Fa Report

Feasibility Report
On
Zest
Course: Financial Appraisal
Class: M.Com Final (Finance)
Group Number: 2

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Faisal Arshad (08)
Arsalan Aftab (20)
Naresh Kumar (25)
Umair Farooqi (42)
Zeeshan Qayyum (50)

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General Brief
The feasibility report is about the launching of new, unique and
enthralling soft-drink, ZEST. The beverages industry has been popular in
Pakistan for the past many decades. Even though, the beverage industry
has been monopolized by the 2 giants PEPSI and COKE that have
completely captured the market, there still are some people, segments,
and groups that have not been targeted optimally. The major focus of our
team is to provide customer satisfaction to those groups and people that
are still unsatisfied. There are many people clinched in the claws of
diabetes, others are highly health conscious. Such are the people that are
the prime target of ZEST.
For the past few years the trend of eating out has gained
remarkable popularity. This trend is solely not just the contribution of
people considering eating out as a luxury but it has become a part of their
life style. In fact it has become a necessity and about three-fourth of the
middle class in Pakistan eat outs twice in every 7 days (The Daily Mail-
online, 21st December 2009). This has led to substantial increase in the
demand of beverages. KFC, McDonalds, Pizza hut etc have all
contributed to this boom. According to a research conducted by Pepsi
cola in 2005, 63% of its sales is attributed to fast foods (Pepsi Cola –
Research Studies 2005).
Apart from that, popular beverages like Pepsi and Coca Cola are
available on corners of streets, off the side of interstates, airports, malls,
schools, gas stations, local shopping center, and even in hospitals. This is
the core reason for the massive market share of these brands and huge
sales figures. Despite the complete domination of the market by these two
colossal, the fast paced changing life styles and tastes of customer has
opened gaps for these organizations to fill up. Mountain Dew, Pepsi Max,
Pepsi Twist, Limca, Vimto and many more have emerged on the scene.
The availability of new brands like Dew and others have clearly
demonstrated that market gaps are constantly emerging. If this is so, why
not a new organization, like us (ZEST), fills it up rather than the existing
ones.

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Project Brief
The concerned project is about providing superior taste keeping in
mind the desires of health conscious customers. The company under the
name of ZEST is to launch several different products with diversified
tastes as per customer requirements. The aim is to provide equally good
taste to our health conscious customers that were not available to them
under the PEPSI and COKE brands.
ZEST’s primary focus is to capture the market share in Karachi,
with its targets extending to all major cities of Pakistan within 5 years
time. Apart from making ZEST products easily available at all level of
retail shops, we also intend franchises like KFC, Pizza Hut and
McDonalds to endorse our product. Many regional and local fast food
restaurants have developed around the main cities of Pakistan, in order to
penetrate the market we will provide items that appeal to the unique
regional tastes and habits at comparatively lower costs.
Including the conventional Diet Pepsi-related taste, we are also
offering other tastes like ZEST Orange (Miranda), ZEST White (7-up),
ZEST Lem (Lemonade), ZEST Ice (Moutain Dew), ZEST Appachino
(Apple flavoured), ZEST Minwa (Mineral Water) and also new tastes
never offered before, ZEST Fruit-punch and Zest Voltage (Energy
Drink).
The conventional Pepsi and Coke drinks include Carbonated water,
Phosphoric Acid, Caffeine, Emulsifier, Natural flavour, Artificial colour
and also sugar and excessive calories. All ZEST products, on the other
hand, are sugar free that reduces calories too the minimal like the Diet
offerings of Pepsi and Coke. In addition, ZEST includes “SODIUM
CYCLAMATE” (C6
H12
NNaO3
S) an artificial sweetener, which provides
the same good taste but does not increase calories substantially.

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Opportunity
Rationale
Pakistan is a potential market for beverages industry with a
population of about 160 million with a greater chunk of it being the
middle-class. Approximately two-fifth (Ages ranging 5 – 65 within
Middle and Upper Middle Class taken from Economic Survey of Pakistan
2007-2008) of the total population represents the potential market for
processed and packaged foods, which is still rising.
Economic Survey of Pakistan 2007-2008

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Furthermore it is estimated that the middle ranged age groups will
contribute to the major portion of the Pakistan’s population in the coming
years. It is estimated that the productive age group i.e. Ages 15 – 60 will
take the greater chunk (about 67% of total population) by 2020
(Population Projections 1998-2023, Planning Commission; NIPS).
Population Projections 1998-2023, Planning Commission; NIPS

