ,509 ,176 ,757 ,678 ,892 ,149 ,260

Installment of 4,476 4,476 4,476 4,476 4,476, 4,476, 4,476, 4,476, 4,476, 4,476,
Term Loan ,294 ,294 ,294 ,294 294 294 294 294 294 294

DSCR= 1.88 1.94 2.02 2.12 2.24 2.35 2.50 2.63 2.78 2.95

Total/Instalment of
Term Loan

19
 Graphical Representation

Debt Service Coverage Ratio

3.5
2.95
3 2.78
2.50 2.63
2.24 2.35
2.5 2.12
1.88 1.94 2.02
2
1.5
1
0.5
0
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Interpretation of the ratio

This ratio indicates the companys ability to pay off interest on debt fund. It indirectly highlights
the ability of the company to raise additional fund in the future. Higher the ratio better is the
position of long term creditor and the company risk is lesser. Therefore, the calculation of this
ratio of the company shows the ability to raise additional fund in the future because ratio is
higher in subsequent years as compare to previous years. Hence, the position of the long term
creditors will be better as well as the company will be in lower risk.

20
 5.5.2 Net Profit Ratio

Calculation of Net Profit Ratio

Net Profit Ratio = NPAT * 100

Total Sales

Particulars Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

NPAT 1,131,091 2,073,087 3,039,825 3,975,273 4,925,482 6,041,203 7,052,851 8,314,718 9,654,975 11,017,812

Total Sales 18,000,000 19,260,000 20,608,200 22,050,774 23,594,328 25,245,931 27,013,146 28,904,067 30,927,351 33,092,266

NPR 6 11 15 18 21 24 26 29 31 33

21
Graphical Representation of Net Profit Ratio

Net Profit Ratio

40 33
29 31
30 24 26
21
18
20 15
11
10 6

0
1 2 3 4 5 6 7 8 9 10

Interpretation of Net Profit Ratio

Net profit ratio is an indicator of overall profitability of the business. There is no role of thumb to intemperate this ratio. Higher the net
profit ration, better the business. So, the net profit of this company shows that the company generates higher net profit year by year. To
conclude, the companys net earnings is satisfactory.

22
 5.5.3. Debt Equity Ratio

Calculation of Debt Equity Ratio

Debt Equity Long Term Debt Funds

Ratio=

Equity

Particulars Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Debt 24,566,567 22,951,339 21,131,259 19,080,347 16,769,329 14,165,216 11,230,836 7,924,303 4,198,419 0

Equity 15,131,091 17,204,178 20,244,003 24,219,275 29,144,757 35,185,960 42,238,811 50,553,529 60,208,503 71,226,315

Ratio 1.62 1.33 1.04 0.79 0.58 0.40 0.27 0.16 0.07 0.00

23
Graphical Representation of Debt Equity Ration

Debt Equity Ratio

1.80
1.62
1.60
1.40 1.33

1.20 1.04
1.00
0.79
0.80
0.58
0.60
0.40
0.40 0.27
0.16
0.20 0.07
0.00
0.00
-0.20 1 2 3 4 5 6 7 8 9 10

Interpretation of Debt Equity Ratio

The main purpose of calculating debt equity ratio is to measure the relative interest of the creditors and shareholders. A high debt equity
ratio shows the high claim of creditors over assets of the company than those the shareholders. The interpretation of this ratio of the
company shows that the claim of the creditors over the assets of the company is decreasing in each year and finally becomes zero in the
last tenth year which is good point of the company.

