Description
Here is my MBA PROJECT ON CAPTIAL BUDGITING IN ANANTHA PVC PIPES PVT LTD,
INTRODUCTION
The term Capital Budgeting refers to long term planning for proposed capital
outlay and their financing. It includes raising long-term funds and their utilization. It
may be defined as a firm’s formal process of acquisition and investment of capital.
Capital Budgeting May also be defined as The decision ma!ing process by
"hich a firm evaluates the purchase of ma#or fi$ed assets. It involves firm’s decision to
invest its current funds for addition% disposition% modification and replacement of fi$ed
assets.
It deals e$clusively "ith investment proposals% "hich an essentially long term
pro#ects and is concerned "ith the allocation of firm’s scarce financial resources among
the available mar!et opportunities.
&ome of the e$amples of Capital '$penditure are
(i) Cost of acquisition of permanent assets as land and buildings.
(ii) Cost of addition% e$pansion% improvement or alteration in the fi$ed assets.
(iii) *+, pro#ect cost% etc.%
Definitions:
Capital budgeting is long term planning for ma!ing and financing proposed
capital outlays
T.-.*/0*''/
Capital budgeting is concerned "ith allocation of the firm’s scarce financial
resources among the available mar!et opportunities. The consideration of investment
opportunities. The consideration of investment opportunities involves the comparison
of the e$pected future streams of earnings from a pro#ect "ith immediate and
subsequent streams of e$penditures for it1.
2
In any gro"ing concern% capital budgeting is more or less a continuous process
and it is carried out by different functional areas of management such as production%
mar!eting% engineering% financial management etc. 3ll the relevant functional
departments play a crucial role in the capital budgeting decision process of any
organization% yet for the time being% only the financial aspects of capital budgeting
decision are considered.
The role of a finance manager in the capital budgeting basically lies in the
process of critically and in-depth analysis and evaluation of various alternative
proposals and then to select one out of these. 3s already stated% the basic ob#ectives of
financial management is to ma$imize the "ealth of the share holders% therefore the
ob#ectives of capital budgeting is to select those long term investment pro#ects that are
e$pected to ma!e ma$imum contribution to the "ealth of the shareholders in the long
run.
4
REVIEW OF LITERATURE
Introduction
.ne of the three ma#or decisions made by managers is the decision to invest in
fi$ed assets. Investments in fi$ed assets involve large capital outlays and the
consequences of these investments decisions impact a firm’s operations for a very long
time. Therefore a variety of quantitative and analytical techniques are applied by
managers in pro#ect selection to enable them to ma!e good decisions in this area.
2. Literature
It is "idely accepted that discounted cash flo" methods are the best "ay to
evaluate capital budgeting proposals. 5hile several decades ago discounted cash flo"
methods may not have been "idely used (Istvan% 2672) more recent studies (8im% Cric!
and 8im% 2697) suggest that increasingly firms are adopting discounted cash flo"
analysis. Much of the empirical research on capital budgeting practices adopted by
corporate managers is based on :& data (&ee for e$ample Mu!her#ee and -ingorani%
2666.) 3 fe" studies such as those by ;ayne% -eath% and 0ale (2666)% % p. 29) note% learning occurs "hen closely similar
problems are frequently encountered% especially if the outcomes of decisions are
quic!ly !no"n and provide unequivocal feedbac!.1 In most firms% managers
infrequently encounter ma#or investment policy decisions% e$perience long delays
before learning the outcomes of pro#ects% and usually receive noisy feedbac!.
?urthermore% managers often have difficulty re#ecting the notion that every situation is
ne" in important "ays% allo"ing them to ignore feedbac! from past decisions
altogether. Bearning from e$perience is highly unli!ely under these circumstances
('inhorn and -ogarth%26C9D Brehmer% 269A).
E
Third% unsuccessful managers are less li!ely to retain their #obs and be
promoted. Those "ho succeed may become overconfident because of a self-attribution
bias. Most people overestimate the degree to "hich they are responsible for their o"n
success (Miller and *oss% 26C=D Banger and *oth% 26C=D /isbett and *oss% 269A). This
self-attribution bias causes successful managers to become overconfident (,aniel%
-irshleifer% and &ubrahmanyam% 2669D 0ervais and .dean% 4AA2).
?ourth% managers may be more overconfident than the general population
because of a selection bias. Those "ho are overconfident and optimistic about their
prospects as managers are more li!ely to apply for these #obs. Moreover% as 0oel and
Ta!or (4AA9) sho"% firms may endogenously select and promote on the basis of
overconfidence% as overconfident individuals are more li!ely to have generated
e$tremely good outcomes in the past. ?inally% as 0ervais% -eaton% and .dean (4AA6)
argue% overconfident managers may simply be easier to motivate than their rational
counterparts and so hiring them is more appealing to firms.