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Electronic media has aided in the exposure to international food
products and brands, which ultimately has increased their desirability
amongst Pakistani consumers. The consumption of beverages in Pakistan
is valued at approximately Rs. 90 to 120 billion yearly (Pepsi and Coke
alone generate approximately Rs. 76 billion altogether as estimated by
Pepsi in 2005 and Coke in 2006). The market has been growing at an
annual rate of approximately 15% due to the substantial increase in eat-
outs and it is estimated that by 2010 it would have grown by 30.5%
(Pakistan Food & Drink Report Q4 2006).
ZEST is to be a complete Production based organization focusing
mainly on producing and distributing its products to the potential
customers via retailers and other channels. Thus, proper promotional
activities carry immense importance for ZEST’s establishment as a
successful organization in the beverages industry.
ZEST plans to commence its production in Korangi Industrial
Area, Karachi on approximately 50,000 sq. feet of flat land near Vita
Chowrangi. The space is partially to be used for installing the
Manufacturing Plant, Quality Control Centre and R & D Department, and
the rest for the Distribution Network Administration and a proper parking
place for the Distribution Department’s Vehicles.
To start its business, ZEST is launching its products amongst the
population of 18 million in Karachi only. The estimated customers of the
beverage industry are 10 to 12 million out of which the potential
customers (health conscious customers to start with) of ZEST would be
approximately 1 to 1.5 million. This would attribute to an approximate
sale of Rs 2.7 to 4 billion yearly or Rs. 7 to 11 million daily.

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The two major competitors to ZEST would be Pepsi Cola and
Coke. Diet-Pepsi, Diet 7-up, and Diet Coke are the only popular drinks
offered by Pepsi and Coke to health conscious people. Apart from that,
Diet Drinks are not easily available to customers especially at small retail
shops, and if they are they are only available in tin cans or in family
packs and NO REGULAR 250ml bottles.
ZEST aims to satisfy its customer not just by providing the various
new flavours, but also to make a perfect substitute of Diets easily
available everywhere. The production capacity required to fulfill the
demand of first year of ZEST’s launch is estimated at about 1.5 to 2
million gallons i.e. of Karachi alone. ZEST intends to market its products
in the 250 ml Regular bottles package. The decided ratio for the
packaging of ZEST drink is illustrated below:

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Pepsi’s only successful launch has been Mountain Dew in the past
5 years time. Pepsi Twist failed to earn Pepsi the same results. Coke
hasn’t launched any new flavor in soft drinks either. Thus, in the
conventional soft-drink market, new products have not been successfully
launched creating a gap for ZEST to dominate.

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Economic Size
The Pakistan beverage industry is approximately valued at Rs. 90
to 120 billion. The market has been growing at an annual rate of
approximately 15% due to the substantial increase in eat-outs. The
potential markets in Pakistan are: Karachi (population: 1 to 1.5 million);
Lahore (population: 0.5 to 1 million); and Islamabad & Rawalpindi
(approximately 1 to 1.5 million). The dramatic growth of the beverages
industry in the country has been unparalleled. In recommendation of the
plant capacity we considered the following stats:
 Beverage industry has been growing rapidly entering into areas like
Juices and Mineral Water too.
 Soft-Drinks Sales has been increasing for over 15% for the past 5
years and they alone account for over 65% of beverages sales
(Pepsi Statictics)
 Beverages industry contributes to 25% of the total revenues of Eat-
outs.
 The need to have the proper production plant for producing
beverages, which consists of production as well as bottling
machines.
 Discussions with the industry experts and entrepreneurs.

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Project Investment
A business plan provides a platform to establish a good
reputed business. But to do so, one has to invest and bear heavy
costs. The costs to be incurred on the following assumptions:
The initial investment plan proposed above is compiled
based on many assumptions and calculations. Most of the
information generated is from existing Beverages Industry Giants,
Pepsi and Coke. Proposed costs and information is presented with
Karachi as the only potential market in consideration, though later
ZEST intends to expand its operations into the rest of Pakistan too.
The cost structure has been divided into 4 different heads;
1) Machinery & Equipment
2) Human Resource
3) Office Furniture and Fixtures
4) Land and Building
Human
Resource
Equipment Capacity Location
68 American and
Japanese
1.5–2
million
gallons
(daily)
in close
proximity to
main road
Total Project Cost

