A

DETAILED PROJECT REPORT ON

SULEX SOLAR SYSTEMS

BY:
DIBYA RANJAN BEHERA-10211
MEINAM BHOPENDRO SINGH 10330
ANUSHA BODDAPATI 10303
MEGHANA VASANTHAM 10328
T.K. NAVEEN-10228

Contents
CASE ............................................................................................................................................................ 4
MISSION ...................................................................................................................................................... 4
VISION ........................................................................................................................................................... 4
KEYS TO SUCCESS .......................................................................................................................................... 4
PRODUCTS..................................................................................................................................................... 5
Features of Solar Water Heating System: ................................................................................................. 6
Working of Solar Water Heating Systems ................................................................................................. 6
Benefits of Solar Systems .......................................................................................................................... 6
COST AND SAVINGS ...................................................................................................................................... 7
MARKET ANALYSIS ........................................................................................................................................ 7
Market segmentation ............................................................................................................................... 7
Market Channels ....................................................................................................................................... 8
Marketing strategy.................................................................................................................................... 8
Website Marketing Strategy ..................................................................................................................... 8
PROMOTIONAL STRATEGIES ......................................................................................................................... 9
COMPETITIVE EDGE ...................................................................................................................................... 9
TECHNICAL ANALYSIS .................................................................................................................................... 9
PLACE FOR THE COMPANY: PATANCHERU ............................................................................................. 11
Infrastructural Facilities .......................................................................................................................... 11
Expenses ..................................................................................................................................................... 12
Actual Cost Of the project:...................................................................................................................... 14
Annexure 1(a): ............................................................................................................................................ 15
Asset valuation for the purpose of depreciation .................................................................................... 15
Annexure 1(b): ............................................................................................................................................ 15
Depreciation on written down value method ........................................................................................ 15
Annexure 2: ................................................................................................................................................. 16
Calculation of working capital requirements .......................................................................................... 16

Annexure 3: ................................................................................................................................................. 17
Calculation of interest on term loan ....................................................................................................... 17
Annexure 4: ................................................................................................................................................. 17
Profitability EstimatesSSS ....................................................................................................................... 17
Annexure 5: ................................................................................................................................................. 18
Cash flow Estimates ................................................................................................................................ 18
Annexure 6: ................................................................................................................................................. 19
Projected Balance Sheet ......................................................................................................................... 19
Ratio Analysis .............................................................................................................................................. 20
Interpretations ........................................................................................................................................ 20
Total Fixed Costs and Variable Costs .......................................................................................................... 21
Break Even Point in Units and Rupees: ................................................................................................... 22
Calculation of NPV, IRR, and ARR:............................................................................................................... 22
Interpretations ........................................................................................................................................ 23

CASE
Mr.X and Mr.Y are planning to start up a new private limited company, Sulex solar systems ltd,
with a distribution capacity of at least 120 solar products per annum. Mr. X is an Electrical
Engineer and has a long experience of 10 years. Mr.Y is a Mechanical Engineer with an
experience of more than 15 years in a manufacturing unit of solar products. As the demand for
the solar product is increasing day by day the company can expect more sales in the coming
years. The company will be affected directly by the other solar product manufacturers. Company
needs to concentrate more on marketing its products as there are many players in the market.
The assembling process involves the following activities are:

Fabrication of panel and storage tanks.

Assembly of tank, panel coil and other components

Inspection and commissioning.

Raw materials required for the manufacturing of Solar Water Heater are Copper Aluminum
Sheet, Pipe, Glass Fibre, Glass Sheets, Thermostat, insulation material and others. Market
potential solar water heating systems are useful for both domestic & institutional segments.

MISSION
To be the premier solar water heating systems distributor, offering the highest quality products
and superior customer service contributing towards an EcoFriendly environment.

VISION

To drive awareness and build sales through advertising.

To gain market penetration within few years.

KEYS TO SUCCESS
The business of Solar Water Heating Systems will be successful only if there is a long term
relationship with the manufacturers of SWHS.

Customer is king for any business, so maintaining a good relationship with customers
helps in the success of business.

The business must provide different variety of Solar Water Heating Systems and
advertising and promotional activities have to be done in order to attract more number of
customers.

After sales service is crucial for the business and feedback from the customers have to
be accepted and necessary steps have to be taken to implement the suggestion given by
the customers.

