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Anarcon India: Project and
PlanningBy
Chetan panara
Ram ChaudharyYashir Momin
Dinesh Moyal
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Problems in case
There are 4 Big problem in case.
Weak project structure
Top Management was unaware about the
problem
Only one manager in project
Land acquisition process
project have no Pre monsoon plan
Project have scheduled in such manner
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Eraction problem
Transportation
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Cost Benefit Analysis
if the project is not finish on 30th sep.2003. On that condition
clientdoes not get benefit from 600million project.
Depreciation benefit(600-180/2) =240 million
Corporate tax benefit at 30% =180 million
Wind power benefit =7 million
(1.4million *5 Rs. Per unit)
Total =427 million
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Mathematical equation of the case
Total investment for purchasing the crane 31,150,000
(Addition of total landed cost of Rs 31,650,000 and
(31.15million)
provision for spares inventory @ 5 % of the landed cost)
Annual cost of operating demag 665 crane 7,606,000
Annual cost of hiring an equivalent crane from the market
15,600,000
Annual saving by Enercon owning the crane 7,994,000
(8.00million)
Interest payable on capital borrowings 14 % per annum
Additional Assumptions required for Calculations
Operating life for a crane 10 years
Salvage value at the end of operating life Rs 6.23 million
( 20 % of original investment of Rs 31.15 million) Equity-Debt
ratio
for project financing 60 : 40
Return expected by Enercon on its own equity 20 % per annum
Net total taxation rate applicable to Enercon 33 % on
incremental profitsDepreciation provision on straight line
basis
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Average Return on Investment (ROI)
Annual savings by Enercon owning the crane Rs 8.00 million
Return on investment (PBDIT) 31 %
Pay-back Period for Investment Annual cash-flow (before
depreciation) Rs 8.00 million
Pay-back period for investment (31.15 /8.00 ) 3.9 years
Net Present Value
Calculation of Weighted Average Return on Capital (WACC)
Post-tax cost of project term borrowings with 33 % income
tax and 14 % market interest rate on 40 % project cost
(= 0.40 x 14 x 0.67) 3.75 % per annum
Cost of expected return on equity investment on 60 % of
Project cost at 20 % per annum return on equity 12.00 % per
annum
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Total weighted average cost of capital (WACC) 15.8 %per
annum
Net Present Value
(Considering 20% salvaged value of investment at end of
10thyear) Rs 40.4 million
Internal Rate of Return (IRR)23%
Based on all the four criteria considered, it is clear that
owninga 220 tonne crane is an attractive proposition. Hence,
Enerconshould own at least one such crane initially.
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WBS
Land identification and acquisition
Micrositing and planning
Approach road formation
Foundation casting
WEC delivery Tower delivery
Blades delivery
Machine eraction
11 KV overhead line
Pre-commissioning of WEC
VCB and metering yard construction
VCB and 11kv line charging
Commissioning
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Thank you
