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Assignment on Bajaj Auto descion

Submitted to: Hariprasad Soni


Submitted by: Abhisek Sarkar( 16021141002)
In this question it is given in India company can earn margin of Rs 2000 and sell
Quantity 5000. So Company expects to earn from tax margin of Rs (2000*5000)= Rs
10000000.
Then Bajaj is given an option to buy Plant from govt. of Bangladesh for BDT 50 Cr with
a option:
(a)Loan of BDT 10 crores at concessional rate of 10% per annum, and it is to be repaid in
five equal installments of BDT 2 crores each.
(b)Funds of BDT 200 Million locked up in Bangladesh on account of export.
(c) Remaining BDT 20 crores will have to be funded through its accumulated earnings
having cost of capital of 10%.
If Bajaj invest in the plant in Bangladesh then company will get a benefit of selling 7700
quantity with a margin of Rs.8800. Both the sales and inflation rate is expected to grow
by 10% each.
1st year= BDT (7700*8800) = BDT 67760000
2nd year= BDT (8470*9680) = BDT 81989600
3rd year= BDT (9317*10648) = BDT 99207416
4th year= BDT (10249*11713) = BDT 120046537
5th Year= BDT (11274*12884) = BDT 145254216
Royalty payment for auto is 440 BDT as is expected to inflate by 5% each year with a tax
rate of 35% .
1st Year= BDT (440*7700) *0.65 = BDT 2202200
2nd Year= BDT (462*8470) * 0.65= BDT 2543541
3rd Year= BDT (485* 9317) *.65= BDT 2937184.25
4th Year= BDT (509* 10249) *0.65= BDT 3390881.65
5th Year= BDT (535*11274) *0.65 = BDT 3920533.5
As the plant will not have the capability to produce quality engines it will have to be
supplied by the Indian facility. Contribution per engine is Rs 1500and is expected to
inflate 5% every year. As Current exchange rate : 1 INR = 1.5 BDT.
1st Year = INR (1500* 7700) = INR 11550000 P.V = INR (11550000/1.1)=10500000
2nd Year= INR (1575*8470) = INR 13340250 P.V = INR (13340250/1.1^2)=11025000
3rd Year= INR (1653.75*9317) =INR 15407989 P.V = INR(15407989 /1.1^3)=11576250
4th Year= INR (1736.43*10249) =INR 17796671.07 P.V =
INR(17796671.07/1.1^4)=12155365.8
9.345th Year= INR (1823.259*11274) = INR 2055542197 P.V =
INR(2055542197/1.1^5)=12763299

Cash Flow:
1st year = BDT (67760000+2202200-20000000)
= BDT 45557800/1.5 = INR 30371867
2nd Year= BDT (81989600+2543541-20000000) = BDT 64533141/1.575
=INR 40973422.86
3rd Year= BDT (99207416+2937184.25-20000000)
= BDT 82144600.25/1.65375 =INR 49671715
4th Year= BDT (120046537+3390881.65-20000000)
= BDT 103437418.7/1.7364 =INR 59570040.72
5th Year= BDT (145254216+3920533.5-20000000)
= BDT 129174749.5/1.823 =INR 70858337.63

Present Value:
1st Year = INR (30371867/1.1) = INR 27610788.18

2nd Year= INR (40973422.86/1.1^2) = INR 33862332.94

3rd Year= INR (49671715/1.1^3) = INR 37319094.67

4th Year= INR (59570040.72/ 1.1^4) = INR 40687139.35

5th Year= INR (70858337.63/1.1^5) = INR 43997452.75


Inflow of Cash:
Plant = INR 183476807
Engine=INR 58019914.8
Total Inflow: 241496721.8

Outflow of Cash:
Earnings =INR(20000000/1.5)=13333333.33
Invst. = INR(20000000/1.5)*.65=8666667
Plant if set in India =INR 50000000
Total outflow =INR 72000000
Loss ( 169496721.8)

So, it is not advisible to set plant in Bangladesh.