PRODUCTS
Sulex solar systems will sell two versions of a solar home water heating system. One will be a
unit sold as a do-it-yourself model. The second model is sold as a unit to be installed by a
licensed installer. By providing two models, Sulex will appeal to two different customer
segments, one that likes the challenge of projects and has the skills to execute the plans, and
people who desire a solar heating system but have no desire or skills to install it themselves.
Solar power is a clean, environmentally friendly source of energy. There are no toxic
emissions. Solar water heating systems are in high demand. Typically 30%-40% of a family's
electricity bill is devoted to devoted water. Sulex solar systems can save the individual family
from 70%-90% of the total amount spent on the electricity used for heating water. During times
of decreased sunlight, the system will preheat the water then bring it up to temperature by the
conventional water heating system all ready in place.
Sulex solar products are manufactured by a large industry supplier and shipped to the factory for
partial assembly. With this procurement/manufacturing method, Sulex is able to minimize large
capital expenditures for manufacturing while being able to offer high quality products. Sulex
provides a five year warranty on the products against manufacturer's defects. Five years is the
industry standard.

Features of Solar Water Heating System:

Energy saving

Large storage unit

Maximum heat retention

Long lasting

Suitable for remote locations

High quality raw material

Cost-effective

Working of Solar Water Heating Systems

Solar water heating systems use solar panels, called collectors, fitted to the roof. These collect
heat from the sun and use it to warm water which is stored in a hot water cylinder. There are two
types of solar water heating panels; they are evacuated tubes and flat plate collectors. Flat plate
collectors can be fixed on the roof tiles or integrated into the roof. A boiler or immersion heater
can be used as a back up to heat the water further to reach the temperature set by the cylinders
thermostat when the solar water heating system does not reach that temperature.

Benefits of Solar Systems

A boiler or immersion heater can be used as a back up to heat the water further to reach the
temperature set by the cylinders thermostat when the solar water heating system does not reach
that temperature.

Hot water throughout the year: the system works all year round, in winter season
boiler is required to heat the water.

Cut in electricity bills: sunlight is free, so once the initial payment is done after
installation, hot water costs will be reduced.

Cut carbon footprint: solar hot water is a green, renewable heating system and can
reduce carbon dioxide emissions.

COST AND SAVINGS

Cost: cost of a typical solar water heating system is around 15,000 20,000.
Maintenance costs are very low. Most solar water heating systems come with a 5-10 year
warranty and require little maintenance. Panels have to be checked thoroughly by an accredited
installer every 3-5 years, or as specified by the installer.

MARKET ANALYSIS
Sulex has identified two distinct market segments for marketing their products. The first segment
is the "DIY" segment of handy individuals. The second is the "Convenience" segment that will
utilize a skilled installer to have the system installed at their home. There are some companies
that sell kits that must be assembled and then installed by the individual. There are other
companies that only sell professional installed systems. Some companies sell solar water heaters
specifically for swimming pools, others market their products for households.

Market segmentation
Sulex has identified two market segments to target.
DIY
these people do a lot of repairs and upgrades on their home. They have lots of building and repair
skills and like to tackle projects while learning new skills. This customer segment has a variety
of motivations for do-it-yourself work. One motivation is saving money. Another is the
satisfaction of completing the project by their own. Additionally, customizing the project may be
appealing.

Convenience
This segment is looking for the advantages of a solar based water heating system without the
challenge of installation. They appreciate the value of the solar heating system. This group
recognizes the environmental and/or economic benefits of solar water heating and will choose a
professional installer.

Market Channels
Sulex solar products will be sold through several channels:
DIY Retailers: This channel purchases Sulex products in quantity and then resells them to
individuals to install.
Professional Installers: This channel is comprised of approved Sulex solar systems installers.

Marketing strategy
Sulex solar systems marketing campaign focuses on raising awareness about the environmental
and economic benefits of having a solar-based water heating system and also solar products.
Environmental benefits include using a renewable resource and no toxic discharge or emissions,
thus allowing individuals to make serious commitments to the Earth. Customers will also enjoy
the economic savings afforded by a solar water heating system.
Sulex solar systems marketing will focus on advertising and trade shows. In each of these venues
they will target the DIY and professional install markets along with retailers carrying Sulex
products. In addition, Sulex solar systems will develop relationships with utilities in an attempt
to offer rebates or other financial incentives for utility customers using the alternative energy
source.

Website Marketing Strategy

The marketing and sales department will be instructed to rely heavily on the website as a
clearinghouse for information about products. Energy saving estimates, technical requirements,
installations guidelines as well as product comparisons will be available. All printed materials
will refer to the website as information source.

