THESIS INTERNATIONAL BUSINESS MANAGEMENT ANALYSIS AND EVALUATION ON EFFECTS OF “BAC KAN SOFT IRON PRODUCTION FACTORY” PROJECT TABLE OF CONTENT INTRODUCTION Name of thesis: Analysis and evaluation on effects of “Bac Kan soft iron production factory” project Reason of choosing this thesis: Targets of the research 4 The method of research .5 Database for research Structure of the thesis: the thesis includes 03 chapters and the introduction as follows: Conclusion and suggestions: 1.2 Contents of the project feasibility study 1.2.2 Nature and purpose of feasibility study 1.3 Financial-economic analysis for investment projects 1.3.1 Determination of investment capital 1.3.2 Expectation of revenues and project costs 11 1.3.3 Determination of profit, loss, and cash flow of project 12 GRADUATION THESIS 1.4 Sensitivity analysis 24 CHAPTER II 26 INTRODUCTION OF CONSTRUCTION INVESTMENT PROJECT “BAC KAN SPONGE IRON FACTORY” .26 26 2.1 About the Investor 26 2.1.1 Overview of Material and Complete Equipment Export-Import Corporation “Matexim” 26 2.1.2 Functional Task, activity areas 27 2.1.3 The organizational management structure 27 2.1.4 Production and business characteristics of the company 28 2.2 Introduction of Construction Investment Project “Bac Kan Sponge Iron Factory”.31 2.2.1 The necessity of investment 31 2.2.2 Investment purposes: 37 2.2.3 Research of project market .38 2.2.4 Capacity and product 42 2.2.5 Technology 42 2.2.6 Plan and place of factory 44 2.2.7 Labor organization 46 CHAPTER III .52 ECONOMIC AND FINANCIAL BENEFIT ANALYSIS OF INVESTMENT PROJECT OF BAC KAN SPONGE IRON FACTORY 52 3.2 Source of capital: 52 3.3 Production plan: .52 3.5 Estimated project revenue 57 3.9 Project scenario analysis: 59 CONCLUSION AND RECOMMENDATIONS 61 Reference documents 62 International Executive Master of Business Administration Program Page GRADUATION THESIS INTRODUCTION Vietnam - one underdeveloped agricultural country went through two big wars which had pushed its economy to be lagged behind economically in comparison with the world’s After two years of independence (30/4/1975), Vietnam jointed into the United Nations and officially became one member in the United Nations Due to centrally – planed economic management model, Vietnam’s economy did not developed during a long time then always stayed at the backward top of the world Recognizing this matter, until the sixth national party congress (1986) under the objective view, our country chose economic development model in the direction of socialist republic oriented market instead of centrally – planned economic management model In 1995, Vietnam participated into ASEAN and about eleven years later continued to joint in WTO (2006), then became the 150th member of WTO During more last two decades, our economy has gained significant developments Breaking through since 2000 until now, the economy has grew at the annual average of 7,73% (source from Legatum Institute (http://www.li.com), belonged to the leading top of the continent Currently, Vietnam’s economy has overcome out of the poorest country top of the world with the income per capita of 1300$ However, it is still a great distance compared with countries in the same region such as Income per capita in Vietnam lagged behind about 51 years in comparison with Indonesia’s, about 95 years in comparison with Thailand’s and 158 years in comparison with Singapore’s (According to Sai gon times on 5.4.2012) Based on student’s opinions, in order to shorten this distance, then beside determining proper national strategy, strict legal system not by the way of saving, but the only way for us is investment Only by investment, we can increase labor output, then innovate technologies, continually take fully advantages of national sources of the country (oil, mineral, mining, forestry, sea…) as well as create products meeting with higher and higher demands of people in general and customer’s in particular The investment activities must come along with projects meanwhile for projects to be effective, then it must be objective in the process of setting up projects, we must analyze and evaluate carefully factors influencing on projects and especially good project management In the scope of thesis, student focuses on researching and evaluating an important perspective of the project which is “effects of the project” International Executive Master of Business Administration Program Page GRADUATION THESIS Name of thesis: Analysis and evaluation on effects of “Bac Kan soft iron production factory” project Reason of choosing this thesis: According to the statistics of Investment and planning Ministry, annually Vietnam has about 20.000 companies born out but about 30% of companies going to bankrupt during about years Especially in some first months of 2012, there have been 50.000 companies going to bankrupt Some companies are step by step developing so much, but beside that there are many companies which