24
5.5.4 Calculation of capital budgeting

1. Payback period

Payback period= Initial investment - Cumulative cash flow + Year

Cash flow of next year

year Accumulated cash flow Cumulative cash flow

1 5360091 5360091

2 58452576 11205348

3 6405887 17611235

4 7080127 24691362

5 7851900 33443262

6 8649577 42092839

7 9628764 51721603

8 10610131 517831734

9 11698740 169530474

10 12992386 182522860

Payback period= 40000000 33443262 +5

= 8649577

= 5.75

25
 Net Present Value method:

Year Net cash flow P.V @ 10% Cash inflow of 10%

1 5360091 0.909 4872322.7

2 58452576 0.826 5845257.8

3 6405887 0.751 4810821.1

4 7080127 0.683 4835726.7

5 7851900 0.621 4876029.9

6 8649577 0.564 4878361.4

7 9628764 0.513 4939555.9

8 10610131 0.467 4959931.1

9 11698740 0.424 4960265.7

10 12992386 0.386 5015060.99

Total 49988333.29

NPV= Discounted Cash Flow Initial Investment

NPV= 49988333.29 40000000

NPV = 9988333.29

26
 Internal Rate of return

Formula = A+ C O (B -A)

C- D

Year Net cash flow P.V @ Cash inflow of P.V @15% Cash inflow
10% 10% of 15 %

1 5360091 0.909 4872322.7 0.870 4663279.1

2 58452576 0.826 5845257.8 0.756 4419014.2

3 6405887 0.751 4810821.1 0.658 4215073.6

4 7080127 0.683 4835726.7 0.572 4049832.6

5 7851900 0.621 4876029.9 0.497 3902394.3

6 8649577 0.564 4878361.4 0.432 3736617.2

7 9628764 0.513 4939555.9 0.376 3620415.2

8 10610131 0.467 4959931.1 0.327 3469512.8

9 11698740 0.424 4960265.7 0.384 3322442.1

10 12992386 0.386 5015060.99 0.347 3209119.3

Total 49988333.29 38607700.4

IRR= A+ C-O (B-A)

C-D

IRR = 10+ 49988333.29 40000000 (15 10)

49988333.29 38607700.4

IRR = 14,38

27
Working note:

A = lower trial rate

C= PV of Total cash inflow at lower trial rate

O = Original Investment

D = PV of Total Cash Inflow at higher Trial Rate

B = Higher Trial Rate

Profitability Index : DCF / Ii

Profitability Index = 49988333.29 / 40000000

Profitability Index = 1.2

Note : this is acceptable because , it is more than Zero

28
 CHAPTER 6

6.1. Major Findings

1) After studying the whole manufacturing procedure the researcher came to know
how water is purified andbottled to end consumption.

2) Obtaining term loan from the bank is a lengthy process

3) Banks require various types of documents and financial statements based on the
nature and type of the business organisation.

4) Banks might put some conditions while offering loan to the entrepreneur.

5) Rate of interest and repayment of principle amount of loan is decided by the

bank.

6.2. Conclusion

The preparation of finance project has brought a great experience of theoretical as

well as practical knowledge in this subject. It helped me to bridge the gap between
both the experiences and gave me better understanding of various concepts involved
in financial management.This helped me to understand the procedure and preparation
of financial statements required to be submitted to the financial institution.The
objective of finance has been successfully completed as per the schedule given by the
college. It is also believed that the project is submitted in bank with an intension to
sanction the loan proposal for the company.

6.3. Suggestions

1) The project is technically feasible to be established. The entrepreneur can start

the company with no worry.

2) Starting new business requires the entrepreneur to get permission from various
government departments so government should cooperate in clearing documents
from different departments.

3) The Loan procedure should be simple.

4) Banks should cooperate with their customers.

29
6.4.Bibliography

1. Internet:

http://wadsam.com/afghan-business-news/demand-for-bottled-water-
nosedives-in-afghanistan

www.yourarticlelibrary.com

2. Books:

Dr. Kulkarni Mahesh &Dr. Mahajan Suhas. Reprint on July, 2013.

Business Accounting

Mrs. Govindaraj Meera. November, 2013. Principle of Finance

C R Kothari. GauravGarg. Reprint July, 2014. Research Methodology

2. Previous Project:

Project report prepared in year 2016 on acquiring bank loan for starting new
business

6.5. Limitation of the Study

1) Considering the time allotted to complete the project was insufficient to cover
entire industrial aspects.

