Economic and financial evaluation of the proposed expansion of the textile San Cristobal S. ..

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* Presentation

* Introduction

* Objectives

* Concept and Business Assessment

* Conclusion

* Annexes

* Bibliography

PRESENTATION

Investment decisions are one of the biggest financial decisions any entrepreneur or financier takes, but all decisions relating to business investments range from the analysis of investments in working capital, such as cash, banks, accounts receivable , inventories and investments in capital represented in fixed assets such as buildings, land, machinery, technology etc..

To make the right decisions the financier must take into account factors such as evaluation and analysis of the definition of the criteria for analysis, the cash flows associated with the investments, the investment risk and the required rate of return.

In most such organizations or private companies, financial decisions are focused and have a clear objective, “wealth maximization” by utilities, this fact in the present conditions, must refocus on a criterion of “maximizing wealth “and creating” business value “.

Against this into investment decisions are resources allocated and results obtained from them, the costs and benefits. The criteria for analyzing investments make treatment of the benefits and costs of an investment proposal, these benefits and costs in most cases do not occur instantaneously, but that can be generated for shorter or longer periods.

To find the costs and benefits must clearly define the criteria that will be used for evaluation against the investment proposal. To do this work will indicate one of many ways to evaluate a project’s investment.

INTRODUCTION

All businesses need a greater or lesser extent, to address investment on which is to base the business operations. By analyzing the viability of an investment can be understood by the fact question whether the revenue from our business plan will be sufficient to meet its commitments to agents who put money to finance (shareholders and third party providers of financing) and to what extent the project will be profitable.

The evaluation to analyze investment projects are typically based on the analysis of income and expenses related to the project, taking into account where they are actually received and delivered, ie cash flows (cash flows) obtained in this project-to determine whether they are sufficient to support the annual debt service (principal + interest) and adequately remunerate the capital contributed by the partners.

To assess the feasibility of an investment project the indicators used by the experts are: net present value, internal rate of return, benefit cost ratio, and payback period.

These indicators provide a measure evaluation allows more or less adjusted profitability you could achieve with the investment project before starting it. They also allow comparison with other similar projects, and, if necessary, make the changes to the project that may be appropriate to make it more profitable.

Therefore this work is based on the evaluation from the business point of view using the above indicators for better decision making. Although it is appropriate to say that a better analysis can also be a social assessment, a sensitivity analysis or other.

OBJECTIVES

* The aim of the evaluation is to obtain judgments elements necessary for making decisions whether to execute the project, regarding the conditions offered by the project.

* Aim

* Specific objective

* Manage the business evaluation results for decision-making on the implementation of the investor or the investment project.

* Manage the indicators used to provide information necessary for investment analysis.

* Apply economic evaluation, financial evaluation and assessment of the shareholder, needed to determine the profitability of the project.

* Identify the elements of the Profit and Loss, in order to make the projected profits of the project.

* Managing cash flow elements to project cash receipts and cash disbursements, which always generate higher balances to zero.

* Identify the components that comprise the Statement of Sources and Uses of Funds, in order to project positive cash balances to ensure the operation of the project.

Economic and Financial Evaluation PROJECT OF ENLARGEMENT

SAN CRISTOBAL TEXTILE SA

CONCEPT

The project assessment is the process of measuring its value, based on a comparison of benefits and costs generated or investments required, from a point of view.

There are two views or assessments of a project, business assessment and social assessment.

BUSINESS ASSESSMENT

The private enterprise assessment or evaluation, on the point of view of the company and its private investors who made contributions as resource inputs needed to carry out the project.

This is usually done from three points of view: economic evaluation, financial evaluation, and assessment of the shareholder, by using the projected cash flow.

The indicators used are: net present value, internal rate of return, benefit cost ratio, and payback period.

Net Present Value (NPV)

Is to upgrade to the present value of future cash flows to be generated by the project, discounted at a certain interest rate (“discount rate”), and compared with the original amount of the investment. As discount rate typically used the opportunity cost of capital (COK) of the company making the investment.

NPV = – A + [FC1 / (1 + r) ^ 1] + [FC2 / (1 + r) ^ 2] + … + [FCN / (1 + r) ^ n]

Where:

A: initial outlay

FC: cash flows

n: number of years (1,2, …, n)

r: interest rate (“discount rate”)

1 / (1 + r) ^ n: discount factor for the interest rate and the number of years

If NPV> 0: The project is profitable.

If NPV = 0: The project is delayed.

If NPV

When choosing between two projects, we will choose the one with the highest NPV.

This method is considered the most appropriate for analyzing the profitability of a project.

Example:

INTERNAL RATE OF RETURN (IRR)

It is defined as the discount rate or interest rate that equates the NPV to zero, ie scores are made with different discount rates until NPV streak is close or equal to zero and we obtain a positive and a negative NPV.