are still staying stalled, produce moderately or go to be ruined… why? In addition of strategy, market, capital source, objective reasons from macro management of the Government, one of main reasons leading to failures of those companies is that effects of the project investment are low or loss The development of companies and widely country’s economy, we must be straight to say that non - investment means that companies are going to be ruined and absolutely the economy will not develop We can see that the core of the investment is to gain profit and offer jobs for employees In order to gain profit, the research and studying works must be careful and accurate There are some projects which are considered as high economical effective ones, but actually after being completed and going into operation, they face to great losses What is reason? In my opinion, the main reason is that the analysis of project’s effects is not right, provided data is not accurate In the fact that this issue happened to many real state projects, brick production factory, concrete production factory, mining projects Material and complete equipment Export and import corporation (MATEXIM) is one company operating in some traditional scopes such as trading, transportation, real estate However, now it was supplemented with completely new one which is mining and product manufacture from ore This scope was carried out by iron ore exploitation and investment projects and soft iron production factory in Bac Kan This is one big and daring project of the company that decides survival and business strategies in long term for the company In the scope of the thesis, I really expect to analyze and evaluate effects of Bac Kan soft iron production factory project under my knowledge trained in MBA course and researching results Targets of the research In this thesis, I took fully advantages of theories studied in MBA course, researching documents in order to analyze and evaluate as well as research factors related to effects of International Executive Master of Business Administration Program Page GRADUATION THESIS the project, then propose solutions for the project to be more effective, limit risks for the company The method of research 4.1 Methods used as follows: - Research case study of Matexim Company and some other projects which have been operating in the northern area - Make statistics and analysis on market, collect actual information, treat data and use database of consulting services in the technical field 4.2 Offer conclusion based on the procedure: collect information – process information – estimate price of future market – offer solutions – find the most optimal solution conclusion Database for research 5.1 Use database studied in MBA course, especially project management course, enterprise finance, strategic management 5.2 Use database from projects provided by Matexim Company, actual data from some projects of domestic and foreign factories 5.3 Data sources from professional organizations 5.4 Data researched on Internet under verified documents Structure of the thesis: the thesis includes 03 chapters and the introduction as follows: INTRODUCTION CHAPTER 1: Theory base on the project investment and analysis CHAPTER 2: introduce about Bac Kan soft iron production factory project CHAPTER 3: Analyze and evaluate economic – financial effects of Bac Kan soft iron production factory project Conclusion and suggestions: Student’s thesis is one actual project which is being invested by Matexim Company The research shows which key phase is leading to one effective project, which is key phase leading to bad effective or non effective one for the investor to have more views on project’s future Our students expect to receive suggestions from professors of the course and especially from Associate Professor Dr Tran Van Binh – the thesis instructor for the thesis to be better and be applied successfully in the actual case Respectfully thanks! International Executive Master of Business Administration Program Page GRADUATION THESIS 1.2 Contents of the project feasibility study 1.2.1 Feasibility Study: Is the last screening step to select the optimal project, this stage is to confirm the investment opportunity feasible, solid, and effective or not? In this step of study, the study content is similar to the pre-feasibility study stage, but they differ in more detailed and accurate level All aspects of the study are considered in the active state, i.e taking into account the uncertainties that can occur on the contents of the study Considering the solidity of the project in terms of the impact of the uncertainties, or it may have any impact measures is to ensure effective project 1.2.2 Nature and purpose of feasibility study Nature of feasibility study: In terms of form, the feasibility study document is a collection of records presenting in a detailed and systematic manner the solidity and the reality of a business