2) Many a times the banks are not willing to give proper feedback and
information up to the required optimum level.

3) Only clerical knowledge is gained or shared and no practical knowledge.

4) All the costs are considered on the basis of data collected from various
sources. Therefore the actual costs may change while adopting the project.

30
 Statement "A"

Statement of Revenue

Amount (Rs.)

Particulars Per
Mont Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9 Year10
h

Revenue
from sale of
750,0 9,000, 9,630, 10,304 11,025 11,797 12,622 13,506 14,452 15,463 16,546
1000ml
00 000 000 ,100 ,387 ,164 ,966 ,573 ,033 ,676 ,133
Mineral
water

Revenue
from sale of
500,0 6,000, 6,420, 6,869, 7,350, 7,864, 8,415, 9,004, 9,634, 10,309 11,030
500ml
00 000 000 400 258 776 310 382 689 ,117 ,755
Mineral
water

Revenue
from sale of
250,0 3,000, 3,210, 3,434, 3,675, 3,932, 4,207, 4,502, 4,817, 5,154, 5,515,
1500ml
00 000 000 700 129 388 655 191 344 559 378
Mineral
water

1,500, 18,000 19,260 20,608 22,050 23,594 25,245 27,013 28,904 30,927 33,092
Total
000 ,000 ,000 ,200 ,774 ,328 ,931 ,146 ,067 ,351 ,266

\NOTE:

1) Revenue from Sale of 500ml , 1000ml & 1500ml.

2) Monthly revenue from sale of 500ml is 500000 , 1000ml is 750000 & 1500ml is
250000 respectively.

3) Sales are increases at the rate of 7% per year.

31
Schedule 1:

Calculation of Revenue from Sale

Average
Price Per Monthly
Particulars Units Per
Unit Sale
month

50,000 Rs. 15 Rs. 750,000

Monthly Sale of 1000ml mineral water

Monthly Sale of 500ml mineral water 50,000 Rs. 10 Rs. 500,000

Monthly Sale of 1500ml mineral water 12,500 Rs. 20 Rs. 250,000

Rs.
Total 112,500
1,500,000

Average sale per month will be112500 units which includes 50000 units
of 1000ml , 50000 units of 500ml & 12500 units of 1500ml mineral
water.

Assuming price per each bottle of 1000 ml, 500ml & 1500ml of Rs
15,10 & 20 respectively.

Sales will increase by 7% per annum.

32
 Direct Expenses

Amount (Rs.)

Particulars Per
Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9 Year10
Month

4,800,00 5,040,00 5,292,00 5,556,60 5,834,43 6,126,15 6,432,45 6,754,08 7,091,78 7,446,37
Raw Material Cost 400,000
0 0 0 0 0 2 9 2 6 5

4,800,00 5,040,00 5,292,00 5,556,60 5,834,43 6,126,15 6,432,45 6,754,08 7,091,78 7,446,37
Total 400,000
0 0 0 0 0 2 9 2 6 5

33
Statement "B"

Expenditure Statement Administrative Expenses

Amount (Rs.)
Particulars
Per Month Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9 Year10

Total Staff Payment(6*20000) 120,000 1,440,000 1,512,000 1,587,600 1,666,980 1,750,329 1,837,845 1,929,738 2,026,225 2,127,536 2,233,913

Workers Salary(20*5000) 100,000 1,200,000 1,260,000 1,323,000 1,389,150 1,458,608 1,531,538 1,608,115 1,688,521 1,772,947 1,861,594

Electricity Expenses 50,000 600,000 630,000 661,500 694,575 729,304 765,769 804,057 844,260 886,473 930,797

Telephone Expenses 1,000 12,000 12,600 13,230 13,892 14,586 15,315 16,081 16,885 17,729 18,616

Stationery Expenses 3,000 36,000 37,800 39,690 41,675 43,758 45,946 48,243 50,656 53,188 55,848

Repair & Maintenance 25,000 300,000 315,000 330,750 347,288 364,652 382,884 402,029 422,130 443,237 465,398

Miscellaneous Expenses 50,000 600,000 630,000 661,500 694,575 729,304 765,769 804,057 844,260 886,473 930,797

Total 349,000 4,188,000 4,397,400 4,617,270 4,848,134 5,090,540 5,345,067 5,612,321 5,892,937 6,187,583 6,496,963

34
 Total Expenses

Amount (Rs.)