PROMOTIONAL STRATEGIES

Website, will be designed where we provide product knowledge/ applications/ usage etc.

Builders/ renovators/architects/ etc that can influence the usage will be targeted.

Demos will be conducted at the local shopping centers / offer special discounts to the
buyers.

Joint promotions with selected/ well known home builders and offer a special deal to the
home buyers.

COMPETITIVE EDGE
Sulex solar systems have two competitive edges that will distinguish them from the competition.
First, it serves both the DIY market and the professional install market. This is a competitive
edge because it can reconfigure one product for both market segments, immediately increasing
the number of potential customers, at minimal costs to Sulex. The equipment is the same with
minor changes to packaging and installation instructions. The DIY system will also include some
tools.

TECHNICAL ANALYSIS
Name of the Promoter

Age

Mr. X

37

Mr. Y

42

Schedule of Implementation

Acquisition of land: Land is owned by Mr. X

Construction of Buildings: Dec 2011

Procurement of Plant & Machinery: June 2012

Trail Assembling of solar systems: Sep 2012

Commercial Production: Dec 2012

Materials Required
These components include:
Charge controller
Lead acid deep cycle batteries
DC disconnect
AC breaker panel
Power inverter
Kilowatt hour meter
System meter
Sources of Supply

Ad solar energy group co.ltd

Geo solar

Wenzhou solar energy ltd.

CNBM international corporation materials

Minimum Purchase Quantity

Minimum purchase quantity from the suppliers is 8 and it also depends on the seasonality. The
inventory maintained in winter is more rather than in summer as the sales percentage will be high
during winter for water heaters and for other products summer has high demand as the capacity
of energy stored in summer is high.

Man Power

Assembling

Marketing

Financing & Accounting

General Management

Supervisors

Skilled & Unskilled workers

Administrative Staff

Others

Total

35

PLACE FOR THE COMPANY: PATANCHERU

The sulex solar systems will be located at patancheru, in Hyderabad. As patancheru is the major
industrial hub of Andhra Pradesh and also there are many industries in patancehru. We have
chosen this place for the company as it is 15kms from HITECH city and also as it is surrounded
with many other industries it would be easy for customers to find the company.
Patancheru is in Medak district which has good network of roads, the national high way No.9
Connecting Hyderabad to Mumbai passes through the district, thereby connecting Hyderabad to
Places in Karnataka and Maharastra. There are many manufacturing plants in Maharashtra and it
would be easy for the company to get the products from them and assemble them in the
company.

Infrastructural Facilities
Transport facilities
Patancheru is in Medak district which has good network of roads, the national high way No.9
Connecting Hyderabad to Mumbai passes through the district, thereby connecting Hyderabad to
Places in Karnataka and Maharastra.

Electric power
Arrangements made Power Requirement: The power required is generated through the solar
products
Water Requirement:
A small amount of water is also necessary for panel washing. However, because it directly gener
ates electricity from sunlight.

Cost of Raw Material

Expenses
Production

First year

130714

Second year

246428

First year

122

Third year

315000

Second year

230

Fourth year

315000

Third year

294

Fifth year

315000

Fourth year

294

Fifth year

294

Power
&
Chargers

Repairs & Maintenance

First year

75000

Second year

80000

Third year

85000

Fourth year

90000

Fifth year

95000

Rent and insurance

Telephone

First year

20748

Second year
Third year
Fourth year
Fifth year

39116
50000
50000
50000

wages and salaries

First year

1040000

First year

53946

Second year
Third year
Fourth year
Fifth year

1040000
1040000
1040000
1040000

Second year
Third year
Fourth year
Fifth year

101701
130000
130000
130000

selling expenses
Administration
expenses
First year
Second year
Third year
Fourth year
Fifth year

50000
60000
70000
80000
90000

Revenue
First year
Second year
Third year
Fourth year
Fifth year

2928000
5520000
7056000
7056000
7056000

First year

12200

Second year
Third year
Fourth year
Fifth year

23000
29400
29400
29400

Office equipment

250000

Furniture

160000

Building
Thermostat
Insulation material
Total

400000
100000
25000
935000

share of preliminary expenses

Office equipment
Furniture
Building
Thermostat
Insulation material
Total

71958.56
46053.48
115133.7
28783.42
7195.856
269125

Actual Cost Of the project:

