Capital budgeting for new product penetratation

CAPITAL BUDGETING
OF
NEW PROJECTS
Prepared by
NANG NGURN SANDAR MYAT
DR KYI THA HTUN
WIN PAPA TUN
NAY CHI OO
HAN NWE OO
DR MYINT MYAT MAUNG MAUNG
BATCH 6, OFFSHORE MBA
UTCC, YANGON
2016

Capital Budgeting Assignment Batch 6
1
Table of Contents
1 Purpose and Scope...................................................................................................... 2
1.1 1.1 Brief Description of the Case............................................................................... 2
1.2........................................................................................................................................ 2
1.3 1.2 Company Profile .................................................................................................. 3
1.4 1.3 Company Data Source ......................................................................................... 3
2 Firm’s New Investment description & data source ................................................. 4
2.1 2.................................................................................................................................. 4
2.2 2.2 Project (2) Poly Aluminum Chloride (PAC)........................................................ 5
2.3........................................................................................................................................ 5
2.4 2.3 Project (3) Blue Water Discoloring ..................................................................... 6
2.5 2.4 Research Methodology ..........................................................................................
3 Financial Analysisof the Firm.................................................................................... 7
3.1 3.1 Income Statement Analysis of the Firm............................................................... 7
3.2 3.2 Balance Sheet Analysis of the Firm..................................................................... 8
3.3 3.3 Cash Flow Analysis of the Firm .......................................................................... 9
4 Financial Analysis of the New Project Investment ................................................ 10
4.1 4.1 Project (1)........................................................................................................... 10
4.2 Forecast Financial Analysis ..................................................................................... 10
4.3 4.2 Project (2)........................................................................................................... 11
4.5 4.3 Project (3)........................................................................................................... 12
4.7...................................................................................................................................... 12
4.8...................................................................................................................................... 12
4.9 4.4 Comparison of Major Financial Data of New Projects...................................... 13
4.9.1 4.4.1 Forecast Revenue Analysis....................................................................... 13
4.9.2 4.4.2 Forecast Cost Analysis ............................................................................. 13
4.9.3 4.4.3 Pro Forma Income Statement Analysis for projected 3 years.................. 14
4.9.4 4.4.4 Forecast Overall Financial Analysis........................................................ 14
4.10 4.5Forecast operating cash flow analysis............................................................... 15
5 Capital Budgeting Decision Rules ........................................................................... 16
5.1 Net Present Value (NPV)............................................................................................ 16
5.2 Internal Rate of Return (IRR) ..................................................................................... 16
5.3 Payback Period............................................................................................................ 17
5.4 Discounted Payback Period (DPP) .......................................................................... 17
5.5 Profitability Index (PI)............................................................................................. 18

2
1 Purpose and Scope
1.1 Brief Description of the Case
After researching in the market, the company have decided to distribute three new products: Paper
Dyestuffs, Poly Aluminum Chloride (PAC) and Blue Waste Discoloring (BWD). The company have
decided to distribute these three raw materials because the demand for paper packaging has increase
tremendously in the market. And the main raw material for printing paper packaging is Paper Dyestuffs.
Paper Dyestuffs is used in many industries such as writing and printing paper, tissue-facial, toilet, towel,
napkin, copier papers, boards/cover papers, decorative laminated paper, packaging grades, envelope
grades and special paper like, label, laundry tag and posters.
Since paper packaging materials industry is booming in Myanmar, there are also issues disposing the
wastewater. Therefore, the company have decided to distribute the second raw material, Blue Waste
Discoloring (BWD). BWD is a water discoloring agent which is used for color removal of dyeing
wastewater or effluent with color problem.
The third one that will be distributed is Poly Aluminum Chloride, which is also use in wastewater
treatment not only for paper packaging industry but also in other industries such as chemical industry,
drinking water plant and many more. PAC is used to residue the waste and then purifies the water.
Before proceeding to import, it will have to decide if the projects will be making profits. The company
decision will be based on the capital budgeting processes which allocate resources for major capital, or
investment expenditures to increase the value of the firm to the shareholders.

3
1.2 Company Profile
It is a local trading company dedicated to distribute industrial raw materials of coatings, food &
beverages, personal care & household, pharmaceuticals, plastics & rubber, pulp & paper and garment &
textile. It have been running the business for over 12 years and currently one of the top three distributors
in Myanmar. With the recent political and economical reforms, high influx of FDI and strong competition
of local companies, It have to differentiate itself by venturing in the market with new products to secure
the current position.
1.3 Company Data Source
The study has been conducted using secondary data alone. Given the nature of the topic, use of
primary data was not warranted.