Particulars Per
Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9 Year10
Month

Direct Expenses 400,000 4,800,000 5,040,000 5,292,000 5,556,600 5,834,430 6,126,152 6,432,459 6,754,082 7,091,786 7,446,375

Indirect
349,000 4,188,000 4,397,400 4,617,270 4,848,134 5,090,540 5,345,067 5,612,321 5,892,937 6,187,583 6,496,963
Expenses

10,404,73 10,924,97 11,471,21 12,044,78 12,647,01 13,279,37 13,943,33

Total 749,000 8,988,000 9,437,400 9,909,270
4 0 9 0 9 0 8

35
 Schedule 1 (Direct Expenses) :

1.Raw Material Cost

i) Performa for blowing into bottles 320,000.00

a) 1000 ml - 25 gms Rs. 7.00/18571
b) 500 ml - 20 gms Rs. 5.00/20000
c) 1500 ml - 31 gms Rs. 9.00/10000

ii) Labels 15,000.00

iii) Neck sleeves 20,000.00

iv) Caps for the bottles 18,000.00

v) Cartons for final packing 27,000.00

Total 400,000.00

36
 Schedule 2 (Indirect Expenses) :

1. Electricity Expenses are assumed as Rs.50,000/- per month initially and are assumed to increase by 5% annually as usage
increases.

2. Workers may be hired at Rs. 5,000/- per month . As 20 persons are required to be employed, Wages are calculated as

Rs. 5000/- x 20 x 12 months.

3. Salary of staff is calculated as Rs 20,000/- x 6 employee 12months

4. Stationery cost & Telephone Cost may be assumed at Rs.1, 000/ & Rs.3,000/ per month respectively.

5. Miscellaneous Expenses are assume as Rs.50, 000/- per month. which includes fuel expenses as well.

6. Repair & Maintenance are assumer as Rs. 25000 per month.

Salary/Wages per month per Total Salary/Wages per Total Salary/ Wages
Particulars No.
head month per Year