production activity and the socio-economic development in the aspects of market, technique, finance, organization, and socio-economic management In our country, the feasibility study is often called as the economic-technical arguments The feasibility study is conducted based on the results of studies on investment opportunities and pre-feasibility study accepted by the competent authorities At this stage of feasibility study, the project is drafted more carefully to ensure that all expectation and calculation must be achieved at a high level of accuracy before submitting to planning, financial, and banking agencies and the international financial institutions for evaluation Purpose of feasibility study: The feasibility study process is conducted in three stages The stage of investment opportunity study is aimed at removing immediately the clearly unfeasible projections despite of being without going into details The unfeasibility is demonstrated by statistics and easily findable material economic information It helps to save time, and costs for the next studies The purpose of feasibility study is to consider the last time to reach accurate conclusions about all the basics of the project through carefully calculated and detailed statistics and techno-economic-technical schemes, schedules, and project implementation progress before formal investment decision All in all, the feasibility study is one of the tools to implement economic plans of industries, localities, and the country as a whole to turn plans into concrete actions and bring socio-economic benefits to the country and the financial benefits to investors International Executive Master of Business Administration Program Page GRADUATION THESIS 1.2.3 Major contents of feasibility study: The feasibility study is also known as establishment of investment projects Major contents of an investment project include micro-and macro-economic, technical, and management aspects These aspects in the projects of different industries have their own unique characteristics Therefore, the choice of fields for drafting technical description and project analysis will be a relatively complete model This model can be used as a reference when drafting projects in other industries * Major concrete contents of an investment project include the following issues: - Considering the general economic situation related to the investment project: It can be considered that the general economic situation is the basis of the investment project It represents the investment scenario directly affecting the process of development and financial economic efficiency of the investment project The general economic situation is mentioned in the project includes the issues as follows: + Natural geographical conditions (topography, climate, geology, etc.) related to selection and implementation of the project and upholding the efficiency of the project in the future + Population and labor conditions related to the demand and consumption trends and to the labor source provided to the project + Political situation, policies, and laws that affect the interest of investors + Socio-economic development situation of the country and localities and the business production development of industries and units (GDP growth rate, investment ratio on GDP, relationship between savings and consumption, GDP/capita, rate of business return, etc.) that affect the implementation process and the promotion of the efficiency of the project + Situation of foreign exchange (foreign exchange payment balance, foreign reserves, debt, and debt payment situation ) especially for projects importing raw materials and equipment + Economic systems and policies, including: Structure of business system by industry, property relation, and region to assess the level and comparative advantages of the investment project; the policies for development, economic reforms, and restructuring in order to assess how favorable the level of awareness, thinking innovation, and environment for investment are International Executive Master of Business Administration Program Page GRADUATION THESIS + Status of national economic planning by period, level of detail, objectives, priorities, and impact tools from which to see the difficulties, advantages, and priority that the project will be responded to as well as the limitations which the project must comply + Situation of foreign trade and other relevant institutions, such as import and export, import and export taxes, exchange rate policy, investment rules for foreigners, balance of trade, international balance of payments, etc These issues are particularly important for projects producing goods for export and import of raw materials and machinery For example, the inappropriate exchange rate policy (the domestic exchange rate against foreign currencies is low) will cause that the more production is, the more export losses, and too high export taxes will cause