Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance International and Trade - II - Question Paper

T = Domestic or foreign tax rate, whichever is higher.

Dt = Depreciation in home currency terms at time ‘t’

B0 = Increased borrowing capacity due to the project

CL0 = Amount of concessional loan received = Rs./Can$ 65 crore

r = Domestic interest rate

Rt = Repayment of concessional loan

ke = All equity discount rate = 10%

kd = Discount rate for depreciation allowance = 11.5%

Kb = Discount rate for tax savings from incremental borrowing capacity = 7%

Kc = Discount rate for savings due to concessionary loan = 15%.

Loss / Profit from export sales

Year
1
2
3
4
5
6

Sales (Rs./Can$)
32.40
34.99
37.79
40.81
44.08
47.61

Profit (Rs./Can$)
4.86
5.25
5.67
6.12
6.61
7.14

Profit (Rs.)
182.35
193.36
204.97
217.14
230.16
244.05




Depreciation tax shield

Year
1
2
3
4
5
6

Depreciation (Rs./Can$)
60.00
60.00
60.00
60.00
60.00
60.00

Depreciation in Rupee
2251.20
2209.80
2169.00
2128.80
2089.20
2050.80

Tax shield
787.92
773.43
759.15
745.08
731.22
717.78


Cash flows from operation (Net of lost sales)

Year
1
2
3
4
5
6

Sales (before adjusting inflation)
150.00
161.54
184.62
207.69
207.69
207.9

Sales (after adjusting inflation)
162.00
188.42
232.56
282.56
305.17
329.58

Contribution
48.6
56.53
69.77
84.77
91.55
98.87

Fixed cost
43.2
46.66
50.39
54.42
58.77
63.47

PBT
5.40
9.87
19.38
30.35
32.78
35.40

Tax @ 35%
1.89
3.45
6.78
10.62
11.47
12.39

PAT
3.51
6.42
12.60
19.73
21.31
23.01

Terminal cash flow

(360 x 8%+156)
–
–
–
–
–
184.80

Cash flow (PAT + TC)
3.51
6.42
12.60
19.73
21.31
207.81

Exchange rate (Rs/CAD $)
37.52
36.83
36.15
35.48
34.82
34.18

Cash Flow (Rs.)
131.70

Earning:   Approval pending.