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Equipment and Machinery
Equipment Quantity Unit Cost Total Cost
IB-04 Analysis
Assembly
1 25,20,000 25,20,000
Brix Controller 1 1,85,000 1,85,000
CO2 Controller 1 1,20,000 1,20,000
Remote Display Unit 1 5,58,000 5,58,000
MULTILAB III
Remote Command
1 10,59,000 10,59,000
Angel 100BPH
(Filling)
1 8,10,000 8,10,000
Automatic Snapcap
Capping Machine
1 15,85,000 15,85,000
RGY2T-1G-Linear-
Filling-Machine
1 12,63,000 12,63,000
Reverse Osmosis
Water purification
Plant
1 1,500,000 1,500,000
Distribution Trucks 4 20,00,000 80,00,000
Refrigerators 2,000 12,000 2,40,00,000
TOTAL 2,012 1,16,12,000 4,16,00,000
All the machines are specialized machines for the manufacturing,
filling or capping purpose. Their cost includes the cost of shipment and
installations of theses machines in the Manufacturing Plant area.
Distribution Trucks have been purchased to minimize the element
of dependency on a third party or organization. Thus, ZEST’S
Distribution Departmental Head directly control Distribution of the
product.

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Office Furniture and Fixtures
Equipment Quantity Unit Cost Total Cost
Table & Chair for CEO 1 9,600 9,600
Table and chair for
Manager/Department
Head
6 8,000 48,000
Table and chair for
Supervisor/Officers
16 5,000 80,000
Table and chair for
Other Staff Members
10 4,400 44,000
Other Staff Chairs 15 400 6,000
Personal Computer 7 25,000 1,75,000
Laser Printer 7 15,000 1,05,000
Fax Machine 4 20,000 80,000
UPS 5 9,000 45,000
Air Conditioner 5 15,000 75,000
TOTAL 66 1,11,400 6,17,600
Personal computers along with a laser printer each, would be
required for the CEO, Administration Manager, Marketing and Sales
Manager, Distribution Manager, Production Manager, Human Resource
Manager and Finance and Accounts Manager. UPS is to be arranged for
each personal computer provided.
Fax machines are to be provided to the CEO, Account and Finance
Manager, Marketing and Sales Manager and Human Resource Manager.
All the departments are interconnected via a local area network in order
to make communication easier, faster and reliable.

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Human Resource
Designation Staf
f
Salary
(Monthly)
Annual
Cost
CEO 1 60,000 7,20,000
Administration Manager 1 40,000 4,80,000
Marketing & Sales
Manager
1 40,000 4,80,000
Distribution Manager 1 40,000 4,80,000
Production Manager 1 40,000 4,80,000
Human Resource Manager 1 40,000 4,80,000
Accounts and Finance
Manager
1 40,000 4,80,000
Marketing Officer 5 15,000 9,00,000
Production Supervisor 2 30,000 7,20,000
Packing Supervisor 2 20,000 4,80,000
Sales Supervisor 5 30,000 18,00,000
Personal Driver 1 10,000 1,20,000
Distribution Truck Driver 4 10,000 4,80,000
Washer 2 9,000 2,16,000
Filler 5 10,000 6,00,000
Loader 6 12,000 8,64,000
Plant Helper 20 10,000 24,00,000
Packing Supervisor 2 10,000 2,40,000
Watchman 2 6,000 1,44,000
Sweeper 5 6,000 1,44,000
TOTAL 68 4,78,000 1,27,08,000
The salaries are according to the latest statistics and rates

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that are going on in the market.
A Departmental Head is assigned for each of the five independent
departments that will be functioning in ZEST Organization. Departmental
Heads have supervisors or officers to assist them in the daily routine tasks
and to provide them with the details required.
Apart from that, there are many general and specialized labour to
perform the different required jobs in order to keep the plant in a running
condition. These include washer, filler loader and the plant helpers.
This is the current workforce requirement for the commencement
of business in Karachi alone. In the near future, ZEST’S aim to expand its
business through out Pakistan, will definitely create huge gaps that would
be filled with more skillful and competitive labour.