Total cost of the project is

1350000

Less: Margin for Working Capital

115000

Actual cost of project

1235000

Write off preliminary expenses

30875

Remaining amount to be capitalized

269125

Proportionately to fixed assets

preliminary expenses
Contingencies

Share Capital
Term Loan
Total

Particulars

100000
200000
300000
500000
850000
1350000

Amount

Office equipment

250000

Furniture

160000

Building

400000

Thermostat

100000

Insulation material

25000

Preliminary Expense

100000

Contingencies

200000

Margin of WC

115000

Total

1350000

Annexure 1(a):
Asset valuation for the purpose of depreciation

share of preliminary expenses

and contingencies

Total cost

250000

71958.55615

321958.5561

Furniture

160000

46053.47594

206053.4759

Building

400000

115133.6898

515133.6898

100000

28783.42246

128783.4225

25000

7195.855615

32195.85561

Items
Office equipment

cost of Fixed assets

Thermostat
Insulation material
Total

1204125

Annexure 1(b):
Depreciation on written down value method
Items
Office
equipment
Furniture
Building
Thermostat
Insulation
material

Percentage Total cost

First year

Second year

Third year

Fourth year

Fifth year

5%

321958.5561

16097.92781

15293.03142

14528.37985

13801.96085

13111.8628

5%

206053.4759

10302.6738

9787.540107

9298.163102

8557.980381

7702.18234

7%

515133.6898

36059.35829

33535.20321

31187.73898

29004.59726

24943.9536

7%

128783.4225

9014.839572

8383.800802

7796.934746

7251.149314

6235.98841

7%

32195.85561

2253.709893

2095.950201

1802.517172

1696.881282

1585.4941

305860.6283
195750.8021
479074.3316
119768.5829
29942.14572

290567.5969
180457.7707
445539.1283
111384.7821
27846.19552

276039.2171
171159.6076
414351.3894
103587.8473
26043.67835

262237.2562
162601.6272
385346.7921
96336.69803
24346.79707

249125.3934
154899.4449
360402.8385
90100.70962
22761.30296

Annexure 2:
Calculation of working capital requirements
Items
Stock of Raw material
Stock of work-in-progress
Stock of finished material
Sales
Total CA
Less: margin for working
capital

Norms in
months
2
0.75
1.5
1

Less: Creditors
Balance for which loan is
given

10

Particulars
Raw material
power, telephone charges
repairs and maintenance
rent, insurance
wages and salaries
Depreciation
factory cost(WIP)
administrative expenses
finished goods
Debtors

First year
132517.2414
21034.48276
75000
1040000
54689.65517
245000
1568241.379
50000
1618241.379
2928000

First year
22086.207
98015.086
202280.17
244000
566381.47

Second year
41637.93103
109849.1379
227198.2759
460000
838685.3448

Third
year
52500
116562.5
241875
588000
998937.5

Fourth
year
52500
116875
243750
588000
1001125

Fifth year
52500
117187.5
245625
588000
1003312.5

141595.37
424786.1
3630.6094

209671.3362
629014.0086
6844.591403

249734.38
749203.13
8630.137

250281.25
750843.75
8630.13699

250828.13
752484.38
8630.137

421155.49

622169.4172

740572.99

742213.613

743854.24

Second
year
249827.59
39655.172
80000
1040000
103103.45
245000
1757586.2
60000
1817586.2
5520000

Third year
315000
50000
85000
1040000
130000
245000
1865000
70000
1935000
7056000

Fourth
year
315000
50000
90000
1040000
130000
245000
1870000
80000
1950000
7056000

Fifth year
315000
50000
95000
1040000
130000
245000
1875000
90000
1965000
7056000

Annexure 3:
Calculation of interest on term loan
Outstanding at
the beginning of
first half year

Outstanding at
the end of first
half year

Outstanding at
the end of
second half year

Interest for
first half
year

Interest for
second half
year

Total
interest on
term loan

First year

850000

750000

650000

53125

46875

100000

Second year

650000

550000

450000

40625

34375

75000

Third year

450000

350000

250000

28125

21875

50000

Fourth year

250000

150000

50000

15625

9375

25000

Fifth year

50000

3125

3125

Year of
production

Annexure 4:
Profitability EstimatesSSS

Particulars
Installed capacity
Production
Production% of installed
capacity
Sales
Raw material
power, telephone charges
repairs and maintenance
rent, insurance
wages and salaries
Depreciation
Manufacturing expenses
Administrative expenses
selling expenses
interest on working capital
loan
Interest on term loan
Total cost
Net profit before tax
Preliminary expenses (10%)
Tax at 10%
Net profit after tax

