Q4 - Report.docx - CONTENTS 1.0 INTRODUCTION.1 2.0 PROBLEM...

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CONTENTS 1.0 INTRODUCTION .......................................................................................................................... 1 2.0 PROBLEM STATEMENT ............................................................................................................ 1 3.0 COST CALCULATION ANALYSIS ........................................................................................... 2 3.1 Fixed Cost ................................................................................................................................ 2 3.2 Financial Cost ......................................................................................................................... 4 3.3 Variable Cost ........................................................................................................................... 5 3.4 Cost Volume Profit (CVP Analysis) .................................................................................... 6 3.5 Break Even Analysis .............................................................................................................. 7 3.6 Target Profit Analysis ............................................................................................................ 9 3.7 Return On Equity (ROE) ........................................................................................................ 9 3.8 Return On Investment ......................................................................................................... 10 3.9 Net Income and Cash Flow ................................................................................................ 10 4.0 DISCUSSION .............................................................................................................................. 12 5.0 RECOMMENDATIONS ............................................................................................................. 14 6.0 CONCLUSION ............................................................................................................................ 15 7.0 REFERENCES ........................................................................................................................... 16
1.0 INTRODUCTION Rajiv Sharma has been researching about the market in order to start his own project in a fly ash manufacturing unit. Based on the research carried out by himself, he believes that there is a huge prospect in this project. Alongside him was his long- time friend, Alok Gupta who was also keen into venturing into the fly ash manufacturing but was having hesitations regarding the probability of this project. With years of experience in the construction industry, Rajiv Sharma has vast knowledge and saw huge potential for the demand of fly ash brocks in construction and furthermore, the fly ash can be used in the manufacturing process of ceramic tiles, bricks, building materials and etc. He explained the overall picture in manufacturing fly ash bricks whereby it is the debris obtained prior to coal combustion. In order to produce fly ash bricks, fly ash, sand, gysum and lime is required. Having said that, India’s main source for power generation comes from coal-fired power plants. An approximate of 70% – 80% of fly ash is produced prior to firing the coal to generate electricity and this ash has to be disposed. With regards to the research done by Rajiv Sharma, India would require at least 1,000 sqkm of land to dispose the fly ash by the year 2015. The National Thermal Power Corporation (NTPC) of India came up with a technology whereby they could substitute burnt clay bricks with fly ash to be used in building walls. This innovation reduces the pollution caused to the environment and the cost in using clay bricks for construction can be avoided. Since the cost of fly ash is cheaper than clay bricks, it will attract customers to purchase them. Another advantage in using fly ash bricks is that it is much lighter. This supports Rajiv Sharma’s verdict that this project will be a great success in the long run. The manufacturing process of the fly ash bricks requires a certain ratio as shown below: Fly Ash : 60% - 80% Sand : 10% Gypsum : 10% Lime : 10% - 20%
2.0 PROBLEM STATEMENT Although Rajiv Sharma has vast knowledge and has thoroughly explained the basis of this fly ash brick project, his potential partner, Alok Gupta still has uncertainties in venturing in this project. One of the main reason’s Alok Gupta has uncertainties is due to the high capital investment required to start up this project. Sharma explained to Alok that the initial investment required would be about Rs8 million in fixed assets whereby this amount will be used for the transport vehicles, machinery, a manufacturing plant and etc. He also added that building modifications would be approximately Rs1.40 million and water supply will fall under the miscellaneous

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