difficulties in competing with goods from other countries in the overseas market The investment rules have the effect of encouraging and attracting foreign investment The facts and data to study the general economic situation of projects above can be collected easily in almanacs, statistical reports, magazines, books, and international economic materials However, small projects not need so many macro-economic data For large projects, it depends on the objectives, characteristics, and scope of the effects of projects to select in the general economic issues above the issues related to the projects for review For all levels of project evaluation, macro-economic issues are considered not only in the perspective of its impact on the projects, but also the projects’ impact on the economy at the macro perspective, such as socio-economic benefits brought by the projects and the projects’ impact on the development of the economy and industries for economic structural reform and foreign-affair economic development, etc - Market study: Market is the decisive factor in selection of targets and scale of projects Even in the case of projects having signed sole contracts, it must also study the markets where sole agents sell their products and the reputation of the sole agents on these markets The market study purposes are to determine: + The product supply-demand markets of or services of the current projects, the development potential of this market in the future, and the economic and non-economic factors affecting the demand for products or service International Executive Master of Business Administration Program Page GRADUATION THESIS + The promotional and marketing measures necessary to be able to boost the sale of products of the projects (including pricing policies, organization, distribution, packaging, decoration, and advertising, etc.) + The competitiveness of the products compared to similar products available and products to be released in the future 1.3 Financial-economic analysis for investment projects 1.3.1 Determination of investment capital * Determination of investment capital needs to be done each year and on the entire project on the basis of the progress of the plan for proposed investment In the total investment capital, it needs to separate groups: - According to sources of capital: contribution or loans (short-term, medium-term and long-term with interest rate for each source) - According to forms of capital: (Vietnam dong, foreign currencies), in kind, or other assets The total estimated investment capital of an project should be considered at each stage of the investment process and determined in Vietnam dong, foreign currencies, in kind, or by other assets The total investment capital of the project includes the entire amount of capital needed to set up and put the project into operation This total capital is split into two categories: Fixed capital and working capital - Fixed capital consists of preparation costs and initial expenses of investments in fixed assets These expenses are allocated to cost of products every year in the form of depreciation + Preparation cost means the costs incurred before the investment project implementation Preparation cost includes: costs for establishment, project study, filing, submission, initial management (meetings, procedures, etc.), supply arrangement relation, marketing, etc more Preparation cost is an amount difficult to calculate accurately We must not miss the detailed items and the budget for those items These costs need to be unanimously agreed by the parties to invest + Initial cost of investment in fixed assets includes the original costs of land, cost of equipment, means of transport, and cost of technology transfer need to be certified by the competent authorities and in accordance with the regulations of Ministry of Finance International Executive Master of Business Administration Program Page GRADUATION THESIS - Working capital is the amount needed to be spent on certain investments in a number of items to make it convenient for the business of the project Working capital needs to be determined for each year and for each specific component Working capital of the project is usually determined by the formula: Working Capital = CB + AR - AP + AI In which: CB: Cash balance AR: Amount of receivables AP: Amount of payables AI: Amount of inventory Table of capital estimation item I Year I I I II Cash balance (CB) Amount receivables (AR) Amount payables (AP) Amount of inventory (AI) Total working capital (1 + – + 4) * Determination of capital sources for the project and the ability to secure capital from each source in terms of quantity and progress Table of capital structure Total Capital cost Item capital Construction stage Production stage current (Return of price) capital) Year 1 (At Year Year Year Total investment Capital source + Budget + Equity International Executive Master of Business Administration Program