If IRR> discount rate (r): The project is acceptable.

If IRR = r: The project is delayed.

If IRR

This method is more difficult and less reliable than the last, so often used as complementary to the VAN.

Example:

COST BENEFIT RATIO (BC)

Data obtained with NPV, when dividing the sum of all profits from the sum of the costs.

If BC> 1: The project is acceptable.

If BC = or close to 1: The project is delayed.

If BC

Example:

Recovery period (PR)

It is defined as the period it takes to recover the initial investment through cash flows generated by the project. The investment is recovered in the year in which the cumulative cash flows exceed the initial investment.

Scores were performed by using the values of NPV to obtain a negative and a positive.

It is not considered an appropriate method if taken as the sole criterion. But, in the same way as the above method, can be used complementarily with the VAN.

Example:

ECONOMIC EVALUATION

Economic evaluation is one that identifies the individual merits of the project, regardless of how they get paid and the financial resources required and are distributed so as surplus or profits generated. The costs and benefits are the economic flow.

Its residual value or salvage value, is the notional value would sell the project at the end of the planning horizon, excluding third-loan debt, this is determined by the projected balance sheet for the last year, which is equal to total assets (without box – bench) less total liabilities (excluding loans).

Financial Evaluation

The financial evaluation is one that takes into account the way they get paid and the financial resources required for the project, regardless of the mode as distributed profits generated.

The costs and benefits are the cash flow, and its residual value is equal to the residual value of the economic evaluation.

EVALUATION OF SHAREHOLDER

The evaluation of the shareholder is one that takes into consideration how the profits are distributed to shareholders, generated by their own contributions.

What are the costs and benefits contributions themselves what are the dividends received, and its residual value is equal to the assets of the company last year.

WHO MAY BE INTERESTED IN USING EVALUATION FOR BUSINESS analyze the feasibility of investment projects

* Businesses of any size and in any sector. The business assessment helps evaluate the profitability of an investment project undertaken by any company.

* Business and financial services professionals. Commercial and investment banks, venture capital firms, financial and economic advisers, law firms, etc..

* Promoters of new business. For an initial assessment of the investment project before incurring more expenses. Also as numeric quality support when seeking funding.

ADVANTAGES THAT HAVE TO USE A BUSINESS ASSESSMENT analyze the feasibility of investment projects

* These models are applicable to many products and sectors. They can be adapted to the specific characteristics of a particular sector or product.

* Save time and money. A business assessment saves time and frees time employees to focus on other more important tasks.

* Focus on the basics of your business. An evaluation enables business to devote his attention to making the decision of whether to invest in the project, or to focus on improving those aspects that can make more profitable. Instead of wasting time in designing complex financial models, you simply use.

* Improved decision-making process. When decisions are to have a high financial impact, business assessment allows you to change the key points of your investment and evaluate multiple scenarios. You will immediately see the effects of their decisions, and may reach optimal decisions quickly and easily.

SAN CRISTOBAL TEXTILE SA

Textil San Cristobal SA (Hereinafter the Company) was incorporated in Peru, in Lima, on July 9, 1942. It aims to engage in the exploitation of the industry of spinning and knitting the garment manufacturing and marketing of their products and others.

About 92% of its total sales corresponds to exports to countries in Europe, North America and Asia. So at the end of the fourth quarter of 2004, it is among the ten companies with the highest level of textile exports.

On October 24, 1991, the Company together with the Peruvian Consortium SA Confections and sponsored by the Chamber of Commerce of Lima signed a Financial Restructuring Agreement with its creditors, including banks and non-financial, which was agreed by the execution of a turnaround program in order to maintain its equity structure .

Textil San Cristobal SA is currently hosting a preventive bankruptcy proceeding; (File 11-2003-CP/CCO-ODI-ESAN). This process concluded on November 12, 2004 date on which the meeting of creditors of the company approved the Comprehensive Agreement Refinancing – AGR, document containing the terms and conditions of the debt refinancing bankruptcy of the company.

The level of competition in foreign trade according to the rules of free market, held on December 31 and is basically with Asian and Latin American companies and in some cases with companies in the country, which have been increasing their sales abroad making our organization maintains leadership.

The company continues to possession in the overseas market in a privileged position because it has potential customers who are constantly making orders that are served by our company satisfaction.

The average number of employees is 07 December 2004 staff, 406 employees and workers is 1.877 while in December 2003 were 06 officers, 422 employees and 1.899 workers.

Your domicile, and one of its industrial plants, its warehouses and administrative offices are located in Calle Los Robles No. 441-447, El Agustino district – Lima. The other industrial plant is located in the Pueblo Nuevo district of the province of Chincha, Ica, south of Lima (see Annex 1 and Annex 2).

