Agro-Tech Ltd. is an Israel-based company engaged in the manufacturing and sale of products related to agriculture, as well as consultancy. Agro-Tech’s product range includes a large variety of seeds, fertilisers, pesticides, irrigation systems and certain processes for obtaining high crop-yield.
Currently, Agro-Tech is considering expansion by setting a subsidiary in India. The idea is to provide consultancy and other inputs like seeds, fertilisers and so on to the local farmers. The crop-yield will be purchased by the company at a pre-determined rate. The company will export organic fruits and vegetables from India to Europe and the revenue will be earned in Indian currency (INR). Agro-Tech will remit all of its after-tax earnings to Israel. The current exchange rate is 1Shekel = INR 18.05. The corporate tax rate in India is 30 per cent. Withholding tax in India is 25 per cent. Expected rate of return from this project is 12% p. a. The life of the project is 5 years.
The projected cash flow details of the project are as follows:
Initial investment: INR 15 million
Revenue: INR 30 million in Year 1, revenue increases from previous year by 15% each in Year 2 and Year 3, and by 10% each in Year 4 and Year 5.
Variable costs: estimated to be 30% of the relevant year’s revenue.
Fixed costs: INR 1 million each in Years 1, 2, 3, 4 and 5.
Admin and other expenses: INR 1 million each in Years 1, 2, 3, 4 and 5.
Depreciation of plant equipment: INR 2 million each in Years 1, 2, 3, 4 and 5.
Salvage value at the end of Year 5: INR 10 million
Task
You are an analyst (Elizabeth Gordon or James Gordon) working with Good Fortune Pty Ltd. Agro-Tech Ltd has approached you for an advice on this project. Your advice will be based on capital budgeting analysis and the analysis of other relevant factors.
The first part of the Report will consist only of calculations of remittance to home country and NPV.
The second part of the Report will consider any other relevant factors (one such factor is, exchange rate, but you can find many more factors).
Based on your analysis, you will make your recommendation.
Word limit
Minimum 1800 words – maximum 2000 words. This excludes tables (if any), annexures (if any) and reference list. You must use double-line spacing, or you will lose 3 marks for this assignment. Write word count on the cover sheet. The Report must be accompanied by Assignment Cover Sheet, Report Cover Page, Table of Contents, Executive Summary and Reference List. Submit the Word file (NOT pdf) online.