4
2 Firm’s New Investment description & data source
2.1 Project (1) Paper Dyestuffs
Since the paper industry is growing, the paper dyestuffs have the attractive chance to penetrate the
market. The main industries which use the dyestuffs currently in Myanmar are Paper Production,
Packaging & Cardboard Production and Tissue & Towel Industry.
Based on the analysis of past data and the outsourced market research, the overall market size is
44 factories which consists of 24 factories of the paper production, 14 factories of the packaging &
cardboard production and 6 factories of the tissue and towel. Through the survey,12 out of 24 factories of
paper production, 8 out 14 of factories of packaging & cardboard production and 5 factories of the tissue
and towel industry are our potential buyers because remaining factories are either importing themselves
or have a contract with other competitors. Therefore, total demand is 25 factories with average 4 Metric
ton(Mtt) per annual usage which give rise to 100 Mtt demand for the coming year. From this data, the
forecast evaluates 90 Mtt for the second year and 85 Mtt for the third year depend upon industrial growth
rate, stock and inventory management of the buyers and possibility of FDI
48%
32%
20%
Demand Distribution
Paper Production
Packaging & Cardboard
Tissue & Towel

5
2.2 Project (2) Poly Aluminum Chloride (PAC)
PAC is used as a flocculent for all types of water treatment for drinking water, industrial waste
water, urban waste water and colored water in the paper industry. The main industries which use PAC
currently in Myanmar are the paint manufacturing, the oil & gas, paper processing and metal & mining.
The demand for PAC is very high because of its low-cost procedure for the treatment of water and
its combined usage with BWD to treat paper dyestuffs wastewater. Based on the analysis of past data and
the outsourced market research, the overall market size is 82 factories which consists of 5 factories of the
paint manufacturing, 21 factories of the oil & gas , 44 factories of the paper processing and 12 factories
of the metal & mining .Through the survey, it was found that only 3 out of 5 factories of the paint
manufacturing , 12 out of 21 factories of the oil & gas , 25 out of 44 factories of the paper processing and
10 out of 12 factories of the metal & mining are our potential buyers because remaining factories are either
importing themselves or have a contract with other competitors. Therefore, the total demand is 50 factories
with average 8 Mtt per annual which give rise to 400 Mtt demand for the coming year. From this data, we
also forecast to have 500 Mtt for the second year and 650 Mtt for the third year depend upon industrial
growth rate, stock and inventory management of the buyers and possibility of FDI.
6%
24%
50%
20%
Demand Distribution
Paint Manufacturing
oil & gas
Paper Processing
Metal & Mining

6
2.3 Project (3) Blue Water Discoloring
Blue Water Discoloring is used for waste water and color removal treatment especially in high-
colored waste water from activated, acidic and disperse dyestuffs products. The main industries which use
BWD currently in Myanmar are the textile and printing.
Based on outsourced market research, the overall market size is 60 factories consists of 40 factories
of the dye & pigment house, 10 factories of the paper & pulp, 4 factories of the cloth & textile and 6
factories of printing mills. Through the survey, it was found out that only 25 out of 40 factories of the dye
& pigment house, 8 out of 10 factories of the paper & pulp, 3 out of 4 factories of the cloth & textile and
4 out of 6 factories of printing mills are our potential buyers because remaining factories are either
importing themselves or have a contract with other competitors. The total demand is 40 factories with
average 3.5 Mtt per annual which give rise to 140 Mtt demand for the coming year. From this data, it was
forecasted to have 120 Mtt for the second year and 100 Mtt for the third year depend upon industrial
growth rate, stock and inventory management of the buyers and possibility of FDI.
62%
20%
8%
10%
Demand Distribution
Dye & Pigment
Paper & Pulp
Cloth & Textile
Printing