Revies and A!!ea"s of Ca!ita" #ud$etin$
In the corporate finance capital budgeting survey literature the capital
budgeting process has been described in terms of four stagesF (2) identification% (4)
development% (>) selection% and (E) control. The identification stage comprises the
overall process of pro#ect idea generation including sources and submission procedures
and the incentivesGre"ard system% if any. The development stage involves the initial
screening process relying primarily upon cash flo" estimation and early screening
criteria. The selection stage includes the detailed pro#ect analysis that results in
acceptance or re#ection of the pro#ect for funding. ?inally% the control stage involves the
evaluation of pro#ect performance for both control purposes and continuous
improvement for future decisions.
=
3ll four stages have common areas of interest including personnel% procedures%
and methods involved% along "ith the rationale for each. 3ll four stages are critical to
the overall process% but the selection stage is arguably the most involved since it
includes the choices of analytical methodsGtechniques used% ho" the cost of capital is
determined% ho" ad#ustments for pro#ects ris!s are assessed and reflected% and ho"% if
relevant% capital rationing affects pro#ect choice. The selection stage has also been the
most investigated by survey researchers% particularly in the area of selection techniques%
resulting in a relative neglect of the other stages. This in turn has led to appeals to
future researchers to consider the other stages in their survey research efforts
As %ordon and &inc'es ()*+,- Vie:
Most of the literature on the sub#ect of capital budgeting has emphasized the
selection phase% giving little coverage to the other phases. Instead% it is usually assumed
that a set of "ell-defined capital investment opportunities% "ith all of the informational
needs clearly specified suddenly appears on an e$ecutive’s des! and all that is needed is
for the manager to choose the pro#ect (s) "ith the highest e$pected payoff. -o"ever% as
most managers quic!ly learn% this is not the case. ?urther% once pro#ects are chosen% the
evaluation of an individual pro#ect’s subsequent performance is usually either ignored
or often inappropriately handled. .ur contention is that the capital budgeting process
must be vie"ed in its entirety% and the informational needs to support effective
decisions must be built into the firm’s decision support system
7
T.EROTICAL FRA/E WOR0
Introduction
Capital Budgeting May also be defined as The decision ma!ing process by
"hich a firm evaluates the purchase of ma#or fi$ed assets. It involves firm’s decision to
invest its current funds for addition% disposition% modification and replacement of fi$ed
assets.
Features of Ca!ita" #ud$etin$:
? The important features% "hich distinguish capital budgeting decisions in other
,ay-to-day decisions% are
? Capital budgeting decisions involve the e$change of current funds for the
benefits to be achieved in future.
? The futures benefits are e$pected and are to be realized over a series of years.
? The funds are invested in non-fle$ible long-term funds.
? They have a long terms are significant effect on the profitability of the concern.
? They involve huge funds.
? They are irreversible decisions. They are strategic decisions associated "ith
high degree of ris!.
I/&ORTANCE OF CA&ITAL #UD%ETIN%F
The importance of capital budgeting can be understood from the fact that an
unsound investment decision may prove to be fatal to the very e$istence of the
organization.
The importance of capital budgeting arises mainly due to the follo"ingF
C
). Lar$e invest1ent:
Capital budgeting decision% generally involves large investment of funds. But
the funds available "ith the firm are scarce and the demand for funds for e$ceeds
resources. -ence% it is very important for a firm to plan and control its capital
e$penditure.
2. Lon$ ter1 co11it1ent of funds:
Capital e$penditure involves not only large amount of funds but also funds for
long-term or an permanent basis. The long-term commitment of funds increases the
financial ris! involved in the investment decision.
2. Irreversi3"e nature:
The Capital e$penditure decisions are of irreversible nature. .nce% the decision
for acquiring a permanent asset is ta!en% it becomes very difficult to dispose of these
assets "ithout incurring heavy losses.
,. Lon$ ter1s effect on !rofita3i"it4:
Capital budgeting decision has a long term and significant effect on the
profitability of a concern. /ot only the present earnings of the firm are affected by the
investments in capital assets but also the future gro"th and profitability of the firm
depends up to the investment decision ta!en today. Capital budgeting decision has
utmost importance to avoid over or under investment in fi$ed assets.
5. Difficu"ties of invest1ent decision:
The long terms investment decisions are difficult to be ta!en because
uncertainties of future and higher degree of ris!.
9
6. Notiona" I1!ortance:
Investment decision though ta!en by individual concern is of national
importance because it determines employment% economic activities and economic
gro"th.
FACTOR7 INFLUENCIN% CA&ITAL E8&ENDITURE DECI7ION7:
There are many% factors financial as "ell as non financial "hich influence the
capital e$penditure decisions and the profitability of the proposal yet% there are many
other factors "hich have to be ta!en into consideration "hile ta!ing a capital
e$penditure decision. They areF
). UR%ENC9: sometimes% an investment is to be made due to urgency for the
survival of the firm or to avoid heavy losses. In such circumstances% proper
evaluation cannot be made through profitability tests. '$amples of such urgency are
brea!do"n of some plant and machinery% fire accidents etc.
