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Ali had just completed his MBA from a renowned university in Pakistan. Despite lucrative offers from multinational companies he decided to set-up a Stitching Unit manufacturing knit garments. Based on his market research he planned to operate and expand the Stitching in two phases. In Phase 1, he intended to serve the low end of the target, and produce basic items such as Polo shirts priced at US$2.5. The initial investment required for the start-up was Rs 25 million, with 60 per cent debt and 40 per cent equity. The production capacity with sixty five machines was expected to be 2,405 polo shirts per day. In Phase 2, he had planned to serve the higher end of the knitwear market, producing items such as Blouses priced at US$7.5. There was to be an expansion to the stitching unit to one hundred and fifty machines with a production capacity of 2,700 knit garments per day. The expansion of the stitching unit was expected to incur an additional Rs 15 million, which was to be financed by equity. Based on the changing market dynamics and data calculated, Ali had to determine whether the Stitching unit was a financially viable project. |
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