7
3 Financial Analysis of the Firm
3.1 Income Statement Analysis of the Firm
FY 2015 FY 2014 FY 2013 FY 2012
Revenue 1,925,925 1,605,010 1,403,196 1,439,460
Cost of goods sold 1,328,627 1,109,083 981,754 1,035,259
Total Gross Profit 597,298 495,927 421,442 404,201
Less. Total Operating expenses (304,759) (267,570) (191,990) (173,869)
Net Profit / (Loss) before tax 292,540 228,356 229,452 230,333
Less tax expense (12,443) (11,158) (11,917) (9,653)
Net Profit / (Loss) after tax 280,097 217,199 217,534 220,680
The average annual net profit is 233,977$ over past four years. The net profit is gradually
increasing over past years. By the publication of Asia Development Bank and International Institute of
Finance, Myanmar is expected to have GDP growth of 8.4% in 2016 which is highest among ASEAN
countries due to inflow of FDI and recovery of the country’s agriculture sector. We expect to increase our
growth rate by 10% in 2016 by expending our current market share and venturing new projects into new
industries.

8
3.2 Balance Sheet Analysis of the Firm
Balance Sheet
YTD 31 Dec
2015
YTD 31 Dec
2014
YTD 31 Dec
2013
YTD 31 Dec
2012
Current Asset
Cash on hand 525,586 539,352 426,445 376,034
Cash in Bank - MFTB 36,902 76,979 33,452 46,736
Cash in Bank - YOMA 215 244 167 107
Stock in Transit 46,830 14,079 53,746 112,345
Stock on hand 218,164 261,667 148,084 101,275
Accounts Receivable 123,939 71,214 89,172 67,067
Deposits - - 723 487
Prepaid Expenses 13,845 11,534 12,013 11,478
Recoverable Expense 4,855 22,722 12,966 1,540
Import License - - - 66,579
Total Current Asset 970,336 997,791 776,769 783,648
Less: Current
Liabilities:
Advance from customer 76,265 54,441 67,644 77,181
Accrued Expenses 39,350 32,173 20,650 20,000
Accounts Payable 53,060 262,702 173,553 365,624
Total Current
Liabilities
168,675 349,316 261,847 462,805
Net Current Assets 801,661 648,475 514,922 320,843
Fixed Assets
Office Equipment 10,449 10,311 10,311 9,739
EDP Equipment 18,671 13,574 10,664 9,115
Furniture & Fittings 11,141 6,947 6,337 5,477
Warehouse Equipment 2,267 2,267 962 962
Vehicle 23,445
Less Prov: for
depreciation
(28,867) (22,905) (17,891) (13,366)
Total Fixed Assets 37,106 10,195 10,383 11,927
NET ASSETS 838,768 658,671 525,305 332,771
YTD 31 Dec 2015 YTD 31 Dec 2014 YTD 31 Dec 2013 YTD 31 Dec 2012
Current Asset 970,336 997,791 776,769 783,648
Fixed Asset 37,106 10,195 10,383 11,927
Total Asset 1,007,442 1,007,986 787,152 795,576
Total Liabilities 168,675 349,316 261,847 462,805
Total Equity 838,768 658,671 525,305 332,771
TL+TE 1,007,443 1,007,987 787,152 795,576

9
Profitability ratios 2015 2014 2013 2012
Profit Margin (%) 14.50% 14% 16% 15%
Return on Assets (ROA) (%) 27.80% 21.55% 27.64% 27.74%
Return on Equity (ROE) (%) 33.39% 32.98% 41.41% 66.32%
Return on Investment 33.39% 32.98% 41% 66%
We have evaluated with average 14.875% of Profit Margin, average 26.1825% of Return on
Assets and average 43.525% of Return on Equity.
But due to unstable politic and uncertainty of the economic, we decide to make price for new
project should be cost plus 40 % and should get 20% of contribution margin to cover the risk and
inflation. We lower the required Return on Investment to be 30% because current recession of country
economy.
As we have to disclose financial analysis of our new projects as assignment, we have limited
accessibility to limit the disclosure of private financial data to public. According to our financial
department, the given required rate of return from our financial department is 12% which is the standard
for business in Myanmar.
We also evaluate that we don’t need financial leverage for new investment because we have net
current asset of 801,661 $ at the end of 2015.
3.3 Cash Flow Analysis of the Firm
YTD 31 Dec
2015
YTD 31 Dec
2014
YTD 31 Dec
2013
YTD 31 Dec
2012
Net Income 280,097 217,199 217,534 220,680
Operating Activities, Cash Flows
Provided By or Used In
Changes In Accounts Receivables 52,725 -17,958 22,104
Changes In Liabilities -180,641 87,469 -200,958
Changes In Inventories -10,752 73,916 -11,789
Changes In Other Operating Activities -15,556 9,277 -54,382
Total Cash Flow From Operating
Activities
125,874 369,903 -27,491
Change In Cash and Cash Equivalents 125,874 369,903 -27,491
We evaluate that the cash flow is maintained in the positive behavior. To maintain this positive
cash flow in coming year, we carefully evaluate the new investment with the criteria of positive cash
flow in combination with Net Present Value and IRR.

