TOMATO CANNING
The project is a new enterprise to produce and export a maximum of 2600 tons of canned tomato at a price
of US$ 100 per ton. The project financial structure involves a single class of equity shares and a loan
provided by a development bank.
Data concerning all aspects of the project including currency exchange rates, initial fixed investment,
production costs, sales programme, working capital requirements and financial conditions are provided in the
appropriate sections below.
1. Project Identification
Project title: Tomato canning
Project description Project of ____ (sponsor) to produce 2600 tons canned tomato per annum for export to
____. Located at ______.
2. Planning Horizon
The planning horizon comprises two years of construction and 5 years of production. Planning during
construcion is yearly.
3. Products
The planned product is canned tomatoes, all of which is to be exported. The maximum sales are expected to
be 2600 tons per annum with an FOB price of US$ 100 per ton.
4. Currencies
The local currency is THOUSAND RUPEES . The export currency is THOUSAND US DOLLAR with an official
exchange rate 5 Rupees per US$. All reports are expressed in the accounting currency, THOUSAND RUPEES .
5. Discounting
The opportunity cost of capital for the total investment and for the equity is 12 %.
6. Fixed Investment Cost
Fixed investment costs are shown in the following table with depreciation conditions, scrap value and the investment in each of the
two years of construction.
MARKET CURRENCY NO. YEARS SCRAP- COSTS, PROJECT YEAR
(thousands) DEPRECIATION a
VALUE a
1 2
Land Local Rupees - 100 200
Site development Local Rupees 5 10 150 50
Civil works, buildings Local Rupees 20 50 100 300
Machinery Foreign US$ 10 10 120 40
Pre-prod. expenditure Foreign US$ 3 0 2.5 7.5
Pre-prod. expenditure Local Rupees 3 0 25 75
Initial working capital 1
Cans Foreign US$ -- -- 2.5
Tomato Local Rupees -- -- 33.5
Salt Local Rupees -- -- 0.8
Table: Fixed investment costs
7. Production costs
All production costs are entered as STANDARD PRODUCTION COSTS . Initial stocks of raw materials and factory
supplies which are purchased in the second construction year are entered as ANNUAL ADJUSTMENTS (see
below).
a
Depreciation type: linear to scrap, all items.
1
First year material requirements
The production costs at maximum sales level of 2600 tons and the percentage variable is shown in the
following table. Foreign values are expressed in Thousand US$ and local values in Thousand Rs.
ANNUAL COST (thousands)
ITEM FOREIGN LOCAL VARIABLE
(US$) (RS) (%)
Raw materials
Tomato 200 100
Salt 20 100
Cans 20 100
Utilities 20 100
Repair & maintenance 30 50
Labour 50 20
Factory overhead 80 0
Admin. Overhead 60 0
Marketing 40 50
Table: Production costs
8. Sales Programme
The proposed sales programme is shown in the following table. All production is exported and is paid in US$.
PROJECT YEAR 3 4 5 6 7
(Two years construction)
Percentage capacity 50 75 100 100 100
Sales level (tons) 1,300 1,950 2,600 2,600 2,600
Table: Sales programme
9. Working Capital
Working capital requirements during the production phase are defined in terms of MINIMUM DAYS COVERAGE
(Mdc) as shown in the following table. The COEFFICIENT OF TURNOVER (Coto) is the number of rotations per
annum (360/DAYS COVERAGE ).
ITEM DAYS COVERAGE (MDC)
Inventory of material items
Tomato (production credit to farmers) 120
Salt 30
Cans 90
Utilities 30
Work in progress 2
Finished product 30
Accounts receivable 30
Cash-in-hand (local and foreign) 30
Accounts payable 0
Table: Working capital requirements
10.FINANCE PLAN AND DATA ENTRY
The financial conditions for the project are as follows:
Debt/equity
By agreement of the parties, the proportions of debt and equity are to be 60/40, respec tively, of the initial
investment in each of the two years of construction.
Loan
The development bank provides 60% of the initial investment with a loan at an interest rate of 12% to be
repaid in three equal installments on 31/12 of years 3-5. Each year's requirements are covered by two
disbursements on 1/1 and 1/7 of each year. Interest during the construction phase is to be capitalized.
Short-term loan
If necessary, short-term financing is available to cover operating deficits at an interest rate of 20%.
Opportunity cost of capital
The cost of capital is 12% for both the total investment and for equity. For calculation of the MIRR, the
reinvestment rate is 12% and the borrowing rate is 8%. The equity shares have a time horizon (for Short NPV
calculation of 5 years).
Corporate taxes
Profits are taxed at a flat 20% of net income. A two-year tax holiday has been granted to the project as an
incentive.
Full convertibility is assumed so that all loans can be expressed in local currency (Thousand Rs.).