INVESTMENT PROJECT

The company wants to install a clothing factory for which it was designed following investment project:

It is estimated that the sale is equal to 170,000 net per year and the breakdown of costs year 1, is shown in the following table:

The investment will be financed by own contribution ($ 10,000) with a COK 30% and the difference with a loan, to be paid in three years to rebut to 12% annually and 4 quarters of grace for implementation.

The dividends will be equal to 50% of net income in the first two years and in other years will be distributed to all shareholders profit.

With this information, determine the following:

* The value of the interests of implementation and the total investment

* The table on the loan or debt service

* The provision of fixed and intangible assets and costs that will result in year 1

* Statement of profit and loss and the sources and uses of funds projected

* Cash flow and balance sheet projected Solution:

* Perform business assessment considering its residual value + 4 I 38.160 – 10.000 = 28.160 + 4 I

If the rate is 12% per annum then the quarterly rate is 3%, then the value of the interest of implementation will be:

I = 0.03 (R +4 28.160)

I = 845 + .12 I

I = $ 960 / quarter

Then the loan would 4I = 28.160 + 32.000

* The value of the loan will be:

* Payment is: R = P i (1 + i) t where P = 32.000; i = 0.03(1 + i) t – 1 t = 12-4 = 8 grace

R = 32.000 0.03 (1 + 0.03) 8 = 4.559 dollars / quarter

(1 + 0.03) 8-1

* Provisions of fixed assets is the sum of production management (annual cost is equal to the total cost of the useful life).

*

The financial burden is equal to the sum of the interest in year 1 (in table debt), so the cost to be gained in year 1 is $ 138.439 (total value of the total cost).

Cost of sales is equal to the total production cost, the financial costs are the sum of the interest.

Sources and uses of funds projected depreciation and intangible amortization is the total cost of fixed assets and intangible assets.

* In the profit and loss forecast, the% return is net income by net sales.

* The projected cash flow return of income tax is the income tax without interest expense less the income tax with interest expense.* The projected balance sheet is anticipated payments for the guarantee, the bank is box-end cash balance projected cash flow, retained profit is the dividend paid.

* For business assessment from three points of view, first develops a COK box to see what will be the weighted to be used.

Then for economic evaluation, costs and benefits are in the projected cash flow, the residual value on the balance sheet projected, and the discount rate is the COK equity capital.

For financial evaluation, the costs and benefits are in the projected cash flow, the residual value on the balance sheet projected, and the discount rate is the weighted total capital.

For the evaluation of the shareholder, the costs and benefits is in the projected cash flow, the residual value on the balance sheet projected, and the discount rate is the weighted total capital.

BUSINESS Assessment SummaryCONCLUSION

Among the criteria that have achieved a high degree of technical acceptance, by the financiers, are those who consider the time value of money, making treatment flows discounted costs and benefits. It may be mentioned including the net present value or net present value, payback period, the benefit-cost and internal rate of return, they provide information necessary for investment analysis.

The business assessment was conducted through three stages: economic evaluation, financial evaluation and assessment of the shareholder, and its value was established based on the Projected Cash Flow, which use the respective evaluation indicators (NPV, IRR, BC, and PR).

The economic evaluation used the COK equity capital, while the financial evaluation and assessment of shareholder capital COK take the total.

The economic assessment shows that the project is profitable mainly because the IRR is 72.6% greater than the COK equity capital equal to 30%. Also shows that the NPV is positive, the BC is greater than unity and recover investment costs in the first (2) years.

The financial evaluation demonstrates that the project is profitable, because the IRR is 185.3% higher than the COK total capital equal to 16%. It also notes that the third party financing loan is convenient, since the cost of bank money (12%) is less than the cost of equity (30%).

Textil San Cristobal is located in the textile sector in Groups: Manufacture of Textiles and knitwear, and Apparel Manufacturing. The company, the date is not part of judicial, administrative or arbitral favor or against you affecting its operation, ensuring its normal development.

So there are more elements favorable to the employer (Textil San Cristobal SA) is decided by the project as this is profitable.

Although for a better analysis is also performed a sensitivity analysis, which allows to see the impact of changing any of the independent variables on the results of the project, a social assessment to measure the impact of the project on society or community, or others deemed necessary.

ANNEXES

REFERENCES

* PROJECT MANAGEMENT II, Emilio Flores Ballesteros; Editorial UIGV; Lima2004

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* Usuarios.lycos.es/pacheco_1/page4.htm

* Www.businesscol.com / economy / glosaeco / glecon-abc.htm

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* Www.gacetafinanciera.com / MANUALFINANCIERO.html

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* A + for + VAN & hl = en

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Prepared by:

DIANA GLORIA REATEGUI LAVENDER

August cycle Student Administration at the University Inca Garcilaso de la Vega

Peru – 2005