Page 10 GRADUATION THESIS + Selecting people/shift + Compressing people/shift + Mechanical and electrical maintenance people/shift + Homogenizing people/shift + Chemical test people/shift - Coal gasification stage + Operation workers + Main control room people/shift people/shift + Coal providing for cleansing ash people/shift - Warehouse management + Transportation people/shift + Statistic management people/shift Total employees of the factory are: 225 people, including 51 indirect employees and 174 workers 2.2.8 Total investment capital: * Fixed capital: 549.637.000.000 VND 519.637.000.000 VND In which: - Facility, equipment cost: 335.000.000.000 VND - Construction cost: 115.110.000.000 VND - Other cost: 12.903.571.000 VND - Back-up cost: 26.623.429.000 VND - Interest cost (in construction time): 30.000.000.000 VND * Working capital: 30.000.000.000 VND Construction capital Unit: 1.000 VND No Items Main workshop Material and product Unit 19.300 m2 3.000 m2 Price 3.000 3.000 Money amount 57.900.000 9.000.000 warehouse Coal gasification 1.000 m2 3.000 3.000.000 workshop International Executive Master of Business Administration Program Page 49 GRADUATION THESIS Coal processing 750 m2 3.000 2.250.000 workshop Mechanical workshop Laboratory Water tanks and 350 m2 240 m2 Total 3.000 3.500 800 1.050.000 840.000 800.000 pumping stations Parking lot Garden, internal roads 400 m2 15.000 m2 1.800 500 720.000 7.500.000 Total 9.000.000 9.000.000 + water drainage 10 system Foundation and ground 11 12 construction Worker house Working house and 1.200 m2 1.200 m2 3.500 4.200 4.200.000 5.040.000 13 14 15 16 cafeteria Security house Fence, gate Tree, flower garden Voltage regulation 60 m2 700 m Total station 5.000 2.300 700.000 493.835 300.000 1.610.000 700.000 493.835 17 station No 1-250KVA General voltage station 5.000.000 5.000.000 18 19 20 regulation station Electricity system Water drainage system 100 ton electric scale Total Total Total 3.000.000 1.000.000 600.000 3.000.000 1.000.000 600.000 System Total 800.000 306.165 21 22 system Fire protection systems Other facilities Total 800.000 306.165 115.110.000 Table of other related costUnit: 1.000 VND No I Items Pre-investment period Plan investment project Evaluate investment project Report DTM Factor Money amount 722.461 250.000 30.000 200.000 International Executive Master of Business Administration Program Page 50 GRADUATION THESIS II Geological survey Investing period Construction technical 2%*115.110.000 242.461 9.245.637 2.320.200 design cost Construction design 0,13% *115.110.000 149.643 verification Construction budget 0,13% *115.110.000 149.643 verification Construction bidding 0,1% *115.110.000 115.110 consulting Facility bidding consulting Construction supervision Facility installation 1,65% *115.110.000 0,37% * 335.000.000 155.000 1.899.315 1.184.000 supervision Project management cost: 1,32% * 2.970.726 1,32% (XD+TB)*50% Static pile compression cost 450.110.000*0,5 20*15.000 300.000 Total 20.000 approval 0,07% *450.110.000 2.935.473 315.077 verification(Total) Auditing Construction and facility 0,12% * 450.110.000 0,24% *450.110.000 540.132 1.080.264 Total 1.000.000 12.903.571 (all construction items) 20 10 piles Verification III bidding results Ending period Budget of insurance Training worker Total facility International Executive Master of Business Administration Program Page 51 GRADUATION THESIS CHAPTER III ECONOMIC AND FINANCIAL BENEFIT ANALYSIS OF INVESTMENT PROJECT OF BAC KAN SPONGE IRON FACTORY 3.1 Total capital: 549.637.000.000 VND With: + Fixed capital: 519.637.000.000 VND + Working capital: 30.000.000.000 VND 3.2 Source of capital: + Owner capital 30% 155.891.100.000 VND + Bank loan 70% 363.745.900.000 VND + Interest rate of the first years: 6, 5%/year, years after that: 12%/year 3.3 Production plan: 3.3.1 Capacity and output:According to project reality inspection, data obtained from project owners, it is expected that the factory will go into operation in 4th quarter of 2012 and official production process will start in 2013 The estimated capacity: + In the 1st year (2013): 65.000 ton/year, equal to 65% designed capacity + In the 2nd year (2014): 75.000 ton/year, equal to 75% designed capacity + Since (2015): 100.000 ton/year, equal to 100% designed capacity 3.3.2 Demand for material: To reach the expected capacity, the demand for material is supposed to be at the level: Table3.1 Main material for production: No Items Unit Year Year Year Iron ore Ton 120.000 136.000 160.000 Reverting coal Ton 33.750 38.250 45.000 Coal gasification Ton 37.500 42.500 50.000 Limestone Ton 7.500 8.500 10.000 Refractories Ton 450 510 600 International Executive Master of Business Administration Program Page 52 GRADUATION THESIS Electricity Water Other material KWh 9.000.000 10.200.000 12.000.000 M3 150.000 170.000 200.000 % 2 * Material supply source - Iron ore Iron ore for sponge iron production in tuynel furnace with AMR-CBI