2. DE%REE OF UNCERTAINIT9F profitability is directly related to ris!% higher
the profits% greater is the ris! or uncertainty &ometimes% a pro#ect "ith some lo"er
profitability may be selected due to constant flo" of income as compared to another
pro#ect "ith an irregular and uncertain inflo" of income.
2. INTAN%I#LE FACTOR7F sometimes% a capital e$penditure has to be made due
to certain emotional and intangible factors such as safety and "elfare of the
"or!ers% prestigious pro#ect% social "elfare% good"ill of the firm etc.
,. AVAILA#ILIT9 OF FUND7F as the capital e$penditure generally requires the
provisions of la" is solely influenced by this factor and although the pro#ect may
not be profitable% yet the investment has to be made.
6
5. AVAILA#ILIT9 OF FUND7F as the capital e$penditure generally requires large
funds the availability of funds is an important factor that influences the capital
budgeting decisions. 3 pro#ect ho"soever profitable may not be ta!en for "ant of
funds and a pro#ect "ith lesser profitability may sometimes be preferred due to
lesser pay bac! period for "ant of liquidity.
6. FUTURE EARNIN%7: a pro#ect may not be profitable as compared to another
today% but it may promise better future earnings. In such cases% it may be preferred
to increase future earnings
RI70 AND UNCERTAINIT9 IN CA&TIAL #UD%ETIN%:
3ll the techniques of Capital Budgeting require the estimation of future cash
inflo" and cash outflo". The cash flo"s are estimated% based on the follo"ing factors.
? '$pected economic life of the pro#ect
? &alvage value of the asset at the end of the economic life
? Capacity of the pro#ect
? &elling price of the product
? ;roduction cost
? ,epreciation rate
? *ate of ta$ation
? ?uture demand of the product% etc.%
But% due to uncertainties about the future% the estimates of demand% production%
sales% costs% selling price% etc cannot be e$act. ?or e$ample a product may become
obsolete much earlier than anticipated due to une$pected technological developments
all these elements of uncertainties have to be ta!en into account in the form of forcible
ris! "hile ta!ing a decision on investment proposals. It is perhaps the most difficult
tas! "hile ma!ing an investment decision. But some allo"ances for the element of ris!
has to be provided.
2A
CA&ITAL E8&ENDITURE CONTROL:
Capital e$penditure involves non-fle$ible long term commitment of funds. The
success of an enterprise in the long run depends upon the effectiveness "ith "hich the
management ma!es capital e$penditure decisions. Capital e$penditure decisions are
very important as their impact is more or less permanent on the "ell being and
economic health of the enterprise. Because% of its large scale mechanization and
automation and importance of capital e$penditure for increase in the profitability of a
concern. It has become essential to maintain an effective system of capital e$penditure
control.
O#:ECTIVE7 OF CONTROL OF CA&ITAL E8&ENDITURE:
? To ma!e an estimate of capital e$penditure and to see that the total cash outlay
is "ithin the financial resources of the enterprise.
? To ensure timely cash inflo"s for the pro#ects so that non availability of cash
may not be a problem in the implementation of the problem.
? To ensure that all capital e$penditure is properly sanctioned.
? To properly co-ordinate the pro#ects of various departments.
? To measure the performance of the pro#ect.
? To ensure that sufficient amount of capital e$penditure is incurred to !eep pace
"ith the rapid technological development.
? To prevent over e$pansion.
LON% TER/ 7OURCE7 OF FINANCE
It is natural phenomenon that the firm is al"ays in deficit of funds. There are t"o
methods of raising funds.
2) Bong term sources
4) &hort term sources.
22
Capital budgeting decisions involve long term funds. The different long term
sources of finance generally follo"ed by companies areF
2) &hares
4) ,ebentures
>) Term Boans.
7.ARE7:
&hares include ordinary or common shares and preference shares. .rdinary or
common shares are the source of permanent capital since they do not have a maturity
date. The holders of ordinary shares are share holders or stoc! holders are the legal
o"ners of the company.
;reference share is considered to be hybrid security as it has many features of
both ordinary shares and debentures. ;reference shares may be issued "ith or "ithout
maturity date. The holders of preference shares get dividend at a fi$ed rate and have
preference over ordinary share holders.
DE#ENTURE7:
,ebentures are a long term promissory note for raising loan capital. The
debenture trust deed defines the legal relationship bet"een the issuing company and the
debenture trustee "ho represent the debenture holders.
TER/ LOAN7:
Term loans for more than a year maturity. It is generally available for a period
of 2A years. Interest on term loans is ta$ deductable. They are obtained from ban!s and
specially created financial institutions li!e I?CI% ICICI I,BI etc. the purpose of term
loans is mostly to finance the company’s capital e$penditure. They are generally
obtained for financing large e$pansion% modernization or diversification pro#ects.
-ence% this method of financing is also called proA#ect financing. This is the most
"idely used source of financing.