10
4 Financial Analysis of the New Project Investment
4.1 Project (1)
Forecast Financial Analysis
Product
Variable
Cost
per Mt
Fixed Cost
Office
Equipment
Import
Tax
Total Cost
Expected
Demand
Total
Expected
Sales per
annual
Import
Trade
Surplus
Cost
Plus
%
Sale
Price
Expected
Revenue
Dyestuff 2017
1,850
24,000 3,000
8%
223,800 100 100
40%
3133 313,320
Dyestuff 2018 26,400 206,220 90 90 3208 288,708
Dyestuff 2019 29,040 198,870 85 85 3276 278,418
Total 79,440 628,890 275 275 300 25 880,446
Gross Profit Depreciation EBIT Income Tax NI Total Capital
89,520 1,000 88,520
15%
75,242
82,488 1,000 81,488 69,265
79,548 1,000 78,548 66,766
251,556 248,556 211,273 637,440
Expected total demand for dyestuff is 275 Mtt. Minimum amount of order is 300 Mtt to get the wholesale rate of 1850$ per Mtt. We decide to
import 300 Mtt to get wholesale rate and to reduce the operation, handling, ordering cost. To store 300 Mtt, we need a warehouse at least 2,400 sqft
with 24,000 $ per year with 10% increment annual for next 2 years. Total investment capital is 637,440 $ with the end inventory level of 25 Mtt
Surplus. We are expected to get total Revenues of 880,446$ and Net Income of 211,273$. For relevance of the data, we assume that the 25 Mtt
surplus will be sold out with the price same as variable cost at the end of the project.

11
4.2 Project (2)
Product
Variable
Cost
per Mt
Fixed Cost
Office
Equipment
Import
Tax
Total Cost
Expected
Demand
Total
Expected
Sales per
annual
Import
Trade
Surplus
Cost Plus
Percentage
Sale
Price
Expected
Revenue
PAC 2017
400
24,000 3000
8%
196,800 400 400
40%
688.80 275,520
PAC 2018 26,400 264,000 550 550 672.00 369,600
PAC 2019 29,040 266,640 600 550 678.00 373,296
Total 79,440 727,440 1,550 1,500 1,500 - 1,018,416
Gross Profit Depreciation EBIT
Income
Tax
NI Total Capital
78,720 1,000 77,720
15%
66,062
105,600 1,000 104,600 88,910
106,656 1,000 105,656 89,808
290,976 287,976 244,780 682,440
Expected total demand for PAC is 1500 Mtt. Minimum amount of order is 1500 Mtt to get the wholesale rate of 400$ per Mtt. We decide to
import 1500 Metric tons to get wholesale rate and to reduce the operation, handling, ordering cost. To store 1,500 Mtt, we need a warehouse with
capacity for that amount. Compare to other product, PAC has lower volume compare to weight. Thus, we need only 2,400 square feet with 24,000 $
per year with 10% increment annual for next 2 years. Total investment capital is 682440 $ with expected total Revenues of 1,018,416$ and Net
Income of 244,780$.

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4.3 Project (3)
Product
Variable
Cost
per Mt
Fixed
Cost
Office
Equipment
Import
Tax
Total
Cost
Expected
Demand
Total
Expected
Sales per
annual
Import
Trade
Surplus
Cost
Plus
%
Sale
Price
Expected
Revenue
BWD 2017
1,300
24,000
8%
220,560 140 140
40%
2205 308,784
BWD 2018 26,400 194,880 120 120 2274 272,832
BWD 2019 29,040 169,440 100 100 2372 237,216
Total 79,440 3,000 584,880 360 360 400 40 818,832
Gross Profit Depreciation EBIT Income Tax NI Total Capital
88,224 1,000 87,224
15%
74,140
77,952 1,000 76,952 65,409
67,776 1,000 66,776 56,760
233,952 230,952 196,309 602,440
Expected total demand is 360 Mtt. Minimum amount of order is 400 Mtt to get the wholesale rate of 1300 $ per Mtt. W decide to import 400
Mtt to get wholesale rate and to reduce the operation, handling, ordering cost. To store the 400 Mtt, we need a warehouse with capacity of 2,400 sqft
with 24,000 $ per year with 10% increment annual for next 2 years. Total investment capital is 602440$ with the end inventory level of 40 Mtt
Surplus. We are expected to get total Revenues of 818,832$ and Net Income of 196309$. For relevance of the data, we assume that the 40 Metric ton
surplus will be sold out with the price same as variable cost at the end of the project.