technology has to have these technical features: TFe ≥ 60% S ≤ 0,15% P ≤ 0,1% As ≤ 0,1% andPb≤ 0,1% About the quantity demand: For the st year: 120.000 ton, for the nd year: 136.000 ton and since the 3rd year, each year needs: 160.000 ton With the stated demand, Matexim Company absolutely can supply sufficient amount because the company is exploiting iron mines at Ban Cuon and Ban Quan with the output of 200.000 ton/year - Coalused as reverting substance Quality of coal used as reverting substance should be: C ≥ 70% Tro≤ 15% Grain size≤ 0,247 mm About quantity demand, for the 1st year: 33.750 ton, for 2nd year: 38.250 ton and since 3rd year, each year needs 45.000 ton Given the quality and quantity demand, the coal exploitation branch at Thai Nguyen (Nui Hoang mine, KhanhHoa mine…) or BacKan can ensure the stable supply - Coal for gasification: Quality requirement Grain size: 25 – 60 mm Can use agglomerated coal Heating value: ≥ 6.500 Kcal/kg International Executive Master of Business Administration Program Page 53 GRADUATION THESIS Melting point: 1250˚C Thickness of adhesive layer: ≤ mm S content: ≤ 0,5% About quantity demand, for the st year: 37.500 ton, for the 2nd year: 42.500 tonand since the 3rd year, each year needs: 50.000 ton Given the quality and quantity demand, the coal mine at Thai Nguyen and BacKan can ensure the supply - Limestone: This material is used for desulphurization process The quality requirement: CaO ≥ 50% Grain size: ≤ 0,247 mm About quantity demand, for the 1st year: 7.500 ton, for the nd year:8.500 tonand since the 3rd year, each year needs: 10.000 ton Given the quality and quantity demand, the limestone exploitation branches at BacKan can ensure the supply - Refractories: This material is used to build Tuynel furnace and be supplied by facility suppliers (in the facility and equipment package) The demand for the st year is 450ton, for 2nd year: 510 ton, for the next years: 600 ton, which will be bought from domestic manufacturers at Thai Nguyen, Cau Duong, BacNinh The refractory for building reverting tanks will be purchased from facility suppliers Since then refractory can be bought domestically or recycle - Electricity: When reaching 100% production capacity, each year the factory needs 12.000.000 kWh electric power Knowing the demand, the factory plans to build a voltage generator station 2.000 kVA Moreover, the factory locates in ThanhBinh industrial zone;BacKanElectricity Corporation favors the best conditions for factory operation - Water supply: The demand for water is quite low; the high demand is for coal gasification process With 100% designed capacity, each year the factory consumes200.000 m3 water/year, equal to 25 m3/hour The factory builds a pumping station to meet up the technical demand for production process International Executive Master of Business Administration Program Page 54 GRADUATION THESIS 3.4 Production cost: Base on labor organization chart, the total salary payment/month is calculated on table 3.2 Base on the material consumption demand and salary payment, the working capital requirement/month in 2013, 2014, 2015 can be calculated: Table 3.2 Salary payment/month No I Tittle Director board Director Deputy director II Technical Unit: 1.000 đ Number Salary/person Money amount 30.000 25.000 30.000 50.000 departments Department 15.000 60.000 manager Department deputy 12.000 48.000 III manager Officer Security staff Workshop Workshop 28 12 8.000 3.000 224.000 36.000 15.000 60.000 manager Workshop deputy 12.000 72.000 164 225 3.500 574.000 1.154.000 manager Worker Total + Annual salary payment: 1.154.000.000 VND/month x 12 months = 13.848.000.000 VND + Bonus amount= month salary: 1.154.000.000 VND + Total annual salary payment: 15.002.000.000 VND Insurance: Insurance cost (Social insurance, medical insurance, labor accident insurance) and union cost) are equal to 21% total salary payment: 13.848.000.000VND x 21% = 2.908.080.000 VND Table3.3 Capital investment/month in 2013Unit: 1.000 VND International Executive Master of Business Administration Program Page 55 GRADUATION THESIS No Items Amount Price Money amount Iron ore 10.000 ton 2.000 20.000.000 Coal 5.937,5 ton 961 5.705.937 Limestone 625 ton 1.160 725.000 Refractories 37,5 ton 403 15.113 Electricity 2,3 1.725.000 750.000KWh Salary+ Insurance Other month 1.492.506 2% 593.271 Total 30.256.827 Table 3.4.Investment capital in 2014Unit: 1.000 VND No Items Iron ore Coal Amount Price Money amount 11.333 ton 2.000 22.666.000 6.729 ton 961 6.466.569 Limestone 708 ton 1.160 821.280 Refractories 425 ton 403 17.128 Electricity 2,3 1.955.000 850.000KWh Salary+ Insurance Others month 1.492.506 2% 668.369 Total 34.086.852 Table 3.5 Investment capital in 2015Unit: 1.000 VND No Items Iron ore Coal Limestone Refractories Electricity Salary+ Insurance Amount Price Money amount 13.333 ton 2.000 26.666.000 7.916 ton 961 7.607.276 834 ton 1.160 967.440 50 ton 403 20.150 1.000.000KWh 