24
LEA7E FINANCIN%:
3 lease is an agreement for the use of an asset for a specified rental. The o"ner
of the asset is called the lesser and the user the lessee. T"o important categories of
lease are:
2) .perating leases
4) ?inancial leases
.perating leases are short term cancelable leases "here the ris! of obsolescence
is born by the lesser.
?inancial leases are long tern non-cancellable leases "here any ris! in the use of
asset is borne by the lessee and he en#oys the return too.
#U9IN% OR &ROCURIN%:
Buying or procurement involves purchasing an asset permanently in the form of
cash or credit.
LEA7IN% (V7- #U9IN%:
Beasing equipment has the ta$ advantage of depreciation "hich can mutually
benefit both the lesser and lessee. .ther advantages of leasing include convenience and
fle$ibility as "ell as specialized services to the lessee. Bease proves handy to those
firms to those firms "hich cannot obtain loan capital from normal sources. The pros
and cons of leasing and buying are to be e$amined thoroughly before deciding the
method of procurement i.e.% leasing or buying.
CA&ITAL #UD%ETIN% &ROCE77:
Capital budgeting is a comple$ process as it involves decisions relating to the
investment of current funds for the benefit to be achieved in future and the future is
al"ays uncertain. -o"ever% the follo"ing procedure may be adopted in the process of
Capital Budgeting.
2>
Identification of invest1ent !ro!osa"s:
The capital budgeting process begins "ith the identification of investment
proposals. The proposal about potential investment opportunities may originate either
from top management or from any officer of the organization. The departmental head
analysis the various proposals in the light of the corporate strategies and submits the
suitable proposals to the capital e$penditure planning.
7creenin$ &ro!osa"s:
The e$penditure planning committee screens the various proposals received
from different departments. The committee vie"s these proposals from various angles
to ensure that these are in accordance "ith the corporate strategies or selection criterion
of the firm and also do not lead departmental imbalances.
Eva"uation of Various &ro!osa"s:
The ne$t step in the capital budgeting process is to various proposals. The
methods% "hich may be used for this purpose such as% paybac! period method% *ate of
return method% /.;.@ and I.*.* etc.
&riorities:
3fter evaluating various proposals% the unprofitable uneconomical proposal may
be re#ected but may not be possible for the firm to invest immediately in all the
acceptable proposals due to limitation of funds. Therefore% it essential to ran! the
pro#ectsGproposals after considering urgency% ris! and profitability involved there in.
FINAL A&&ROVAL AND &RE&ERATION OF CA&ITAL E8&ENDITURE
#UD%ETF
;roposals meeting the evaluation and other criteria are finally approved to be
included in the capital e$penditure budget. The e$penditure budget lays do"n the
amount of estimated e$penditure to be incurred on fi$ed assets during the budget
period.
2E
I1!"e1entin$ &ro!osa"s:
;reparation of a capital e$penditure budget and incorporation of a particular
proposal in the budget doesn’t itself authorize to go ahead "ith the implementation of
the pro#ect. 3 request for authority to spend the amount should be made to the capital
e$penditure committee% "hich revie"s the profitability of the pro#ect in the changed
circumstances. *esponsibilities should be assigned "hile implementing the pro#ect in
order to avoid unnecessary delays and cost overruns. /et"or! techniques li!e ;'*T
and C;M can be applied to control and monitor the implementation of the pro#ects.
&erfor1ance Revie:
The last stage in the process of capital budgeting is the evaluation of the
performance of the pro#ect. The evaluation is made by comparing actual and budgeted
e$penditures and also by comparing actual anticipated returns. The unfavorable
variances% if any should be loo!ed in to and the causes of the same be identified so that
corrective action may be ta!en in future.
0IND7 OF CA&ITAL #UD%ETIN% DECI7ION7
The overall ob#ectives of capital budgeting are to ma$imize the
profitability of a firm or the return on investment. These ob#ectives can be achieved
either by increasing revenues or by reducing costs. This% capital budgeting decisions
can be broadly classified into t"o categories. 2. Increase revenue% 4. *educe costs
The first category of capital budgeting decisions is e$pected to increase revenue
of the firm through e$pansion of the production capacity or size of the firm by reducing
a ne" product line. The second category increases the earning of the firm by reducing
costs and includes decisions relating to replacement of obsolete% outmoded or "orn out
assets. In such cases% a firm has to decide "hether to continue the same asset or replace
it. The firm ta!es such a decision by evaluating the benefit from replacement of the
asset in the form or reduction in operating costs and the costH cash needed for
replacement of the asset. Both categories of above decision involve investments in
fi$ed assets but the basic difference bet"een the t"o decisions are in the fact that
increasing revenue investment decisions are sub#ect to more uncertainty as compared to
cost reducing investments decisions.
2=
?urther% in vie" of the investment proposal under consideration% capital
budgeting decisions may be classified asF
). Acce!t Re;ect Decision:
3ccept re#ect decisions relate independent pro#ects do not compute "ith
one another. &uch decisions are generally ta!en on the basis of minimum return on
investment. 3ll those proposals "hich yield a rate of return higher than the minimum
required rate of return of capital are accepted and the rest re#ected. If the proposal is
accepted the firm ma!es investment in it% and the rest are re#ected. If the proposal is
accepted the firm ma!es investment in it% and if it is re#ected the firm does not invest
in the same.