13
4.4 Comparison of Major Financial Data of New Projects
4.4.1 Forecast Revenue Analysis
Within three products, PAC has the highest revenue and net income due to its highest demand and its
widespread usage in various industries. BWD has the lowest revenue and net income.
4.4.2 Forecast Cost Analysis
Cost Analysis
Product
Variable Cost
per Mt
Total Mt Fix Cost
Import
Tax
Total Cost
Paper
Dyestuff
1,850 275 79,440
8%
628,890
PAC 400 1,500 79,440 727,440
BWD 1,300 360 79,440 584,880
Within three products, PAC has the lowest variable cost but highest total cost because of the
highest demand volume. BWD has the lowest total cost even though high variable cost because of the
low demand volume. Total cost per unit are 2286.87 $ per Mtt for Paper Dyestuff, 514.96$ per Mtt for
PAC and 1624.67$ per Mtt for BWD. Break-even unit are 58.80 Mtt with the weighted average unit
price of 3201.74$ for Paper Dyestuff, 285.14 Mtt with the weighted average unit price of 678.68$ for
PAC and 95.39 Mtt with the weighted average unit price of 2132.85$ for BWD.
Revenue Analysis
Product Revenue
Total
Cost
Gross
Profit
Depreciation EBIT
Income
Tax
Net
Income
Paper
Dyestuff
880,446 628,890 251,556
3,000
248,556
15%
211,273
PAC 1,018,416 727,440 290,976 287,976 244,780
BWD 818,832 584,880 233,952 230,952 196,309

14
4.4.3 Pro Forma Income Statement Analysis for projected 3 years
Income Statement Analysis
Paper Dyestuff PAC BWD
Revenues 880,446 1,018,416 818,832
COGS (508,750) (600,000) (468,000)
Gross Profit 371,696 418,416 350,832
Operation expense
Ware House (79,440) (79,440) (79,440)
Import tax 8% (40,700) (48,000) (37,440)
Depreciation (3,000) (3,000) (3,000)
EBTI 248,556 287,976 230,952
Income Tax 15 % (37,283) (43,196) (34,643)
Net Profit or Loss 211,273 244,780 196,309
Contribution margins are 23.99% for Paper Dyestuff, 24.03% for PAC and 23.97% for BWD.
Contribution margins of all three products are more than expected contribution margins of 20%. We
include import tax 8% to operation expenses because we have to pay that tax as soon as we import the
products with no concern of revenue.
4.4.4 Forecast Overall Financial Analysis
Overall Analysis
Product Total Cost Expected Revenue Net Income Total Capital
Dyestuff 628,890 880,446 211,273 637,440
PAC 727,440 1,018,416 244,780 682,440
BWD 584,880 818,832 196,309 602,440
Return on Investment for three products are 33.14% for Dyestuff, 35.87% for PAC and 32.59%.
All three products are over the expected require Return on Investment of 30%.