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Land and Building
For the proposed set of Beverages Manufacturing Plant, a total of
100,000 sq. feet is required. This land requirement includes space for the
installation of plant and machinery, Distribution Network and
Distribution Trucks, management office, store for bottles, finished
product and parking. The requirement of each of these departments is
bifurcated below:
Total Covered Area Requirement
The area calculated is solely of the covered area, that is why
the selected site is much more than the Total required area
proposed by this analysis.
Space Requirement Area Requirement
Bottle Washing and Storage
Plant (50,000 bottles)
10,000 sq. feet
Actual Manufacturing Plant
including Quality Control
40,000 sq. feet
Finished product storage
room
1,500 sq. feet
Management office 3,000 sq. feet
Distribution Network
(Including Distribution
Trucks Parking Area)
10,000 sq. feet
Water Filtration Plant 15,000 sq. feet
Factory Canteen 1,500 sq. feet
Factory Masjid 2,000 sq. feet
Car Parking Lot 2,000 sq. feet
TOTAL Area (Minimal) 85,000 sq. feet

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Total Land Cost & Construction Cost
The area calculated is solely of the covered area, which is
why the selected site is much more than the Total required area
proposed by this analysis.
Total Land Cost
100,000 sq. feet 6,00,00,000
Covered Area Requirement 85,000 sq. feet
Time required for civil works 11 months
Construction Rates
Bottle Washing and Storage Plant 10,000
sq. feet @ Rs. 600 per feet
60,00,000
Actual Manufacturing Plant including
Quality Control 40,000 sq. feet @ Rs. 600
per feet
2,40,00,000
Finished Product Storage Room 1,500 sq.
feet @ Rs. 600 per feet
9,00,000
Management Office 3,000 sq. feet @ Rs.
600 per feet
18,00,000
Distribution Network (Including
DistributionTrucks Parking Area) 10,000
sq. feet @ Rs. 600 per feet
60,00,000
Water Filtration Plant 15,000 sq. feet @
Rs. 600 per feet
90,00,000
Factory Canteen 1500, sq. feet @ Rs. 500
per feet
7,50,000
Factory Masjid 2,000 sq. feet @ Rs. 500
per feet
10,00,000
Car Parking Lot 2,000 sq. feet @ Rs. 30
per feet
60,000
TOTAL Area (Minimal) 4,95,10,000

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Utilities Requirement
Utility Monthly Charges
Electricity 7,50,000
Water 20,000
Gas 4,00,000
Telephone 25,000
TOTAL COST 11,95,000
The expenditures quoted above have been estimated after
considering the actual expense of similar organizations that have been in
operation for a considerable duration of time.
Working Capital Requirement
Expenditures 2 Months Cost
Utilities 23,90,000
Salaries 9,86,000
Raw Materials (1 week
inventory only)
3,50,000
Other Expenditures (Fuel,
etc.)
74,000
TOTAL COST 38,00,000
To ensure the smooth running of a business for the first few
months, the above-mentioned costshould be well kept in mind.
The other expenditure head includes the diesel consumption and
the maintenance of the Distribution Trucks and other preliminary
expenditures that should not be overlooked.

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Marketing and Advertising Strategy
Marketing is a very important part of successful business
operations. Thus, it is essential to properly implement carefully
formulated strategies.
Product
ZEST will not only be according to the needs of the people but also
according to the quality and standards that are to be maintained by us in
our publicity campaigns. The services attached with the product would be
regular and sufficient supply. In addition, we will see that the product
reaches the customers in good order and condition.
Overall, the product’s main core benefits are that it is a premium
indulgent product and customers’ value propositions are constantly
changing, as depicted through launching of various brands.

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Pricing
ZEST will keep its prices at par with existing brands of the market.
We will exert in lowering the cost of the raw materiel by obtaining it
from the source markets as far as possible, so our prices will be more
affordable compared to others without any compromise on quality and
standard.
More over, we will try our best to reduce our fixed cost and all
these factors will have a favorable balance on the price structure. ZEST
does not intend to enter the market with a penetrating strategy, it rather
will enter as a brand that is of a good quality and fine standard.
The following prices are proposed for the Zest Products:
Zest, Zest White, Zest Orange, Zest Appachino
Zest Lem, Zest Ice and Zest Fruitpunch:
Junior 175 ml Rs. 10
Regular 250 ml Rs. 15
Can 330 ml Rs. 25
Youth500 ml Rs. 20
Family 1.5 ltr Rs. 50
Jumbo 2.5 ltr Rs. 70
Promotion
For a product like carbonated soft drink, the importance of
promotion in the marketing strategy is immense. Promotion will assume
the most important position in the marketing mix of ZEST. ZEST’s
promotion will be in the hands of Marketing Department, which will
work in coordination with Sales Department, Accounts and Finance
Department and Production department.