2. /utua""4 E4
;lastics have changed our "orld and day-by-day they are becoming important.
They o"n their success to "hole series of advantage% "hich they have over
conventional materials such asF
? Bight"eight
? '$cellent mould ability
? 3ttractive colors
? Bo" energy requirements for convention
? Bo" labor and cost of manufacture
? Bo" maintenance + -igh strength "eight ratio
Econo1ic ro"e:
3griculture is the chief occupation in India. ?or the developing countries li!e
India modernization of the agriculture practices assumes pivotal places in improving
the economic status and the process of modernization. Includes% usage of higher
productive plastics supplement to greater e$tent manufacturing of tools required for
ne" agricultural practices.
The usage of poly vinyl chloride pipes in agricultural fields% lesser "ater
seepage% "hich "as predominant in earlier practices% "ith services of ;[email protected] pipes%
"ater can be transported efficiently "ith lesser from the place of higher potential to the
place of lo"er "ater potential.
;resently the revolutionary tried in "ater management spea!s much about drip
irrigation% "hich is developed in Israel and is practiced by all agricultural based nations
in the "orld. ,rip irrigation greatly ;[email protected] pipes as core tools of implementation "ith
the services of this sort% ;[email protected] pipes one "ay or the other strengthening the hands of
country’s economy.
3 part "ith the referred ;[email protected] pipes supplemented "ith fitting is used in houses
for electrical connection and other domestic purposes. 3part from these t"o
applications it has got "ide applications even in industrial sectors. ;[email protected] pipes "ith
>>
much unique heart% chemical and physical characteristics serve many industrial
purposes.
'ven characteristics of "eight and lo" price attract many more applications.
*igid ;@C pipes have been manufactured in India from the 7A’s on imported e$trusion
lines and there after indigenous plan "ere fe" pipes manufactures up to 26C6-9>. 5hen
many e$trusion lines "ere imported from batten field% Cincinnati% !raaus-maffi etc. the
0ovt. allo"ed the imports of sophisticated and high output plants% "hich "ere not
available indigenously.
&VC &I&E7 IN INDIA
;ipes products have found "ide acceptance in India and abroad. ;@C is one of
the more versatile plastics. It can be e$truded% molded% calendared and thermoformed
into a multitude of furnished products. The ;@C resin can be formulated to give a "ide
range of properties ranging from hand% tough materials for load bearing application
lime pipes% "indo"s and doors to fle$ible materials for products a due as "ire and
cable insulation and shooting and flooring.
;@C products cater to both interiors and e$teriors. In interiors it can be used for
flooring% profile and cable tray% "all covering modular office systems% houses and
furniture. ?or e$teriors it is used for doors and "indo"s% fencing partitions and
paneling% roofing and rain systems.
The other e$ternal applications are in the field of irrigation% portable "ater
supplies. In the field of irrigation there are several methods to irrigate the fields. There
are minor irrigation pro#ects and ma#or irrigation pro#ects apart from individual sources
li!e "ells% tube "ells% bore "ells. Ma#or irrigation sector small pro#ects "ill have canals
and lift irrigation schemes etc.% "ill have canals and lift irrigation schemes etc.% "ill
have pipelines. Cement and 0I pipes "ere the pipes used in conventional methods of
>E
irrigation. /o"-a-days ;@C pipes replaced the conventional pipes and they constituted
almost 6AN in this respect.
,rip irrigation popular in the agricultural sector especially in the field of
horticulture commercial cropping and green ply houses. The drip irrigation concept is
becoming more popular "ith its advantages li!e highly yield% "ater conversion% less
labour cost% less fertilizer% less past management costs% less po"er costs and many more
advantages. The demand for this concept is increasing at a place of >AN-EAN per
annum.
3griculture a sunrise industry in the Indian economy is mainly dependent on the
;@C pipes for the sea"ater sector and pumping to their aqua ponds. They are using
pipelines of four to five !ilometers of 2A-27 diameters pipes.
The state 0ovt. of 3.; is using rigid ;@C pipes for the irrigation "ater supplies
for the past fe" years. The state 0ovt. is producing ;@C pipes through 3;&I,C
(3ndhra ;radesh &tate Irrigation ,evelopment Corporation) for its lift irrigation
schemes. The panchayatra# department is producing pipes for public "ater supply
schemes. These pipes can be used for the main distributors% sub-distributors and
individual connections.
>=
CO/&AN9 &ROFILE
Introduction:
3 dynamic entrepreneur &ri & ; O *eddy "as established a blac! pipes
manufacturing company in 26CC and the name of the company is /andi ;ipes ;vt Btd
at /andyal% 8urnool district. 3nita ;@C ;ipes ;vt Btd "as incorporated in the year
4AA4. The factory is situated at /--C% -ampapuram village% *aptadu mandal% and
3nantapur district and it "as ta!en over by /andi 0roup Company. The company is
managed by team of professionals under the guidance of young% e$perienced% and "ell
qualified dynamic managing director Mr. &. &reedhar *eddy.
