Reference no: EM132688667

Question 01

"Ahasa Usata" Limited is a well-established real estate company in Sri Lanka. The company is well known for its real estate projects especially in the field of constructing apartment complexes.

"Ahasa Usata" is in the process of carrying out the financial evaluations, to determine whether they should invest in an apartment complex project in Jaffna. If the top management decides to proceed with the project, then this will be the first ever apartment complex project of the company, outside the Western province.

Following information is available on the new project

• The project will be assessed for a life span of 4 years.
• The cost of acquiring land is estimated to be Rs 180,000,000/ payable immediately.
• The total building will be for 15 floors and each floor will be for 30,000 Sq Feet.
• The cost of construction is estimated to be Rs 6,500 per Sq Foot.
• The period of construction is estimated to be for 3 years.
• The payments to the contractors for construction will have to be made as follows
» 20% Immediately
» 40% at the end of the 1st Year
» 30% at the end of the 2nd year
» 10% at the end of the 3rd year

• There will be three types of apartments for sale
o Standard - 80 Units - Estimated Selling Price Rs 20 Million per unit
o Deluxe - 50 Units - Estimated Selling Price Rs 26 Million per unit o
Superior - 20 Units - Estimated Selling Price Rs 32 Million per unit

• If the project is approved, Then Ahasa Usata will launch an aggressive marketing campaign to pre-sell the apartments. It is estimated that all apartments will be sold out with in a

period of two months from now. The company will sign a contract with each customer to collect progressive payments as follows

o 30% Down Payment Immediately o 20% Payment at the end of the 1st Year o 30% Payment at the end of 2nd Year
o 20% Payment at the end of the 3rd year

• The cost of advertising and promotion is estimated to be Rs 20,000,000 payable immediately.

• The cost of operating sales and liaison offices in Jaffna and Colombo is estimated to be Rs 3,000,000 per annum for a period of 4 years.

• From their previous experience, it is estimated that 2% of the construction cost will be spent on the 4th year to rectify complaints of customers after they move in to their respective apartments.

• The company plans to finance 50% of the project through a bank loan at an interest cost of 8% per annum and balance through retained earnings of the company, which currently earns a ROI of 12%.

You are required to;

01. Establish the annual cash flows for this project and calculate the NPv.

02. If the construction cost increases to Rs 7,500 per Sq Foot, (from Rs. 6500/ per Sq ft) then what will be the NPv of the project.

03. List five non financial factors, to be considered before a final decision.

Question 02

Ceylon Biscuits Limited (CBL) is a reputed well-established confectionary manufacturing company in Sri Lanka, operating under popular brand names of Munchee, Ritzbury, Tiara etc. CBL manufactures and distributes a wide variety of confectionary Products.
Country Style Food (Pvt) Ltd, is a privately owned company in Sri Lanka, manufacturing bottled fruit drinks under a popular brand name called "SMAK".
Assume that Ceylon Biscuits Limited has plans to take over Country Style Food (Pvt) Ltd and that preliminary discussions have been successful.
(Note - This is a case created only for examination purposes at PIM)

You are required to;
01. On behalf of Ceylon Biscuits Limited, carry out a basic Due Diligence study, (analyzing the six fits), for the above explained take over.
02. If the PE ratio is 6.2 in this industry applicable to Country Style Food (Pvt) Ltd, then carryout a P&L based valuation for Country Style Food (Pvt) Ltd.
03. Establish a Balance Sheet based valuation for Country Style Food (Pvt) Ltd.
Note - for requirements 02 and 03 the working must be clearly shown with adequate assumption (if any) and rationalization.
04. Assume that Country Style Food (Pvt) Ltd has indicated a selling bid price of Rs 3.8 Billion to Ceylon Biscuits Limited. Assuming you are a consultant of Ceylon Biscuits Limited, recommend your decision to the board of directors with valid justifications.

Question 03

Select ONE topic from the following and write a two-page report.
You should use examples wherever possible to illustrate your points. Clearly justify your arguments and suggest your opinions where applicable.
01. Global Financial Crisis and its implication to Middle Eastern Economies
02. Importance of Due Diligence Study prior to Mergers and Acquisitions
03. Applications of Purchasing Power Parity Theory in FOREX Management decisions.