First year
320
122

Second year
320
230

Third year
320
294

Fourth year
320
294

Fifth year
320
294

38.125
2928000
132517.241
21034.4827
75000
1040000
54689.6551
245000
1568241.37
50000
12200

71.875
5520000
249827.586
39655.1724
80000
1040000
103103.448
245000
1757586.20
60000
23000

91.875
7056000
315000
50000
85000
1040000
130000
245000
1865000
70000
29400

91.875
7056000
315000
50000
90000
1040000
130000
245000
1870000
80000
29400

91.875
7056000
315000
50000
95000
1040000
130000
245000
1875000
90000
29400

63173.3234
100000
225373.323
1793614.70
1134385.29
3087.5
113438.529
1017859.27

93325.4125
75000
251325.412
2008911.61
3511088.38
3087.5
351108.838
3156892.04

111085.948
50000
260485.948
2125485.94
4930514.05
3087.5
493051.405
4434375.14

111332.042
25000
245732.042
2115732.04
4940267.95
3087.5
494026.795
4443153.66

111578.135
3125
234103.135
2109103.13
4946896.86
3087.5
494689.686
4449119.67

Cumulative net profit

(Reserves and surplus)

1017859.26

4174751.31

8609126.45

13052280.1

17501399.8

net profit before interest and

tax

1297558.62

3679413.79

5091600

5076600

5061600

Annexure 5:
Cash flow Estimates

Particulars

Construction
period

First year

Second year

Third year

Fourth year

Fifth year

5091600

5076600

5061600

Sources
Share capital

500000

Net profit after depreciation

and before interest & tax

1297558.62 3679413.793

Depreciation

245000

245000

245000

245000

245000

Preliminary expenses

3087.5

3087.5

3087.5

3087.5

3087.5

3630.60935

3213.98205

1785.54558

421155.49

201013.9274

118403.571

1640.625

1640.625

1970432.22 4131729.203

5459876.62

Term loan

850000

Increase in Creditors
Increase in Working capital
loan
Total

1350000

5326328.125 5311328.13

Applications
Fixed assets

1204125

Loan repayment
Preliminary expenses

200000

200000

200000

200000

200000

30875

Increase in current assets

566381.466 272303.8793

160252.155

546.875

546.875

Interest

163173.323 168325.4126

161085.948

136332.042

114703.136

113438.53

351108.8381

493051.405

494026.7958 494689.686

1042993.32 991738.1299

1014389.51

830905.7128 809939.697

1042438.901

4182429.97

8627917.082 13123339.5

Tax
Total

1235000

Opening balance of cash

115000

Net surplus

115000

927438.901 3139991.073

4445487.11

4495422.412 4501388.43

Closing balance of cash

115000

1042438.9

8627917.08

13123339.49 17624727.9

4182429.974

Annexure 6:
Projected Balance Sheet

Particulars

First year

Second year

Third year

Fourth year

Fifth year

Share capital

500000

500000

500000

500000

500000

Reserves and surplus

1017859.27

4174751.31

8609126.46

13052280.1

17501399.8

Term loans

650000

450000

250000

50000

Working capital loan

421155.49

622169.4172

740572.988

742213.613

743854.238

Provisions

3087.5

251175

499262.5

748990.625

848718.75

Creditors

3630.60935

6844.591403

8630.13699

8630.13699

8630.13699

Total

2595732.87

6004940.319

10607592.1

15102114.5

19602602.9

Fixed Assets

1204125

1204125

1204125

1204125

1204125

Less: Depreciation(cumulative
straight line)

245000

245000

245000

245000

245000

Net Fixed assets

959125

959125

959125

959125

959125

Current assets

566381.466

838685.3448

998937.5

1001125

1003312.5

Preliminary expenses

27787.5

24700

21612.5

18525

15437.5

Cash and bank balances(closing

balance of cash)

