1. TERM LOAN OF GUANGZHOU GUOWEI PIPED LPG DEVELOPMENT CO. LIMITED(GG)
Group of DKB : Vitas

2. Category
Summary
Profitability
LPG Station
Introduction
Cash Flows

3. Major business and client base
Selling LPG and equipments
Supply LPG gas
Sell LPG appliances
Sources of
revenue
residential and industrial users
small wholesalers and retailers
Deposits from consumers
residential customers
state-owned gas companies

4. To increase capacity Good prospects Strengths
A term loan of US$10 million at an all-in interest cost of
to finance for a new LPG station in GETDD
Product
Clean and safe LPG gas
Potential market in Guangdong
Price
Tariff-free quota to import
Promotion
Good relationship
Delayed payments for customers
LIBOR(5.75%)+1.5%
LIBOR+1%

5. ? ? ? 3 key questions 1.LIBOR+1% adequate 2.Future cash flows adequate
3.Repayment period for a term loan ? ?

6. Introduction
Category
LPG Station
Profitability
Cash Flows
Summary

7. The new LPG vaporizing station
When
Sept,1997
Where
GETDD
How much
RMB million
Imported equipment: $10 million, or RMB million

8. Fixed assets for the new LPG station
1997
1998
1999
Beginning fixed assets
129,650
129,650
129,650
Depreciation
4,322
12,965
12,965
Ending net fixed assets
125,328
112,363
99,398

9. Total Capacity: 13,500 tons

10. Estimated LPG Demand from the new LPG Station (in RMB thousands)
1997
1998
1999
2000
2001
Industry users
FULL
Yearly demand (tons)
1500
3500
7500
8750
10000
Residential households
FULL
New households acquired
600
2400
2640
2360
Yearly demand (tons)
37.5
750
1410
2000
Total households
600
3000
5640
8000
Cylinder users
New customer added
600
600
Yearly demand (tons)
600
600
600
112.5
600
750
900
1050
Total customers
1800
2400
3000
3600
4200
Total

11. In-house pipeline, owned by the customer
500
Deposit
RMB 3,500
Allocate to the cost of the station and the
common pipeline; add to retained earnings
1,800
General revenue
1,200

12. CUSTOMER ADVANCES
(in RMB thousands)
1997
1998
1999
2000
2001
for in-house pipelines
3,300
5,200
9,320
3,680
2,500
added to retained earnings
11,880
18,720
33,552
13,248
9,000
gross profit
7,920
12,480
22,368
8,832
6,000
Total deposits
23,100
36,400
65,240
25,760
17,500

13. PROJECTED SALES AND GROSS PROFIT FROM THE NEW LPG STATION
(in RMB thousands)
1997
1998
1999
LPG sales
Gross profit from LPG sales
LPG cost
Sales from heater and stove
Gross profit from heater and stove
Cost of heater and stove
Total gross profit

14. Introduction
Category
LPG Station
Profitability
Cash Flows
Summary

15. ？
Net present value(NPV)
RISK
Positive!
If NPV>0

16. Net present value Method(NPV)
Discount Rate
Operating cash flow
Initial cash flow
Present value of future cash flows
LIBOR+1%
（129,650）
K=6.75%

17. Operating Cash Flow(OCF)
Tax shield approach
OCF
= (Sales – Cost ) * (1-T) + Depreciation * T
Adjusted Tax shield approach
OCF
= (Sales – Cost + Gross Profit from Deposit) * (1-T) + Depreciation * T+ Added to retained earnings

18. OCF ×（1-T） × T + Operating Cash Flow … … 1997 1998 1999 2005 2006
Total sales
6,812
20,852
38,749
49,356
49,356
×（1-T）
Total cost
3,795
11,155
22,218
31,050
31,050 +
Gross profit from deposit
7,920
12,480
22,368
× T
Depreciation
4,322
12,965
12,965
12,965
12,965
Added to
retained earnings
11,880
18,720
33,552
OCF

19. Positive! > 0 NCF … … 1996 1997 1998 1999 2004 2005 2006 NPV =
20,191
36,088
55,247
16,543
16,543
16,543
(129,650)
18,914
31,668
45,415
… …
9,810
9,189
Positive!
86,08
> 0
NPV =
72.809

20. Introduction
Category
LPG Station
Profitability
Cash Flows
Summary

21. Cash Flow
Cash flow
Cash inflow
Cash outflow

22. Balance Sheet Identity
Cash Flow Identity
Assets = Liabilities + Owners’ Equity
Cash flow
from assets
Cash flow to
stockholders =
Cash flow to creditors +

23. Operating Cash Flow(OCF) Change in Net Working Capital(NWC)
Cash Flow from Assets
Operating Cash Flow(OCF)
Net Capital Spending
Change in Net Working Capital(NWC)
Sales revenue
Cost of goods sold
Tax
Depreciation
Beginning Fixed Assets
Ending Fixed Assets
Depreciation

24. Current assets this year
Ending NWC
If the Cash flow from assets in positive, that is to say the firm has a positive cash flow to pay for the creditors or paid out to the owners of the firm.
Current liabilities this year
Change
in NWC
Current assets in previous year
Beginning NWC
Current liabilities in previous year

