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UNIVERSITY OF

HARIPUR
PROJECT
- CAPITAL
BUDGETING AND TECHNIQUE
NAME
ZUBAIR (2782)

-MUHAMMAD
-ARSLAN LATIF

(2824)
DEPARTMENT
SCIENCES

-MANAGEMENT

SUBJECT
MANAGEMENT

-FINANCIAL

Acknowledgements
In the name of ALLAH, who gave us ability and strength to
complete our project? We owe considerable debt to large number
of persons who either directly or indirectly helped us during
various phases of project. It was a new experience, exciting but
challenging and indeed guidance rather frequently, which was
afford very generously.

Our special thanks to Mrs. Shiraz khan for his guidance and
support during our project preparation.

Dedication

No words can adequately express our overriding debt of gratitude


to our parents whose support and helps us in all the way. Above
all we shall thanks to our friends who constantly encouraged and
blessed us and enable to do this work successfully

INTRODUCTION
Bestway Cement Limited is part of the bestway Group of the
United Kingdom.
Bestway Group was founded by (Sir Mohammed Anwar Pervez)
nearly thirty-three years ago on what could be best described as
one mans vision and passion. Since then it has translated into a
unique and successful group of businesses spread across the
globe with the help of committed, professional and hardworking
management and staff, together with loyal customers and
suppliers. The Group has a well-diversified portfolio incorporating
within its folds cement manufacturing, global banking,
wholesale cash & carry business, a string of retail outlets, real
estate investment, ethnic food and beverage import and
distribution and milling of rice. Recently the group has embarked
upon a large power generation project in Pakistan thus further
diversifying its operations and revenue base.

bestway is U.Ks second largest cash and carry operator in terms


of turnover with group annual turnover in excess of US Dollars 3.6
billion and profits in excess of US Dollars 135 million; the second
largest cement producer in Pakistan and joint owner of Pakistans
third largest bank, United bank Limited. Its rice milling facilities
are one of the largest of its kind in the country. The group is the
largest overseas Pakistani investor with investments in excess
of US Dollars 1 billion and a global workforce of over 22,000
people spread over four continents.

Vision
To Produce High Quality Cement at the Lowest Cost

Corporate Mission
Consistently produce high quality cement.
Endeavor to be the lowest cost producer.

Achieve 20% of the market share of North Zone in the short term and ultimately
30%

in the longer term.

Consistently maintain a high standard of customer service.

Continue to invest in human resource through training, development and


promotions from within whenever possible in order to meet future expansion
needs.

Products
Ordinary Portland Cement
Sulphate Resistant Cement
Quick Setting Cement
Low Alkali Ordinary Portland Cement
Clinker
All the products can be supplied either in standard packaging, in bulk or packaged
according to customers' requirements.

PROJECT INTRODUCTION
There are two projects of the bestway company we have selected.
1. The first one is bestway cement factory hattar.
2. The second is bestway cement factory chakwal.

PROJECT A
The initial investment of the bestway cement hattar is (60, 0000000) and the
return of six years are as following.
1. ( 9,000,000,0)
2. (11.000,000,0)
3. (15, 000,000,0)
4. (17,000,000,0)
5. (20,000,000,0)

6. (27,50,000,00)

PROJECT B
The initial investment of bestway cement chakwal is (70, 0000000) and the
return of six years are as following.

1. (9,000,000,0)
2. (15,000,000,0)
3. (23,000,000,0)
4. (25,000,000,0)
5. (30,000,000,0)
6. (27,000,000,0)

METHODOLOGY
We have applying four techniques of capital budgeting and techniques to
this project
Payback period
NPV method, the discount rate is (12.5%)
IRR
Profitability index
Definition of Payback period:
The payback period method is a method of evaluating a project by
measuring the time it will take to recover the initial investment.
Net present value:
Net present value is the difference between the present value of cash
inflows and the present value of cash outflows that occur as a result of
undertaking an investment project.it may be positive zero or negative.
Internal rate of return:

Is the interest rate at which the net present value of all the cash flows (both
positive and negative) from a project or investment equal zero.
Profitability investment
An index that attempts to identify the relationship between the cost and
benefits of a proposed project through the use of a ratio calculated as:
PV of future cash flows/Initial investment

Data Analysis
BESTWAY CEMENT HATTAR
The initial investment in bestway cement hattar is 60, 0000000 and the
return of the six years are as following.