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Promotion will include activities directed towards increase in sales
in different areas such as sales promotion letters to restaurants and
marriage halls including existing multinational caterers like KFC and
McDonald and also new entrants like Pizzeria.
More and more food streets are opening in Karachi; such as that at
Powerhouse chowrangi, North Karachi. This provides an opportunity for
ZEST to cater for the needs of growing soft drink market.
ZEST labeled refrigerators will serve for merchandizing part of
promotion. ZEST posters will also be placed at points of sale.
Placement
Since our products will be new to the market and the tag they
would carry that of “ZEST” is not known, its important to build up
awareness of our products. The Distribution Network will directly
distribute the product to the retail shops by means of our delivery trucks.
This, apart from ensuring proper placement, will also provide chances of
shopkeepers and customer of interacting with our Sales Supervisors
regarding the product details.
Our Sales Supervisors will visit the 18 towns of Karachi on regular
basis on the directions of our Sales Manager who will ensure smooth and
consistent supply of Zest.
Thus, ZEST’s marketing team intends to blend with the
distribution team to carry out this difficult task of creating awareness and
recognition of ZEST as a well-reputed drink in the market.
The map on the following page provides an idea of the distribution
of the 18 towns of Karachi.

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Advertising
ZEST will approach both print and electronic media for advertising
its products. However, since ZEST’s current market is Karachi, more
emphasis will be placed on Karachi-bound advertising such as:
 Radio channels Fm 100, Fm 101, Fm103, Fm 89 and Fm 96
 Signboards
 Daily Newspapers
 Television
 & the Internet
The advertising will follow once our sales team has reached all
retailers and proposed supply is accounted for throughout Karachi. The
marketing personnel employed by ZEST will prepare the ZEST’s
advertising plan. The advertising budget will be based as a percentage of
sales.

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Projected Cash flows
Projected cash flows of ZEST for the first five years are as follows:
Total Revenue Generations
Years Projected Cash flows
1 Rs. 1,642,000,000
2 Rs. 2,053,000,000
3 Rs. 5,475,000,000
4 Rs. 9,125,000,000
5 Rs. 14,600,000,000
Assumptions
The estimated customers of the beverage industry in Karachi are 10
to 12 million out of which the potential customers (health conscious
customers to start with) of ZEST would be approximately 1 to 1.5
million. This would attribute to an approximate sale of Rs 1 to billion
yearly on the assumption that every second individual consumes a ZEST
product worth Rs. 15 daily. Due to the increase in the middle-age group
in the upcoming years, beverages market is bound to increase. Thus,
ZEST’s sales are expected to rise each year.
Year 1 Targeted Customer 1.5 m, 1 out of every 5 consumes ZEST

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Working Capital Management
Requirements
Cash 11,400,000
Inventory:
Zest Cola 75,0000
Zest White 50,000
Zest Orange 50,000
Zest Appachino 50,000
Zest Lem 35,000
Zest Ice 50,000
Zest Fruitpunch 35,000
Zest Minwa 25,000
Zest Voltage 10,000
The cash amount posted above has been derived keeping in mind the
expenses that ZEST might have to pay as well as the normal daily routine
expenditures.

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Equity-Debt Financing
The project requires about 175 million to be commenced. The funds
generation is illustrated in the table below:
Source Amount
EQUITY
Arsalan Aftab Rs. 25,000,000
Faisal Arshad Rs. 25,000,000
Umair Farooqi Rs. 30,000,000
Zeeshan Qayyum Rs. 15,000,000
Naresh Kumar Rs. 10,000,000
DEBT
26% Debentures Rs. 20,000,000
22% Debentures Rs. 50,000,000
Both the Debentures are to be redeemed after 10 years under
normal circumstances.

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Projected Cash Flows
Year 1 Year 2 Year 3 Year 4 Year 5
Fixed Assets
(Cost)
176,000,000 176,000,000 176,000,000 176,000,000 176,000,000
Working
Capital
275,584,510 376,552,318 294,130,880 376,842,820 361,722,220
Revenue 1,642,000,000 2,053,000,000 5,475,000,000 9,125,000,000 14,600,000,000
COGS (1,082,548,815) (1,365,265,518) (3,625,459,621) (5,750,017,380) (9,195,288,234)
Depreciation (133,520) (133,520) (133,520) (133,520) (133,520)
Selling &
Admin
Expenses
(120,000,000) (128,000,000) (208,000,000) (288,000,000) (416,000,000)
Interest
Expense
(16,200,000) (16,200,000) (16,200,000) (16,200,000) (16,200,000)
Profit before
Tax
423,117,665 543,400,962 1,625,206,859 3,070,649,100 4,972,378,246
Tax (21%) (88,854,710) (114,114,202) (341,293,440) (644,836,311) (1,044,199,432)
Net Income 334,262,955 429,286,760 1,283,913,419 2,425,812,789 3,928,178,814
Terminal In Flow
Recovery
from
Working
Capital
361,722,220
Recovery
from Sale
(Fixed
Assets)
29,617,169
Cash Flows 334,262,955 429,286,760 1,283,913,419 2,425,812,789 3,928,178,814
Depreciation
Expense
8,423,520 7,719,520 7,156,320 6,705,760 6,345,310
Cash Flows 342,686,475 437,006,280 1,291,069,739 2,432,518,549 4,325,863,513
Total Terminal In flow 4,315,863,513