Staff 6 20,000 120,000 1,440,000

Workers 20 5,000 100,000 1,200,000

37
Statement "C"

Calculation of Interest and Installment of Bank Loan

Loan EMI

Loan Amount: 26,000,000.00

Interest rate: 12%

Loan term 10

EMI 373,024.47

Intest @12 Closing

Year Principle Insttalment
% Balance

1 26,000,000 260,000 373,024 25,886,976

2 25,886,976 258,870 373,024 25,772,821

3 25,772,821 257,728 373,024 25,657,525

4 25,657,525 256,575 373,024 25,541,075

5 25,541,075 255,411 373,024 25,423,462

6 25,423,462 254,235 373,024 25,304,672

7 25,304,672 253,047 373,024 25,184,694

8 25,184,694 251,847 373,024 25,063,517

9 25,063,517 250,635 373,024 24,941,127

10 24,941,127 249,411 373,024 24,817,514

11 24,817,514 248,175 373,024 24,692,665

12 24,692,665 246,927 373,024 24,566,567

13 24,566,567 245,666 373,024 24,439,208

14 24,439,208 244,392 373,024 24,310,576

38
15 24,310,576 243,106 373,024 24,180,657

16 24,180,657 241,807 373,024 24,049,439

17 24,049,439 240,494 373,024 23,916,909

18 23,916,909 239,169 373,024 23,783,054

19 23,783,054 237,831 373,024 23,647,860

20 23,647,860 236,479 373,024 23,511,314

21 23,511,314 235,113 373,024 23,373,403

22 23,373,403 233,734 373,024 23,234,112

23 23,234,112 232,341 373,024 23,093,429

24 23,093,429 230,934 373,024 22,951,339

25 22,951,339 229,513 373,024 22,807,827

26 22,807,827 228,078 373,024 22,662,881

27 22,662,881 226,629 373,024 22,516,486

28 22,516,486 225,165 373,024 22,368,626

29 22,368,626 223,686 373,024 22,219,288

30 22,219,288 222,193 373,024 22,068,456

31 22,068,456 220,685 373,024 21,916,116

32 21,916,116 219,161 373,024 21,762,253

33 21,762,253 217,623 373,024 21,606,851

34 21,606,851 216,069 373,024 21,449,895

35 21,449,895 214,499 373,024 21,291,370

36 21,291,370 212,914 373,024 21,131,259

37 21,131,259 211,313 373,024 20,969,547

38 20,969,547 209,695 373,024 20,806,218

39 20,806,218 208,062 373,024 20,641,256

39
40 20,641,256 206,413 373,024 20,474,644

41 20,474,644 204,746 373,024 20,306,366

42 20,306,366 203,064 373,024 20,136,405

43 20,136,405 201,364 373,024 19,964,745

44 19,964,745 199,647 373,024 19,791,367

45 19,791,367 197,914 373,024 19,616,257

46 19,616,257 196,163 373,024 19,439,395

47 19,439,395 194,394 373,024 19,260,764

48 19,260,764 192,608 373,024 19,080,347

49 19,080,347 190,803 373,024 18,898,126

50 18,898,126 188,981 373,024 18,714,083

51 18,714,083 187,141 373,024 18,528,200

52 18,528,200 185,282 373,024 18,340,457

53 18,340,457 183,405 373,024 18,150,837

54 18,150,837 181,508 373,024 17,959,321

55 17,959,321 179,593 373,024 17,765,890

56 17,765,890 177,659 373,024 17,570,524

57 17,570,524 175,705 373,024 17,373,205

58 17,373,205 173,732 373,024 17,173,913

59 17,173,913 171,739 373,024 16,972,627

60 16,972,627 169,726 373,024 16,769,329

61 16,769,329 167,693 373,024 16,563,998

62 16,563,998 165,640 373,024 16,356,614

63 16,356,614 163,566 373,024 16,147,155

64 16,147,155 161,472 373,024 15,935,602

40
65 15,935,602 159,356 373,024 15,721,934

66 15,721,934 157,219 373,024 15,506,129

67 15,506,129 155,061 373,024 15,288,166

68 15,288,166 152,882 373,024 15,068,023

69 15,068,023 150,680 373,024 14,845,678

70 14,845,678 148,457 373,024 14,621,111

71 14,621,111 146,211 373,024 14,394,297

72 14,394,297 143,943 373,024 14,165,216

73 14,165,216 141,652 373,024 13,933,844

74 13,933,844 139,338 373,024 13,700,158