Ori$inF
*ayalaseema is economically bac!"ard area in 3ndhra ;radesh% "as rare field
region for industries. 3 dynamic entrepreneur sir &.;.O.*eddy "ho is basically
mechanical engineer started a unit at /andyal% "hich manufactures blac! pipes in 26CC.
The determination and hard "or! of &ri &.;.O.*eddy helped him to overcome the
problems faced by the company in the initial years% and "ith financial assistance from
local commercial ban!s. The company could overcome the problems of the merger and
no" it is running smoothly.
Bater the company started manufacturing of ;@C pipes "hich terminated the
manufacturing of blac! pipes. This resulted in the formation of a ;vt. Btd. company
called &:=A dealers in
3ndhra ;radesh and "ho are directly serviced by company sales force and 74A dealers
in &outh India.
Trans!ortation:
Transportation vehicles of 3/3/T-3 ;@C ;I;'& ;@T BT,. outnumber the
fleet of the competitor’s vehicle. This unique strength of the organization enables the
delivery system to be efficient. This event helps the dealers to reduce inventory levels
to the minimum. The dealers are also supplemented "ith the benefit of the lo"er paid
up capital in the form of inventory.
ANANT.A &VC &I&E7 &VT LTD:
EA
/ANUFACTURER CON7U/ER
/ANUFACTURER DEALER CON7U/ER
3/3/T-3 ;@C ;I;'& ;@T BT,. "as incorporated in the year ?eb 4AA4.
The factory is situated at /--C% -ampapuram village% *aptadu mandal% and 3nantapur
district. It "as ta!en over by /andi group company% and it is one of the sister company
among the /andi groups.
Its annual production capacity is 29%AAA mts. 3nd it is one of the leading
manufacturers of ;@C pipes in south India. This company is equipped "ith technical
collaboration from Batten field of 5est 0ermany. It has made possible fe" other small
ventures. ;ipes are sold under the brand names of M./3*C-% 8.-I/..* and
8*I&-/3.
3/3/T-3 ;@C ;I;'& "ith their good quality% trouble free services% durability
and commercial use are a better choice than mild steel% galvanized steel% cast iron and
plastic pipes.
The company is managed by a term of professionals under the guidance of a
young% e$perienced and "ell qualified dynamic managing director Mr. &reedhar *eddy.
/ission 7tate1ent:
The mission statement of 3/3/T-3 ;@C ;I;'& ;@T BT,. is as follo"sF
• To be preferred supply chain partner to out customer.
• To be recognized as the best in the "orld at "e do.
• To create ne" values in the quality for our customers and employees.
Vision 7tate1ent:
The vision statement of 3/3/T-3 ;@C ;I;'& ;@T BT,. is as follo"sF
Creating ne" values in quality by "or!ing together for you1
Functiona" de!art1ents of t'e co1!an4:
E2
Financia" de!art1ent:
Through initially the company approached the e$ternal source for financial aid%
no" the financial status of the company is very sound and is being run only "ith self
finance e$cepting for loans ta!en for hypothecation of machinery and stoc! from &BI
/andyal.
The company follo"s cash and carry policy for monarch brand. The product is
not delivered until the cash is paid and financial department "ith the help of mar!eting
department loo!s after these transactions.
/ar@etin$ de!art1ent:
Mar!eting ,epartment is headed by the '$ecutive ,irector. Mar!eting Manager
is in charge of all operations "ho reports to the '$ecutive ,irector. Mar!eting Manager
and >= &ales *epresentatives are under the control of '$ecutive ,irector. There are
also 4A salesmen "ho have to report to the sales representatives above them.
&ersona" De!art1ent:
The ;ersonal department consists the details of the e$ecutives and "or!ers of
the organization. The organization is formed "ith &ri.&.;.O.*eddy as the managing
,irector. T"o Mar!eting managers% financial managers% public relations officer and
quality control officer "ho all reports to e$ecutive director. .ther% than e$ecutives there
are thousands "or!ers in the organization.
;anel consisting of managing director% e$ecutive director and managers of
concerned departments ma!es the recruitment and selections of persons. 3part from the
attractive salaries company provides health card facilities.
E4
&urc'asin$ de!art1ent:
The perple$ing situation i.e. conformed by the manufactures of the ;@C pipes is
scarcity of resin. Though the government of India has ta!en various steps to improve
the supply conditions of ;@C resin% the Indian manufactures could meet only =A
percent of demand and remaining =A percent is met from imports. The ma#or
petrochemical company is *eliance ;etrochemical Btd. The lead time for the
acquisition of ra" materials is E days.
The follo"ing lines highlight the human resources policies and practicesF
? 'ffective utilization of manpo"er.
? To provide good "or!ing condition.
? To promote industrial development.