25. Pro Forma Income Statement
The Percentage of Sales
Exhibit 2,3,4,5,7
Interest
Tax rate = 33%

26. Gross profit from deposits 7,920 12,480 22,368
1997
1998
1999
Total sales
61522
78298
99067
Total cost
45,953
57,368
70,874
Gross profit
15,569
20,930
28,193
Less sales expenses
521
548
576
Profit from sales
15,048
20,382
27,617
Gross profit from deposits
7,920
12,480
22,368
Profit from long-term investment
480
Less expense
13401
22,607
23,056
EBIT
10,047
10,735
27,409
Less interest
7,874
8,690
6,875
Less taxes at 33%
718
674
6,776
Net profit from sales
1,455
1,371
13,758
Deposits
11,880
18,720
33,552
Additions to retained earnings
13,335
20,091
47,310

27. Pro Forma Balance Sheet
percentage of sales approach
Balance Sheet
“Deposits received ” increase
pro forma income statement

28. Pro Forma Balance sheet
1996
1997
1998
1999
Assets
Current assets
48,309
50,724
53,260
55,923
29,558
153,809
139,685
125,467
45,209
7,608
537
306 75
134,612
223,447
204,020
199,998
70,111
62,691
45,037
22,247
35,920
14,056
-14,486
60,000
107,000
4,501
17,836
37,927
85,237
64,501
124,836
144,927
192,237
Net Fixed assets
Net Intangible assets
Construction work in progress - -
Total assets
Liabilities and Equity
Liabilities
Current liabilities
Long-term debt
Equity
Paid -in capital
Retained earnings
Total equity
Total liabilities and equity

29. Cash Flow From Assets
Net capital spending
Change in NWC
OCF

30. OCF 1997 1998 1999 EBIT 10,047 10,735 27,409 + Depreciation 8,457
17,427
17,784
- Tax
718
674
6,776
OCF
17,786
27,488
44,516

31. Cash Flow From Assets
Net capital spending
Change in NWC
OCF

32. Ending net fixed assets -Beginning net fixed assets
Net capital spending
1997
1998
1999
Ending net fixed assets
153,809
139,685
125,467
-Beginning net fixed assets
170,933
174,236
177,802
+ Depreciation
8457
17,427
17,784
Net capital spending
-8667
-17,124
-34,551

33. Cash Flow From Assets
Net capital spending
Change in NWC
OCF

34. Change in NWC Ending NWC -11,967 8,223 33,676 -Beginning NWC -21,802
1997
1998
1999
Ending NWC
-11,967
8,223
33,676
-Beginning NWC
-21,802
8223
Change in NWC
9835
20,190
25,453

35. Cash flow from assets 1997 1998 1999 OCF 17,786 27,488 44,516
OCF
17,786
27,488
44,516
Net capital spending
-8667
-17,124
-34,551
Change in NWC
9835
20,190
25,453
Cash flow from assets
18,954
30,554
35,418

36. Introduction
Category
LPG Station
Profitability
Cash Flows
Summary

37. What repayment period should DKB recommend?
Was LIBOR plus 1% adequate given the prospects and risks facing GG, and DKB ?
Question1 :
Would GG’s future cash flows be adequate to service the interest and repayments?
Question2 :
What repayment period should DKB recommend?
Question3 :

38. Positive - = Principle: NPV 129,650 Initial Investment 72,890
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006 PV
18,914
31,668
45,415
26,445
21,030
10,994
10,386
9810
9189
8608
Total PV: 202,459
Positive - =
NPV
Total PV
Initial Investment
72,890
129,650

39. What repayment period should DKB recommend?
Was LIBOR plus 1% adequate given the prospects and risks facing GG, and DKB ?
Question1 :
Would GG’s future cash flows be adequate to service the interest and repayments?
Question2 :
What repayment period should DKB recommend?
Question3 :

40. Pass Budgeting for the next three years Budgeting of Balance Sheet
In RMB thousands
Principle: Cash Flows
Budgeting for the next three years
Budgeting of Balance
Sheet
Pass
Cash Flows from Assets
Budgeting of Income
Statement
Each year’s Cash Flow from Assets is positive

41. What repayment period should DKB recommend?
Was LIBOR plus 1% adequate given the prospects and risks facing GG, and DKB ?
Question1 :
Would GG’s future cash flows be adequate to service the interest and repayments?
Question2 :
What repayment period should DKB recommend?
Question3 :

42. Principle: Long-term Loan
1997
1998
1999
Long-term loan
35,920
14,056
(14,486)
2.5 years
Negative
The long-term debt can be repaid at a specific point in 1999.The payback period is expected to be 2.5 years
Kango’s Profit=82650*1%*2.94=

43. Invest in the LPG Station
Conclusion
Question1
Events
Number
Loans
82650
LIBOR
5.75% plus 1%
NPV of LPG project
72809
Total cash flows of GG
84926
Payback Period
2.94 years
Kango’s Profit
Invest in the LPG Station
Question2
Question3
DKB’s Profit

44. The End
Thank You