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Additional Information and Assumptions
Fixed Assets have been recorded under historical cost methods,
thus, shown in Balance sheet at cost.
Working Capital has been posted after the following calculations:
Yr1 Yr2 Yr3 Yr4 Yr5
Inventory (End) 175,584,510 226,552,318 69,130,880 126,842,820 86,722,220
Cash Requirements 100,000,000 150,000,000 225,000,000 250,000,000 275,000,000
The Sales revenue and Cost of Goods Sold had already been calculated
earlier and is posted as it is.
Depreciation mentioned is related to the Administration and Selling
(example furniture and office equipment) and has been taken from the
“Depreciation Schedule (Office Equipment)”.
Selling and Administration Expenses are calculated as follows:
Yr1 Yr2 Yr3 Yr4 Yr5
Adv. On Cable TV 80,000,000 80,000,000 160,000,000 240,000,000 320,000,000
Adv. On FM 32,000,000 32,000,000 32,000,000 32,000,000 64,000,000
Adv. on Newspaper 8,000,000 16,000,000 16,000,000 16,000,000 32,000,000
In the first 2 years, advertisement was only posted on 2 channels, in the
3rd Year in 3 channels, and 4 channels in the fourth year all showing ZEST
advertisements thrice a week.
The increase in the cost of advertising through FM is also because of the
increase in the frequency of advertisements being done.
Advertisements on newspaper is also being done, the major increase in
the last year is due to the posting of advertisements in Sunday Dawn too.

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The interest expense was calculated as per the rate mentioned on Debentures:
22% Debentures 50,000,000 = 50,000,000 x 0.22 = 11,000,000
26% Debentures 20,000,000 = 20,000,000 x 0.26 = 5,200,000
Total Interest 16,200,000
Recovery from sale of Fixed Assets is an amount driven from the book
value summation of the Fixed Assets.
The depreciation amount being added back is the summation of
depreciation calculated earlier and the depreciation of office equipments.
The repayment of loan is being done at the end of 5th year because of the
liquidation of the business, otherwise the Debentures payable were after 10
years.

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Weighted Average
Cost of Capital
WACC = Cost of Equity (E/A) + Cost of Debt (D/A) (1-Tax)
Cost of Debt:
Debentures Rs. 20,000,000 (26%)
Debentures Rs. 50,000,000 (22%)
As the Debentures bear different interest rates as well as different
amounts, the Costof Debt must be calculated as under:
20,000,000/70,000,000 x 26 = 7.4285
50,000,000/70,000,000 x 22 = 15.7142
TotalCostof Debt (Average) = 23.142 %
Cost of Equity:
Costof Equity is considered to be the “Costof Debt” + “Risk
Premium”, where the “Risk Premium” is considered 7%.
Costof Equity will be =23.142% + 7%
TotalCost of Equity = 30.142% or30%

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WeightedAverage Costof Capital
WACC = [(105,000,000/175,000,000)](30%)
+[(70,000,000/175,000,000)](22%)(79%)
= 0.18 + 0.06952
= 0.24952
WACC = 24.952%
Net PresentValue
NPV = PV inflow – PV outflow
Year Cash Inflows PV Cash Inflows
1 330,196,305 265,022,076.06
2 409,125,652 263,558,116.80
3 1,277,817,698 660,691,054.75
4 2,411,952,215 1,000,940,057.50
5 4,310,297,180 1,435,675,957.44
Total 8,739,389,050 3,625,887,263
NPV = 3,625,887,263 – 175,000,000
NPV = Rs 3,450,887,262.55