A!!"ication of &VC !i!es:
• 3griculture and irrigation schemes.
• *ural and urban "ater supplies scheme.
• Tube "ell casing.
• 0as and oil supply lines.
• Industrial effluent disposal.
• &e"erage and drainage scheme.
• 3ir-condition ducting.
• Building installations.
• Industrial ducting.
E>
&RODUCT &ROFILE
;ipe hollo" structure usually cylindrical% for conducting materials. It is used
primarily to convey liquids% gases or solid suspended in a liquid for e.g. slurry and also
used for electric "ires. The earliest pipes "ere probably made of bamboo. :sed by the
Chinese to carry "ater c.=AAA BC. The 'gyptians made the first metal pipe of copper
c.>AAA BC until the cost iron became relatively% Copper or bronze. Modern materials
include cast iron "eight iron% steel% copper% brass% bead% concrete% "ood% and glass%
plastic. In lying an oil pipeline% EA’ft (24-m) sections of seamless steel pipe are
electrically "elded together "hile held over a trench. Before being lo"ered into place
the pipe is coated "ith a protective paint and "rapped "ith a substance composed of
treated asbestos felt and fiberglass.
;umping section located =A to C= ml (9A-24A!m). 3 part boosts the d"indling
pressure bac!up as much as 2=AA’lb per inch. The piping must be !ept clean either by
applying a negative electronic charge to the pipe or by regular use of a pig1% or
scrubbing ball% inserted at one end and carried along by the current. 3n oil pipe line 7
inches (2= cm) to 4E inches (7A cm) in diameter "ill move it contents at about > to 7 ml
(=-2A) per hr. 5ater has moved since ancient times in pipelines called aqueducts.
EE
DATA ANAL97I7 AND INTER&RETATION
INVE7T/ENT EVALUATION CRITERIA
Three steps are involved in the evaluation of an investmentF
? 'stimation of Cash ?lo"s.
? 'stimation of the required rate of return.
? 3pplication of a decision rule for ma!ing the choice.
The investment decision rules may be referred to as capital budgeting techniques
or investment criteria. 3 sound appraisal technique should be used to measure the
economic "orth of the investment pro#ect. The essential property of a sound technique
is that it should ma$imize the shareholder’s "ealth.
D-ere% in the data analysis the financial Manager to suggest their information to
ta!ing the initial investment from the year 4AAC. Because% the company registered in
the year before% the 4AA7 on that year the company is a proprietary companyE.
3 number of capital budgeting techniques are used in practice. They may be
grouped as follo"sF
? ;aybac! period (;B
E=
? 3verage rate of return (3**)
? /et ;resent @alue (/;@)
? ;rofitability Inde$(;I)
? Internal *ate of *eturn(I**)
3ll these methods of capital budgeting techniques are e$plained in detail belo"
Initial Investment 4%AA%AA%AAA *s. Ta$ percentage 4=N (such as 2AN) and the
depreciation the company "ill be provided in the Balance &heet. these are all the based
to calculate the ;rofit after Ta$ and cash flo"s.
&A9 #AC0 &ERIOD:
The paybac! period is one of the most popular and "idely recognized
traditional methods of evaluating investment proposals. It is defined as the number of
years required in a pro#ect. If the pro#ect generates constant annual cash inflo"s% the
paybac! period can be computed by the follo"ing formulaeF
Initial Investment
;ay Bac! period J
3nnual Cash ?lo"s
In case of unequal cash inflo"s% the paybac! period can be computed by
calculating the cumulative cash inflo" and chec!ing "hether the values are recovered
to the original outlay and ta!ing the remaining amount and apply the formulae i.e.%
*equired C?3T
;B; J base year K
Ne>%74=
=>
9ears
&rofit after
Ta< De!reciation After Ta< N&V H5F
&resent
Va"ue Cas'
f"o
4AAC >CE=EA.62 4E>46=7 49ACE67.62 A.6=4>9A6=4> 47C>9A7.=9
4AA9 >AE6=E7.>4 427C2=4 =427769.>4 A.6ACA46EC9E EC>2766.2=
4AA6 E>9AAE9.24 4E>C2E7 792C26E.24 A.97>9>C=69= =996AC=.CC
4A2A =>AA>CE.>= >2A4A67 9EA4ECA.>= A.944CA4ECEC 7624C79.76
4A22 7567635 5611603 13179238 0.783526165 10326277
Total >A=>>74=
Initial Investment cash outflo" J 4% AA% AA%AAA
>%A=%>>%74=
;rofitability Inde$ J
4% AA% AA%AAA
J ).5266
Net &rofita3i"it4 Inde< A &I ?)