75 13,700,158 137,002 373,024 13,464,135

76 13,464,135 134,641 373,024 13,225,752

77 13,225,752 132,258 373,024 12,984,985

78 12,984,985 129,850 373,024 12,741,810

79 12,741,810 127,418 373,024 12,496,204

80 12,496,204 124,962 373,024 12,248,141

81 12,248,141 122,481 373,024 11,997,598

82 11,997,598 119,976 373,024 11,744,550

83 11,744,550 117,445 373,024 11,488,971

84 11,488,971 114,890 373,024 11,230,836

85 11,230,836 112,308 373,024 10,970,120

86 10,970,120 109,701 373,024 10,706,797

87 10,706,797 107,068 373,024 10,440,840

88 10,440,840 104,408 373,024 10,172,224

89 10,172,224 101,722 373,024 9,900,922

41
90 9,900,922 99,009 373,024 9,626,907

91 9,626,907 96,269 373,024 9,350,151

92 9,350,151 93,502 373,024 9,070,628

93 9,070,628 90,706 373,024 8,788,310

94 8,788,310 87,883 373,024 8,503,169

95 8,503,169 85,032 373,024 8,215,176

96 8,215,176 82,152 373,024 7,924,303

97 7,924,303 79,243 373,024 7,630,522

98 7,630,522 76,305 373,024 7,333,803

99 7,333,803 73,338 373,024 7,034,116

100 7,034,116 70,341 373,024 6,731,433

101 6,731,433 67,314 373,024 6,425,723

102 6,425,723 64,257 373,024 6,116,955

103 6,116,955 61,170 373,024 5,805,100

104 5,805,100 58,051 373,024 5,490,127

105 5,490,127 54,901 373,024 5,172,004

106 5,172,004 51,720 373,024 4,850,699

107 4,850,699 48,507 373,024 4,526,182

108 4,526,182 45,262 373,024 4,198,419

109 4,198,419 41,984 373,024 3,867,379

110 3,867,379 38,674 373,024 3,533,028

111 3,533,028 35,330 373,024 3,195,334

112 3,195,334 31,953 373,024 2,854,263

113 2,854,263 28,543 373,024 2,509,781

114 2,509,781 25,098 373,024 2,161,855

42
115 2,161,855 21,619 373,024 1,810,449

116 1,810,449 18,104 373,024 1,455,529

117 1,455,529 14,555 373,024 1,097,059

118 1,097,059 10,971 373,024 735,006

119 735,006 7,350 373,024 369,331

120 369,331 3,693 373,024 0

43
 Statement "D"

Calculation of Depreciation on Assets

Type of the Asset : Machinery

Total Closing
W.D.V. of the Depreciation
Years Additions (Depreciable Balance of the
Asset @ 10%
amount) Asset

1 15,000,000 0 15,000,000 1,500,000 13,500,000

2 13,500,000 0 13,500,000 1,350,000 12,150,000

3 12,150,000 0 12,150,000 1,215,000 10,935,000

4 10,935,000 1,000,000 11,935,000 1,193,500 10,741,500

5 10,741,500 0 10,741,500 1,074,150 9,667,350

6 9,667,350 0 9,667,350 966,735 8,700,615

7 8,700,615 1,000,000 9,700,615 970,062 8,730,554

8 8,730,554 0 8,730,554 873,055 7,857,498

9 7,857,498 0 7,857,498 785,750 7,071,748

10 7,071,748 1,000,000 8,071,748 807,175 7,264,574

Note: The business would require the purchase of additional machinery of approx. Rs.
1,000,000/- in the Fourth, Seventh & Tenth year.

44
 Type of the Asset : Furniture

Total Closing
W.D.V. of the
Years Additions (Depreciable Depreciation Balance of the
Asset
amount) @ 12% Asset

1 700,000 0 700,000 84,000 616,000

2 616,000 0 616,000 73,920 542,080

3 542,080 0 542,080 65,050 477,030

4 477,030 0 477,030 57,244 419,787

5 419,787 25,000 444,787 53,374 391,412

6 391,412 0 391,412 46,969 344,443

7 344,443 0 344,443 41,333 303,110

8 303,110 25,000 328,110 39,373 288,737

9 288,737 0 288,737 34,648 254,088

10 254,088 0 254,088 30,491 223,598

Additional Furniture Cost of Rs. 25,000/- would be incurred in the Fifth &
Eight Year

45
 Type of the Asset : Land & Building

Total Closing
W.D.V. of the
Years Additions (Depreciable Depreciation Balance the
Asset
amount) @ 10% Asset