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IRR:
IRR is the rate where Net Present Value becomes “0”. Thus, it’s
the rate where the:-
PV inflow = PV outflow
175,000,000 = 330,196,305 + 409,125,652 + 1,277,817,698 + 2,411,952,215 + 4,310,297,180
(1+i) (1+i)2 (1+i)3 (1+i)4 (1+i)5
The rate “I” calculated is:
IRR= 257%
Pay Back Period
0 1 2 3 4 5
(175,000,000) 330,196,305 409,125,652 1,277,817,698 2,411,952,215 4,310,297,180
(155,196,305)
PayBack Period
= Years Before fill recovery+ Unrecoveredamount of Beg of the year
Cashflow of the year
= 0 + 175,000,000
330,196,305
= 0 + 0.52998776
Pay Back Period = 0.53 years

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DiscountedPay Back Period
0 1 2 3 4 5
(175,000,000) 265022076.1 263558116.8 660691054.8 1000940058 1435675957
(90,022,076.1)
DiscountedPay Back Period
= Years before fill recovery+ Unrecoveredamount of Beg of the year
Cashflow of the year
= 0 + 175,000,000
265,022,076.1
DiscountedPay Back Period = 0.6603 years

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Sensitivity Analysis
of Project
Along with new opportunities, organizations are constantly facing new
challenges in the market. The success of an organization is in its capability of
handling such challenges and changing accordingly.
It is important to check whether a project is stable enough to bear
economic, political as well as social changes and the influences that these
changes bring about. To do so, Sensitivity Analysis is carried out in which one
variable is disturbed to examine the impact of the change on the overall
project.
There are many variables that can be changed to check the sensitivity
and stability of the project. We are considering only two variables for our
Project “ZEST”.
Variables Disturbed:
1) Sales Volume (being decreased by 20%), and
2) Cost of Labour (being increased by 25%).

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Sales Volume (decreased by 20%)
The sales in units is decreased by 20% to check
the stability and margin of safety of the project.
Accordingly, factors directly related to Sales like
COGS also change. Thus, COGS is reduced due to the
reduction in the variable costs, but fixed costs remain
same.
This impact enables an Analyst to foresee the
problems that may arises if certain disturbances occur
in the project, allowing precautionary solutions to be
drafted out.

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Cost of Labour (increased by 25%)
The labour cost is increased by 25% to see what
impact the increased cost would bring about in revenue
generations. The increase in Labour Cost only
increases the Manufacturing Cost and the COGS.
This impact enables an Analyst to foresee the
problems that may arises if certain disturbances occur
in the project, allowing precautionary solutions to be
drafted out.

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Fixed Assets
(Cost) 176,000,000 176,000,000 176,000,000 176,000,000 176,000,000
Working
Capital 275,584,510 376,552,318 294,130,880 376,842,820 361,722,220
Revenue 1,313,600,000 1,642,400,000 4,380,000,000 7,300,000,000 11,680,000,000
COGS (834,337,736) (1,095,721,298) (2,945,337,555) (4,593,308,227) (7,380,122,751)
Depreciation (133,520) (133,520) (133,520) (133,520) (133,520)
Selling &
Admin
Expenses (120,000,000) (128,000,000) (208,000,000) (288,000,000) (416,000,000)
Interest
Expense (16,200,000) (16,200,000) (16,200,000) (16,200,000) (16,200,000)
Profit before
Tax 342,928,744 402,345,182 1,210,328,925 2,402,358,253 3,867,543,729
Tax (21%) (89,521,880) (110,690,238) (341,758,088) (643,356,653) (1,042,719,773)
Net Income 336,772,785 416,406,132 1,285,661,378 2,420,246,455 3,922,612,481
Terminal In Flow
Recovery
from
Working
Capital
361,722,220
Recovery
from Sale
(Fixed
Assets)
29,617,169
Net Income 336,772,785 416,406,132 1,285,661,378 2,420,246,455 3,922,612,481
Depreciation
Expense
8,423,520 7,719,520 7,156,320 6,705,760 6,345,310
Cash Flows 345,196,305 424,125,652 1,292,817,698 2,426,952,215 4,320,297,180
Repayment
of Loans
(15,000,000) (15,000,000) (15,000,000) (15,000,000) (10,000,000)