1= Payback period

Year 0
Year1
9000000
60,000000 0
0
5100000
00

Year2
1100000
00

Year3
15,00000
00

Year4
Year5
17,000000 20,0000000
0

4000000
00

2500000
00

80000000

-120000000

Year6
27,5000000

80000000/20, 0000000
4+0.4
4.4 years
Pay Back Period: (4.4 years)

When we have to apply the payback period for this project the return is on
4.4 years.

2= Internal Rate of Return (IRR):

Year 0
Year1
9000000
60,000000 0
0

Year2
1100000
00

Year3
15,00000
00

Year4
Year5
17,000000 20,0000000
0

Year6
27,5000000

For the above outflows I have calculated the (IRR) of this project directly in
MS excel and the rate of return of this project is 14%

3= Net Present Value (NPV):

Interest Rate 12.5%

Initial investment
-60, 0000000

Fv= (90000000/1+.125)1
8, 000, 000, 0

Fv= (110000000/1+.125)2
86,913,580.25

Fv= (15, 0000000/1+.125)3


10, 53, 49,794.2

Fv= (17, 0000000/1+.125)4


10, 61, 30,163.1

Fv= (20, 0000000/1+.125)5


11, 09, 85,791.5
Fv= (27, 5000000/1+.125)6
13, 56, 49,300.7
Npv = (62, 50, 28,629.7)

Initial Investment-Npv
62, 50, 28,629.7 - 60, 000, 000, 0

Npv

= 2, 50, 28,629.7

The NPV of this project is greater than 0 so the company have accept this
project.

4=Profitability index
62, 50, 28,629.7 /600000000

=1.04171

BESTWAY CEMENT CHAKWAL


The initial investment of bestway cement chakwal is 70, 0000000 and the six
years return are as following.

1= Payback period

Year0
70,00000
00

Year1
9,000000
0

Year2
Year3
Year4
15,00000 23,00000 25,00000
00
00
00

61,00000
00

46,00000 23,00000 00
00
20000000

Year5
30,00000
00

Year6
27,0000000

23, 0000000/25, 0000000


3+0.92
3.92 years
Pay Back Period: 3.92 years
The payback period of this this is on 3.92 years

2 = Internal Rate of Return

Year0
70,00000
00

Year1
9,000000
0

Year2
Year3
Year4
15,00000 23,00000 25,00000
00
00
00

Year5
30,00000
00

Year6
27,0000000

Internal Rate of Return (IRR): 17%

For the above outflows I have calculated the (IRR) of this project directly in
MS excel and the rate of return of this project is 17%

3= NET PRESENT VALUE (NPV)


Interest rate is 12.5%
Initial
-70, 000, 000, 0

investment

Fv= (9, 0000000/1+.125)1


000, 000, 0

8,

Fv= (15, 0000000/1+.125)2


85, 18,518.5

1 1,

Fv= (23, 0000000/1+.125)3


15, 36,351.2

16,

Fv= (25, 0000000/1+.125)4


60, 73,769.2

15,

Fv= (30, 0000000/1+.125)5


64, 78,687.2

16,

Fv= (27, 0000000/1=.125)6


31, 82,949.8

13,

Npv

= (815790274)

Npv- initial investment


815790274-700000000
Npv = 115790274

4=Profitability index = 815790274/700000000=1.1654

Conclusion:

in my opinion the company should select the project b because the

collection of the project will be early.