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4.1.5 Forecast operating cash flow analysis
Cash Flow Analysis
Year 0 Year 1 Year 2 Year 3
Capital Spending
Paper Dyestuff (3,000) 0 0 0
PAC (3,000) 0 0 0
BWD (3,000) 0 0 0
Operating Cash Flow
Paper Dyestuff 0 76,242 70,265 67,766
PAC 0 67,062 89,910 90,808
BWD 0 75,140 66,409 57,760
Change in NWC
Paper Dyestuff (555,000) 0 0 555,000
PAC (600,000) 0 0 600,000
BWD (520,000) 0 0 520,000
Total Cash Flow
Paper Dyestuff (558,000) 76,242 70,265 622,766
PAC (603,000) 67,062 89,910 690,808
BWD (523,000) 75,140 66,409 577,760
Accumulative Cash Flow
Paper Dyestuff (558,000) (481,758) (411,493) 211,273
PAC (603,000) (535,938) (446,028) 244,780
BWD (523,000) (447,860) (381,450) 196,309
Discounted Cash Flow
Paper Dyestuff 0 68,073 56,015 443,272
PAC 0 59,877 71,676 491,703
BWD 0 67,090 52,941 411,238
The net cash flows from operating activities of Paper Dyestuff from Year 1 to 3 are expected to
be 76,242, 70,265 and 67,766 U.S Dollars respectively. Average net cash flow of Paper Dyestuff is
71,424 $. The net operating cash flows of PAC from Year 1 to 3 are expected to be 67,062, 89,910 and
90,808 U.S Dollars respectively. The average cash flow is 82,593$. The net operating cash flows of
BWD from Year 1 to 3 are expected to be 75,140, 66,409 and 57,760 U.S Dollars respectively. The
average cash flow is 66,436 $. PAC is expected to have more net cash flow from operating activities
than other two projects which gives PAC project bigger amount of cash to spend. There is no increase in
Net Working Capital since it is planned one-time investment capital in Year 0.

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5 Capital Budgeting Decision Rules
5.1 Net Present Value (NPV)
An investment should be accepted if the net present value is positive and rejected if the net present
value is negative. Table shows all three projects with positive results, which means all are considered to
be commercially viable. PAC project is expected with higher NPV than the rest.
5.2 Internal Rate of Return (IRR)
An investment can be accepted if its IRR is greater than the required rate of return, in this case
12%. Normally, projects having IRR of less than Hurdle Rule (i.e. cost of capital + premium) shall not be
considered as commercially viable.
It is clear that all 3 projects are higher than the required IRR and is considered as good projects. Among
them, IRR of PAC with 13.38% is the highest.
IRR
Year 0 Year 1 Year 2 Year 3 IRR
Paper Dyestuff (558,000) 76,242 70,265 622,766 12.70%
PAC (603,000) 67,062 89,910 690,808 13.38%
BWD (523,000) 75,140 66,409 577,760 12.67%
Net Present Value
Year 0 Year 1 Year 2 Year 3 Net Present Value
Paper Dyestuff (558,000) 68,073 56,015 443,272 9,360
PAC (603,000) 59,877 71,676 491,703 20,256
BWD (523,000) 67,090 52,941 411,238 8,269

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5.3 Payback Period
It is assumed that the profit earning of the projects will start from Year 1. The Payback period of
Paper Dyestuff is expected to be 2.66 years, PAC 2.64 years and BWD 2.66 years respectively. All three
projects are good with reasonable payback periods. PAC has lower payback period than the rest, which
indicates that this project will recover investment quicker.
Payback Period
Year 0
Year
1
Year 2 Year 3
Payback
Period
Paper
Dyestuff
(558,000) 76,242 70,265 622,766 2.66 years
PAC (603,000) 67,062 89,910 690,808 2.64 years
BWD (523,000) 75,140 66,409 577,760 2.66 years
5.4 Discounted Payback Period (DPP)
The payback period method has some significant drawbacks since it does not account the time
value of money. DPP can give more reliable result since they account time value of money. All projects
will recover investment within 3 years and PAC, with lower DPP (2.95 years) indicating that this project
will recover more quickly than the rest.
Discounted Payback Period
Year 0 Year 1 Year 2 Year 3 Net Present Value
Paper Dyestuff (558,000) 68,073 56,015 443,272 2.97 years
PAC (603,000) 59,877 71,676 491,703 2.95 years
BWD (523,000) 67,090 52,941 411,238 2.98 years

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5.5 Profitability Index (PI)
PI measures the benefit per unit cost, based on the time value of money. In table, the PI of Paper
dyestuff implies that for every $1 investment, project can create an additional $0.02 in value, $0.03 in
PVC and 0.02 in BWD respectively. Among them, PVC project is expected to create more additional
money in value.
Profitability Index
Year 0 Year 1 Year 2 Year 3 PI
Paper Dyestuff (558,000) 68,073 56,015 443,272 1.0168
PAC (603,000) 59,877 71,676 491,703 1.0336
BWD (523,000) 67,090 52,941 411,238 1.0158

