CASE STUDY: ABC GARMENTS LTD.

1.
2.
3.
4.

Type of Project:
Expansion
Date of commencement of operations:
April 1, 2003
Market & selling arrangements:
Adequate
Technical Arrangements:
No expected difficulties in procuring
resources.
5. Cost of the project:
(Rs. Lakhs)
4.00
Land
56.00
Building & Site development
Machinery
46.00
I. Imported
6.00
Duties
1.00
Handling charges
26.00
II. Indigenous
3.00
Duties
1.00
Handling charges
2.00
Preliminary expenses
18.00
Preoperative expenses
15.00
Provision for contingencies
22.12
Margin money for WC
Preoperative expenses and provision for contingencies are to be divided in
fixed assets in their proportions excluding land.
6. Means of finance
Share Capital
Promoters
90.12
Subsidy
10.00
FI Term Loan
100.00
7. Assumptions for preparing financial statements
The construction will last for 6 months starting from October 1, 2002.
The production of the project will be for 300 days per year on a 2-shift
basis.
The expected capacity utilization will be 50% in 1st year, 60% in 2nd and
80% in 3rd and beyond.
The project will have three outputs as trousers, shirts and kids wear.
The total machines for trousers are 40 and rate of production will be 5
units per machine per shift. For shirts: 30 & 6.25 and for kids wear: 30 &
7.5 at 100% capacity utilization.
Rejection is expected to be 5% for each product.

 Average sales realization per unit for trousers, shirts and kids wear will
be Rs. 250, Rs. 190 & Rs. 130. The rejection would yield 50% of sales
realization per unit, except shirts for it would be Rs. 85 per unit..
The requirement of raw material & consumables per unit is as follows
Particulars
Cloth (mts)
Rate (Rs./mt)
Consumables
1.2
75
10
Trousers
1.8
40
3
Shirt
1
45
5
Kids wear
Wages during the 3rd year are expected to be:
Category
No. of workers
A
225
B
100
C
16
D
60
E
1
F
3
G
1
H
1
I
4

Annual wages/worker
24,000
18,000
18,000
14,400
90,000
50,000
1,00,000
1,00,000
36,000

Salaries per year are expected to be:

Category
No. of employees
A
1
B
1
C
1
D
5
E
5
F
5
G
5
H
12
I
10

Ann. Salary/employee
60,000
1,00,000
1,50,000
36,000
36,000
36,000
36,000
18,000
14,400

The workers and employees will be given 33% of their earnings as other
perks. The wages and salaries are expected to grow at 5% of third years
amount after 3rd year.
The total units of power utilized/day in both the shifts will be 3000 units
at full capacity. The average cost/unit will be Rs. 2.25

 Other utilities are expected to cost Rs. 3 lakhs in 1st year and Rs. 4 lakhs
from 2nd year onwards.
Packaging cost is expected to be 1% of total sales.
Repairs and maintenance will be 2%, 2.5% and 3.5% of net block in 1st,
2nd and 3rd year.
Administrative expenses are expected to be Rs. 1 lakh, Rs. 1.5 lakhs &
Rs.2 lakhs per month respectively in 1st, 2nd & 3rd year.
For the rest of the years the repairs & maintenance and administrative
expenses are expected to be same as 3rd years amount.
A contingency of 5% is to be provided for operating working expenses.
Selling expenses would be 5% of sales value.
The working capital requirements are assessed as:
Type of CA
Holding Norms
Bank Finance
RM & consumables
1.5 months
0.75
Packaging
1.5 months
0.75
WIP
2 days
0.75
Finished goods
15 days
0.75
Debtors
3 days
0.75
Functioning expenses
1 month
--- Interest rates are expected to be as:
STBB
18%
FI Term Loan
15%
Repayment of term loan from April 1, 2005 onwards in 20 equal
quarterly instalments.
Depreciation to be charged as follows:
For profitability estimated: Blding @ 3% and P&M @ 11% under
SLM
For taxation purpose: Blding @ 10% and P&M @ 25% under WDV
For taxation purpose apart from carry forward losses, 30% of balance
profit (net of losses carried forward) would be exempted from taxation.
The corporate tax rate is 50% plus 2% surcharge.
It is proposed to pay dividend at 10% in 1st year and 15% from 2nd year
onwards.
Prepare the pro forma financial statements and is the project viable?