1042438.9

4182429.974

8627917.08

13123339.5

17624727.9

Total

2595732.87

6004940.319

10607592.1

15102114.5

19602602.9

Liabilities

Assets

Ratio Analysis
Ratios
Loan safety or Appraisal
ratios

First year

Second Year

Third
Year

Fourth
Year

Fifth Year

Debt-equity ratio

0.42823469

0.096261805

0.027445

0.00368942

Debt service coverage ratio

4.54286422

12.64324379

18.917501

20.9473496

23.1248969

PBILD to total income interest

0.52683013

0.710944528

0.7563209

0.75419501

0.75206916

Return on capital employed

1.40862062

3.278839841

4.1042325

4.08673673

4.0692871

Interest coverage ratio

9.45349759

23.3144463

33.128898

39.0341106

46.2637745

Current assets holding ratio

2.32123551

1.82322901

1.6988733

1.70259354

1.70631378

Capital turnover ratio

1.92394142

3.082135987

3.6195152

3.61545818

3.61141028

Operating Ratio

0.87434686

0.874894739

0.8774464

0.88385484

0.88900347

Profitability ratios

Turn over ratios

Interpretations
1. Debt-Equity Ratio - A high debt/equity ratio generally means that a company has
been aggressive in financing its growth with debt. So since this is a service industry
(not capital intensive) the Debt-equity ratio is less than 0.5. So the ratio is less than
one signifies that equity provides a majority of financing and when there is an
increase in interest expense the company may not be in a risky position.
2. Debt service coverage ratio This ratio signifies the amount of cash flow available to
meet annual interest and principal payments on debt. Higher is the ratio, higher is the
acceptance.
3. Return on capital employed This ratio indicates the efficiency and profitability of a
company's capital investments. ROCE should always be higher than the rate at

which the company borrows. In this case the return on capital employed is significant
from second year onwards.
4. Interest coverage ratio This ratio is used to determine how easily a company can
pay interest on outstanding debt. Higher the ratio, higher the acceptance. In this case
the Interest coverage ratio is high.
5. Capital turnover ratio This ratio signifies, how efficiently the capital is invested in
the business is being used and how many times the capital invested is turned into
sales. Higher the ratio, better the efficiency of utilization of capital and leads to higher
profitability. In this case the ratio is higher and is increasing each year.
6. Operating ratio From the above calculations we can say that there is a consistency
in managing the operational costs of the company which shows a positive sign for
bankers.

Total Fixed Costs and Variable Costs

Items

First year

Second year

Third year

Fourth year

Fifth year

Raw material

132517.241

249827.5862

315000

315000

315000

power and telephone charges

21034.4828

39655.17241

50000

50000

50000

wages and salaries

54689.6552

103103.4483

130000

130000

130000

Interest on Working capital loan

63173.3235

93325.41258

111085.95

111332.042

111578.136

selling expenses

12200

23000

29400

29400

29400

Total

283614.703

508911.6195

635485.95

635732.042

635978.136

Repairs and maintenance

75000

80000

85000

90000

95000

Rent and insurance

1040000

1040000

1040000

1040000

1040000

administration expenses

50000

60000

70000

80000

90000

Interest on Term loan

100000

75000

50000

25000

3125

Depreciation

245000

245000

245000

245000

245000

Total

1510000

1500000

1490000

1480000

1473125

variable costs

fixed costs

Break Even Point in Units and Rupees:

Items

First year

Second year

Third year

Fourth year

Fifth year

variable cost per unit

2324.71068

2212.659215

2161.516831

2162.353884

2163.190938

Selling price per unit

3000

3100

3300

3500

4000

contribution per unit

675.289321

887.3407849

1138.483169

1337.646116

1836.809062

BEP(units)

2236.0786

1690.444106

1308.758917

1106.421185

802.0022496

P/V ratio

0.74535953

0.54530455

0.396593611

0.316120338

0.200500562

BEP(Rupees)

2025867.96

2750756.433

3756994.459

4681761.405

7347236.249

Calculation of NPV, IRR, and ARR:

First year

Second year

Third year

Fourth year

Fifth year

Future cash flows

1017859.267

3156892.042

4434375.147

4443153.662

4449119.7

PV

925326.6068

2609001.688

3331611.68

3034733.736

2762553.3

Initial investment

1350000

NPV

28814626.78

Years
First year
Second year
Third year
Fourth year
Fifth year

IRR
-25%
53%
49%
35%
27%

Cost of capital
10%
10%
10%
10%
10%

Items
Net Operating profit

4041354.48

Average Investment

786342

ARR

5.13943613

Interpretations
NPV
NPV analysis is sensitive to the reliability of future cash inflows that an investment or project
will yield. From the above calculations it can be said that the NPV is positive and is significant
in this case.

IRR
The discount rate often used in capital budgeting that makes the net present value of all cash
flows from a particular project equal to zero. Generally speaking, the higher a project's internal
rate of return, the more desirable it is to undertake the project. In the first year the IRR is
negative which is not significant but from second year onwards the IRR is positive and the main
thing is than the cost of capital which shows a good sign.

ARR
ARR provides a quick estimate of a project's worth over its useful life. ARR is derived by
finding profits before taxes and interest. From the above calculations it shows a positive sign.