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Fixed Assets
(Cost)
176,000,000 176,000,000 176,000,000 176,000,000 176,000,000
Working
Capital
275,584,510 376,552,318 294,130,880 376,842,820 361,722,220
Revenue 1,642,000,000 2,053,000,000 5,475,000,000 9,125,000,000 14,600,000,000
COGS (1,082,901,815) (1,365,618,518) (3,625,812,621) (5,750,370,380) (9,195,641,234)
Depreciation (133,520) (133,520) (133,520) (133,520) (133,520)
Selling &
Admin
Expenses
(120,000,000) (128,000,000) (208,000,000) (288,000,000) (416,000,000)
Interest
Expense
(16,200,000) (16,200,000) (16,200,000) (16,200,000) (16,200,000)
Profit before
Tax
422,764,665 543,047,962 1,624,853,859 3,070,296,100 4,972,025,246
Tax (21%) (88,780,580) (114,114,202) (341,293,440) (644,836,311) (1,044,199,432)
Net Income 333,984,085 428,933,760 1,283,560,419 2,425,459,789 3,927,825,814
Terminal In Flow
Recovery
from
Working
Capital
361,722,220
Recovery
from Sale
(Fixed
Assets)
29,617,169
Net Income 333,984,085 428,933,760 1,283,560,419 2,425,459,789 3,927,825,814
Depreciation
Expense
8,423,520 7,719,520 7,156,320 6,705,760 6,345,310
Cash Flows 342,407,605 436,653,280 1,290,716,739 2,432,165,549 4,325,510,513
Repayment
of Loans
(15,000,000) (15,000,000) (15,000,000) (15,000,000) (10,000,000)

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Scenario Analysis
of Project
The Scenario is based on an optimistic as well as a pessimistic
approach. It provides an environment within which the stability and
flexibility of the project can be measured and evaluated.
The first Scenario is based on Inflation (of about 10%) which
causes the general rise in prices of all things.
The Second one is based on increased competition.

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Fixed Assets
(Cost)
176,000,000 176,000,000 176,000,000 176,000,000 176,000,000
Working
Capital
275,584,510 376,552,318 294,130,880 376,842,820 361,722,220
Revenue 1,806,200,000 2,258,300,000 6,022,500,000 10,037,500,000 16,060,000,000
COGS (1,190,803,697) (1,501,792,070) (3,988,005,583) (6,325,019,118) (10,114,817,057)
Depreciation (133,520) (133,520) (133,520) (133,520) (133,520)
Selling &
Admin
Expenses
(132,000,000) (140,800,000) (228,800,000) (316,800,000) (457,600,000)
Interest
Expense
(16,200,000) (16,200,000) (16,200,000) (16,200,000) (16,200,000)
Profit before
Tax
467,062,784 599,374,410 1,789,360,897 3,379,347,362 5,471,249,423
Tax (21%) (98,083,185) (114,114,202) (341,293,440) (644,836,311) (1,044,199,432)
Net Income 368,979,599 485,260,208 1,448,067,457 2,734,511,051 4,427,049,991
Terminal In Flow
Recovery
from
Working
Capital
361,722,220
Recovery
from Sale
(Fixed
Assets)
29,617,169
Cash Flows 368,979,599 485,260,208 1,448,067,457 2,734,511,051 4,427,049,991
Depreciation
Expense
8,423,520 7,719,520 7,156,320 6,705,760 6,345,310
Cash Flows 377,403,119 492,979,728 1,455,223,777 2,741,216,811 4,824,734,690

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Fixed Assets
(Cost)
176,000,000 176,000,000 176,000,000 176,000,000 176,000,000
Working
Capital
275,584,510 376,552,318 294,130,880 376,842,820 361,722,220
Revenue 1,436,750,000 1,796,375,000 4,790,625,000 7,984,375,000 12,775,000,000
COGS (866,039,052) (1,092,212,414) (2,900,367,697) (4,600,013,904) (7,356,230,587)
Depreciation (133,520) (133,520) (133,520) (133,520) (133,520)
Selling &
Admin
Expenses
(150,000,000) (160,000,000) (260,000,000) (360,000,000) (520,000,000)
Interest
Expense
(16,200,000) (16,200,000) (16,200,000) (16,200,000) (16,200,000)
Profit before
Tax
404,377,428 527,829,066 1,613,923,783 3,008,027,576 4,882,435,893
Tax (21%) (84,919,260) (114,114,202) (341,293,440) (644,836,311) (1,044,199,432)
Net Income 319,458,168 413,714,864 1,272,630,343 2,363,191,265 3,838,236,461
176,000,000 176,000,000 176,000,000 176,000,000 176,000,000
Terminal In Flow
Recovery
from
Working
Capital
361,722,220
Recovery
from Sale
(Fixed
Assets)
29,617,169
Cash Flows 319,458,168 413,714,864 1,272,630,343 2,363,191,265 3,838,236,461
Depreciation
Expense
8,423,520 7,719,520 7,156,320 6,705,760 6,345,310
Cash Flows 327,881,688 421,434,384 1,279,786,663 2,369,897,025 4,235,921,160

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