1 20,000,000 0 20,000,000 2,000,000 18,000,000

2 18,000,000 0 18,000,000 1,800,000 16,200,000

3 16,200,000 0 16,200,000 1,620,000 14,580,000

4 14,580,000 0 14,580,000 1,458,000 13,122,000

5 13,122,000 0 13,122,000 1,312,200 11,809,800

6 11,809,800 0 11,809,800 1,180,980 10,628,820

7 10,628,820 0 10,628,820 1,062,882 9,565,938

8 9,565,938 0 9,565,938 956,594 8,609,344

9 8,609,344 0 8,609,344 860,934 7,748,410

10 7,748,410 0 7,748,410 774,841 6,973,569

46
 Type of the Asset: Computer

Total Closing
W.D.V. of the
Years Additions (Depreciable Depreciation Balance the
Asset
amount) @ 15% Asset

1 300,000 0 300,000 45,000 255,000

2 255,000 0 255,000 38,250 216,750

3 216,750 0 216,750 32,513 184,238

4 184,238 0 184,238 27,636 156,602

5 156,602 0 156,602 23,490 133,112

6 133,112 0 133,112 19,967 113,145

7 113,145 0 113,145 16,972 96,173

8 96,173 0 96,173 14,426 81,747

9 81,747 0 81,747 12,262 69,485

10 69,485 0 69,485 10,423 59,062

47
 Type of the Asset : Vehicles

Total Closing
W.D.V. of the Depreciation
Years Additions (Depreciable Balance the
Asset @ 15%
amount) Asset

1 4,000,000 0 4,000,000 600,000 3,400,000

2 3,400,000 0 3,400,000 510,000 2,890,000

3 2,890,000 0 2,890,000 433,500 2,456,500

4 2,456,500 0 2,456,500 368,475 2,088,025

5 2,088,025 1,000,000 3,088,025 463,204 2,624,821

6 2,624,821 0 2,624,821 393,723 2,231,098

7 2,231,098 1,000,000 3,231,098 484,665 2,746,433

8 2,746,433 0 2,746,433 411,965 2,334,468

9 2,334,468 0 2,334,468 350,170 1,984,298

10 1,984,298 0 1,984,298 297,645 1,686,653

Additional tow vehicles would be purchase in the Fifth & seventh Year
costing Rs.1,000,000 each.

48
 Total of Closing Balance

Land & TotalDepn

Years Machinery Furniture Computer Vehicles
building per year

1 13,499,999 616,000 18,000,000 255,000 3,400,000 35,770,999

2 12,149,998 542,080 16,200,000 216,750 2,890,000 31,998,828

3 10,934,997 477,030 14,580,000 184,238 2,456,500 28,632,765

4 10,741,496 419,787 13,122,000 156,602 2,088,025 26,527,910

5 9,667,345 391,412 11,809,800 133,112 2,624,821 24,626,490

6 8,700,609 344,443 10,628,820 113,145 2,231,098 22,018,115

7 8,730,547 303,110 9,565,938 96,173 2,746,433 21,442,201

8 7,857,490 288,737 8,609,344 81,747 2,334,468 19,171,786

9 7,071,739 254,088 7,748,410 69,485 1,984,298 17,128,020

10 7,264,564 223,598 6,973,569 59,062 1,686,653 16,207,446

Total 96,618,783.49 3,860,284.37 117,237,880.78 1,365,313.51 24,442,297.50

49
 Summary of Depreciation on Asset

Particulars Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9 Year10

Machinery 1,500,000 1,350,000 1,215,000 1,193,500 1,074,150 966,735 970,062 873,055 785,750 807,175

Furniture 84,000 73,920 65,050 57,244 53,374 46,969 41,333 39,373 34,648 30,491

Land & 2,000,000 1,800,000 1,620,000 1,458,000 1,312,200 1,180,980 1,062,882 956,594 860,934 774,841
Building

Computer 45,000 38,250 32,513 27,636 23,490 19,967 16,972 14,426 12,262 10,423

Vehicles 600,000 510,000 433,500 368,475 463,204 393,723 484,665 411,965 350,170 297,645

Total 4,229,000 3,772,170 3,366,062 3,104,854 2,926,418 2,608,374 2,575,913 2,295,413 2,043,765 1,920,574
Deprecation

50