2,3 2.300.000 month 1.492.506 International Executive Master of Business Administration Program Page 56 GRADUATION THESIS Others 2% 781.067 Total 39.834.439 3.5 Estimated project revenue The price of sponge iron on December 2012 is: 9.000.000 VND/ton; expected price in 2013 is 9.000.000 VND/1ton; in 2014 and 2015: 9.500.000 VND/1ton The revenue of years as follow: Table 3.6 Estimated revenuesUnit: 1000VND Period Item Year 2013 Year 2014 Year 2015 Year 2016 1.Amount Price 65.000 ton 9.000.000 75.000 ton 9.500.000 100.000 ton 9.500.000 100.000 ton 9.500.000 3.Domestic revenue 585.00.000 655.000.000 950.000.000 950.000.000 3.6 Interest and loan payment plan: According to the loan contract between Matexim Company and VDB bank, in the first years, the interest cost will be 6.5%/year and after these years, it will be 12%/year Loan payment period starts from 31/12/2013 Bảng 3.7 Interest and loan payment plan Unit: 1000đ Beginning Year 2013 2014 2015 2016 363.745.900 290.996.720 218.247.540 145.498.360 balance Periodic 23.643.483 18.914.786 26.189.704 17.459.803 8.729.901 interest Loan 72.749.180 72.749.180 72.749.180 72.749.180 72.749.180 290.996.720 218.247.540 145.498.360 72.749.180 Item payment Ending balance 3.7 Cash flow of project: Unit: 2017 72.749.180 Billion VND 1.Revenue 585 655 950 950 950 950 950 950 10 950 International Executive Master of Business Administration Program Page 57 950 GRADUATION THESIS Other revenue 3.Investment capital Fixed capital Working capital Annual operating cost 30 549,63 519,63 30 363,1 409 478 478 478 478 478 478 478 478 5.Depreciation 51,96 51,96 51,96 51,96 23,6 18,9 17,5 8,7 51,9 51,9 51,9 51,9 51,96 6.Interest cost 51,9 26,2 7.Taxable income Corporate tax 146,3 175,1 402,5 411,3 420 420 420 420 420 36,6 43,8 398, 99,7 100,6 102,8 105 105 105 105 After tax income 109,4 131,3 299,1 301,9 308,5 315 315 315 315 315 0 0 0 0 0 202,2 377, 371,5 369,2 367 367 367 367 397 167,3 165,3 252 216,9 188,4 163, 143,1 125,1 109, 103,4 382,3 217,0 34,9 251, 86 440,2 604 747,1 872, 981, 10.Additional investment 11 Project cash flow 549,63 549,63 12 NPVn 13 Accumulated profit 185 549,63 105 Discounted interest cost: - The first years: - Other years: R01 = 0,065*0, +0, 2*0, = 0,106 R03 = 0, 12*0, 7+0, 2*0, = 0,144 3.8 Economic- Financial analysis: (NPV, IRR, B/C, Break-even period) - Break-even period: T= + 34, 96*12/252 = years10 months - Net present value of project: NPV = 1.634, 6– 549,637 = 1.084,963 - With r1 = 0,45  NPV1 = 48 - With r2 = 0,5 NPV2 = -18,2 International Executive Master of Business Administration Program Page 58 1084,9 GRADUATION THESIS - IRR = r1 + NPV1/( NPV1-NPV2)*(r2-r1) = 0, 45 + 48/(48+18,2)*(0,5-0,45) = 0,486 - Benefit /Cost ( B/C): PV (B) = 4.387 billion VND PV(C) = 2.882,3 billion VND B/C = PV (B)/PV(C) = 4387/2882, = 1,522 - Break-even point: + Project output: 940 thousandton, Total project revenue: 8840 billion =>Average price: p = 8.840/940=9, + Total project cost: 4.596,1 =>Average cost: v = 4.596,1/940 = 4,9 Break-even quantity: X= f/ (p – v) = 519,637/ (9, – 4,9) = 115,5 thousand ton 3.9 Project scenario analysis: * When annual operating cost increases 15%, the cash flow table changes as followed: Unit: Billion VND Revenue 10 585 655 950 950 950 950 950 950 950 Other revenue Investment capital Fixed capital Working capital Annual operating cost 5.Depreciati on 6.Investment cost 7.Taxable income Corporate tax 30 549,63 519,63 30 417,6 470,4 549,7 549,7 549,7 549,7 549,7 549,7 549,7 549,7 51,96 51,96 51,96 51,96 51,96 51,96 51,96 51,96 51,96 51,96 23,6 18,9 26,2 17,5 8,7 0 0 92 113,7 322,1 330,8 339,6 348,3 348,3 348,3 348,3 348,3 22,9 28,4 80,5 82,7 84,9 87,1 87,1 87,1 87,1 87,1 International Executive Master of Business Administration Program Page 59 GRADUATION THESIS After tax income 10Additiona l investment -22,9 85,3 241,6 248,1 254,7 261,3 261,3 261,3 261,3 261,3 0 0 0 0 0 11 Project cash flow 549,64 -22,8 156,2 319,8 371,5 315,4 313,2 313,2 313,2 313,2 313,2 12 NPVn 549,64 549,64 62,4 127,7 213,6 216,9 160,9 139,7 122,1 106,8 93,3 89,4 487,2 359,6 -146 70,96 231,9 371,6 493,8 600,6 693,9 783,3 13 Accumulate d profit - Net present value of project income: NPV = 783,272 R1=30%  NPV1=93, 4798 R2=35%  NPV2= - 12, 0847  IRR= R1 + NPV1*(R2 – R1)/ (NPV1-NPV2)=0,3443 So when the project cost increases by 15%, the project still generates profit • Whenrevenueof project decreases by 15%:Unit: Billion VND 10 497,2 556,7 807,5 807, 807, 807,5 807,5 807,5 807,5 807,5 Revenue Other revenue Investment capital Fixed capital Working capital Annual operating cost 30 549,63 519,63 30 363,1 409 478 478 478 478 478 478 478 478 5.Depreciation 51,96 51,96 51,96 51,96 51,96 51,96 51,96 23,6 18,9 26,2 51,9 8,7 51,96 6.Investment cost 7.Taxable income 51,9 17,5 0 0 58,59 76,89 251,34 260 268, 277,5 277,5 277,5 277,5 277,5 14,6 19,2 62,8 65 67,2 69,4 69,4 69,4 69,4 69,4 Corporate tax International Executive Master of Business Administration