19
6 Sensitivity Analysis
We only use Demand to evaluate the sensitivity by comparing the three products corresponding
to the ten percent decrease in total demand.
The percentage decrease in NPV of Dyestuff is -160.58%, PAC is -133.92% which is the lowest and
BWD is -168.49% which is the highest that means the degree of forecasting risk is the highest for BWD.
It is because the estimated NPV of this product is more sensitive to changes in projected demand than it
is to changes in the other two products.
Sensitity Dyestaff
Key Value Driver Expected NPV Revised NPV % Change in NPV Expected IRR Revised IRR % Change in IRR
Demand(10% Decrease) 9,360 (5,689) -160.78% 12.70% 11.57% -1.13%
Sensitity PAC
Demand(10% Decrease) 20,256 (2,820) -113.92% 13.38% 12.19% -1.19%
Sensitity BWD
Demand(10% Decrease) 8,269 (5,663) -168.49% 12.67% 11.54% -1.13%
NPV IRR
NPV IRR
NPV IRR

20
7 Factors affecting investment decisions
Forecasting risk
If the projections are in error, the resulting answer can really be grossly misleading. It is sometimes
easy to get caught up in number crunching and forget the underlying nuts-and-bolts reality. There is a
danger that we will think a project has a positive NPV when it really does not.
Past market trends
Sometimes history repeats itself: sometimes market learn from their mistakes. We have to learn
how the company have performed in the past before planning to invest.
Risk appetite
Mostly risk is directly proportional to return, especially systematic risks. The ability to tolerate
risk differs from investor to investor.
Investment horizon
The longer the time horizon, the greater are the returns that should be expected. But the risk of
inflations and investment rate of return vary can affect the profit for long term investments more than for
short term investments.
Expected returns
The expected rate of return is a crucial factor as it will guide our choice of investment.
Number of investment criteria
When selecting mutually exclusive projects, the company should not rank them based on only one
investment criteria. Looking at only one criteria can be misleading. Instead, it need to look at least two or
more factors such as NPV and IRR.
Inflation rate
Inflation rate is an important player of the economy, so always before going with any investment
proposal, investment manager tries to find out the effect of inflation on the projects.

21
8 Recommendation
As the analysis and making decision , we compare the NPV, IRR, Payback Period, Discounted
Payback Period and Profitability Index. Estimating NPV is one way of accessing the profitability of a
proposed investment. In NPV point of view, although the NPV of the three products have the profit,
9,360, 20,256, 8,269 U.S Dollar respectively, PAC has the highest profit among them. It is certainly not
the only way profitability is accessed but there are also the other alternative ways to decide the project
investments. It is common to practice to talk of the payback on a proposed investment. Alternatively, the
payback period of PAC is 2 years 7 months, Paper Dyestuffs and BWD are 2 years 8 months. Although
three products can payback within three years, the PAC has the best payback period. The cons of the
payback period are lacking of the time value and we calculated the discount payback period. At the
discounted payback period, PAC has the highest payback period as it has two years and eleven months.
At IRR point of view, IRR of dyestuffs is 12.7%, PAC is 13.38% and BWD is 12.67%. Our targeted
expected return for the Company is 12% and we chose the PAC product as it has the IRR highest than
our expected return. Another tool is the profitability index. All three products are greater than 1. That
means all are profitable. Although the company can choose all three products to invest, but it chooses
the PAC product if there is a budget limitation as it has the highest NPV, shortest payback period,
discounted payback period, and highest IRR and PI.
9 Conclusion
The company made decision based mainly on NPV and IRR, therefore it chooses the product PAC.
However, the company should pursue in distributing all products to enhance shareholder value. Capital
budgeting is focused on which products is profitable, this way the company success can know more
about which product to invest the funds more.

22
10 References
Asia Development Outlook 2016 , http://www.adb.org/countries/myanmar/economy
http://www.myanmarsurveyresearch.com/Page/Import-Report
http://www.paperonweb.com/Myanmar.htm
http://www.myanmargarments.org/events-news/factory-zones/
http://www.myanmaryp.com/category/Printing
Ross, S.A., Westerfield, R.W., Jordan, B.D., Lim, J., Tan, R., Fundamentals of Corporate Finance, 2nd
edition, Asia Global Edition, 2016. McGraw-Hill.
http://www.economicsdiscussion.net/capital-budgeting/capital-budgeting-its-concept-significance/4309
http://accountlearning.com/capital-budgeting-reason-to-prepare-steps-lifespan/

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