Program Page 60 GRADUATION THESIS After tax income 73,2 10Additional investment 11 Project cashflow 549,63 549,63 12 NPVn 13 Accumulated profit 96,1 314,2 325 336 346,9 346,9 346,9 346,9 346,9 0 0 0 0 0 148,8 167 392,3 394, 396, 398,9 134,5 136,5 262 230, 202, 177,9 398,9 155,5 398,9 136 398,9 118,9 398,9 111,7 134,5 271 533,1 763, 965, 1143,8 1299,4 1435,3 1554,2 1665,9 549,63 -Project net present value: NPV = 1116,266 - Break-even period T = years 11 months - Internal rate of return IRR = 0,471902 So the project still generates profit when revenue decreases by 15% CONCLUSION AND RECOMMENDATIONS * Conclusion: The thesis serves for the purposes: - Give an honest and subjective view about the profit possibility of the project so that the project owner can make reference to have a better project management quality - Project owner should know how successful this project can be and how much capital is needed for each investment period, which will help them to minimize project investment cost - This thesis is completed on the basis of reference to fundamental economic theory taught at MBA course, other relevant documents and individual experience accumulated in the time of working with Matexim Company With the enormous support and careful guide of associate profess or, PhD TrầnVănBình, the thesis is finished to provide the readers some useful knowledge of project management and International Executive Master of Business Administration Program Page 61 GRADUATION THESIS mineral resource production project in particular Hopefully, this document can provide the objective view for Matexim Company about their investment project * Recommendations: Personally I think that to avoid the failure and capital loss of investment projects, any big project should be more carefully considered the operating possibility and profitability before the government authority approves the investment project and release investment certificate Thank you for your interest and consideration! Hanoi,… October 2012 Student: ĐặngHữuKỳ Reference documents - Investment Law No 59/2005/QH 11, approved by Vietnam National Assembly on 29/11/2005 andDecree No 108/2006/NĐ-CPon 22/9/2006 , Government instructed to enforce Investment Law; - Construction Law No 16/2003/QH 1, approved by Vietnam National Assembly on 26/11/2003; - Decree No 12/2009/NĐ-CP on 12/02/2009, Government regulated the project management and construction site; - Circular No 02/2007/TT-BXD on 14/02/2007, Ministry on construction instructed to establish, evaluate and approve the construction project, construction certificate, construction project management; - Decree No 209/2004/NĐ-CP on 16/12/2004,Governmentregulated quality control of construction building; - Decree No 99/2007/NĐ-CP on 13/6/2007,Government regulated the cost management of construction buildings; - Decree No 03/2008/NĐ-CP on 07/01/2008, Governmentamended some terms of Decree No 99/2007/NĐ-CP on 13/6/2007; International Executive Master of Business Administration Program Page 62 GRADUATION THESIS - Decision No 345/2007/QĐ-TTgon 04/9/2007, President approved the plan of developing the steel industry in period of 2007-2015, regarding to 2025; - Environment protection Law 28/8/2005, DecreeNo 63/2008/NĐ-CP on 13/5/2008 Governmentinstructed to enforce environment protection Law; - Business registration certificate No 0103017766, released by Hanoi Planning and Investment department the 2nd time for Matexim Company; - Decision No 685/GP-UBND on 11/4/2006, BacKan’s people committee approved that the Matexim Company can exploit iron ore at Ban Cuon (Ngoc Phai town, Cho Don district); - The license to research the iron mine Ban Quan, released by Ministry of natural resource and environment; - Notification No 92/TB-UBND on 29/8/2008, BacKan’s people committee approved Matexim Company to build the sponge iron factory at ThanhBinh industrial zone, Cho Moi district; - Report No 06-BB/HĐQT on 15/9/2008, shareholder board of Matexim Company approved to build sponge iron factory with production capacity of 100.000 ton/year; - Economic contract No 18-3/09, signed on Matexim Company and 1Black Metallurgy Institute about investing to construct the sponge iron factory with capacity of 100.000 ton/year at BacKan; - Other relevant legal documents International Executive Master of Business Administration Program Page 63 ... types of general terms: revenue and costs Revenue reflects the completion level achieved from the project activities (sales and service revenue) Meanwhile, costs show the level of consumed effort... time They are recovery time not based on monetary value and recovery time based on monetary value The trend to use the method recovery time based on monetary value is higher because it reflects... qualified include: geological engineers, mining engineer, civil engineers, mechanical engineers, etc and especially the experts manage the project - Finance: + Healthy finance,no prolonged arrears