A2.=477 I 2
AG.5266
Inferences:
3s the profitability Inde$ is L2% the pro#ect should be accepted
=E
Interna" Rate of Return:
The internal rate of return (I**) method is another discounted cash flo"
technique% "hich ma!es account of the magnitude and timing of cash flo"s. .thers
terms used to describe the I** Method are yield on investment% marginal efficiency of
capital% rate of return over cost% time ad#usted rate of internal return and so on. The
concept of internal rate of return is quite simple to understand in the case of one-period
pro#ects. The I** is calculated by interpolating the t"o rates "ith the help of the
follo"ing formulaF
;@ of cash inflo"s at lo"er rate - ;@ of cash outflo"s
IRR J B*K (-
r
- B
r
)
;@ of cash inflo"s at lo"er rate-;@ of cash inflo"s at higher rate
5here%
B
r
J *ate of interest that is lo"er of the t"o rates at "hich ;@ of Cash
inflo"s have been Calculated.
-
r
J *ate of interest that is higher of the t"o rates at "hich ;@ of Cash
inflo"s have been Calculated.
ACCE&TANCE RULE
The accept pro#ect rule% using the I** method% is to accept the pro#ect if its internal
rate of return is higher than the opportunity cost of capital (rL!) note that ! is also
!no"n as the required rate of return or cut-off rate. The pro#ect shall be re#ected if its
==
internal rate of return is lo"er than the opportunity cost of capital. Thus the I**
acceptance rules areF
? 3ccept if rL!
? *e#ect if rM!
? May accept if rJ!
7.OWIN% T.E CALCULATION7 OF INTERNAL RATE OF RETURN
(In Ru!ees-
Fro1 t'e a3ove ta3"e ca"cu"ated va"ues are:
/et ;resent @alue of cash flo" of B.5'* *3T' (B*) J 2,59,07,717
/et ;resent @alue of cash flo" of -I0-'* *3T' (-*) J 1,92,55,978
Therefore%
;resent value T B * I Initial Investment
I** J B*I $ *ate ,ifference
;resent value T B * I ;resent value T - *
=7
9EAR7
&ROFIT
AFTER
TA8
DE&RI?
CIATION
CA7.
FLOW
AFTER
TA8 N&V H)GF
&RE7ENT
VALUE
CA7.
FLOW
N&V
H2GF
&RE7ENT
VALUE
CA7.
FLOW
4AAC >CE=EA.62 4E>46=7 49ACE67.62 A.6A6A6A6 4==4476 A.9>>>> 4>>6=9A
4AA9 >AE6=E7.>9 427C2=4 =427769.>4 A.947EE74 E>22>4A A.76EEE >744CA7
4AA6 E>9AAE9.7E 4E>C2E7 792C26E.24 A.C=2>EEC =2429=9 A.=C9CA >6E=2>=
4A2A =>AA>CE.>= >2A4A67 9EA4ECA.>= A.79>A2>E =C>6AAA A.E9E44 EA=422C
4A22 7567635 5611603 13179238 0.6209213 8183270 0.40187 5296440
Total 25907717 Total 19255978
=6%AC%C2C
J 2AN I $ 2A
77%=2%C>6
J 2AN K A.996 $ 2A
J 29.96N
Inferences:
Therefore% I** lies at 29.96N. It is a point "here outflo" J inflo"
3nd I**L8% Therefore it is accepted.
=C
FINDIN%7
? The company had ta!en longer period i.e.% paybac! period is > years 4 months
4A days to recover its initial investment.
? The average rate of return is not good i.e.% 3** J E2.>EN as it "as #ust to
compensate the marginal profits.
? The net present value of 3/3/T-3 ;@C ;I;'& ;@T. Btd is satisfactory as
/;@ J >%A=%>>%74=.
? The internal rate of return i.e.% I**J 29.96N is fairly good.
? The profitability inde$ is fairly good is it "as gradually increasing in each year
as sho"n graphically.
? The unit cost and other e$penditures are eligible to claim from the potential
buyer as approved by the *egulatory Commission
=9
7U%%E7TION7
? Company should go for the improvement in the technology to improve
efficiency.
? The Company can go for different pro#ects as it has huge reserves and surplus%
to e$pand its operations.
? The Company is beneficial enough to e$pand its business by utilizing reserves
and surplus.
? The firm has to decrease the cost of production per unit.
? ?or society "ith lo"er income levels or belo" poverty line Company should go
for subscribed rates and for industries it should increases its rate marginally to
cover the losses.
? In order to diversify its operations it has to invest in more products so that /;@
"ill be fairly high.
=6
CONCLU7ION
:nder the light of inferences dra"n from the analysis the company has to
concentrate on ;ay Bac! ;eriod and /;@ for acceptance of the pro#ect. The
discounting methods are most preferable as the rate of returns is depending on the
present values. 3ll the techniques "hich "as used for the pro#ect resulted positively
e$pect on ;ay Bac! ;eriod. ?inally it is concluded that firm can generate huge profits
by investing in more pro#ects diversifying its operations.
7A
#I#LO%RA&.9
2. M. ;3/,'O: Financia" /ana$e1entF vi!as publishing house pvt ltd% 6
th
edition.
4. ;*3&3//3 C-3/,*3F Financia" /ana$e1entF Tata Mc0ra"--ill% C
th
edition.
>. I.M. ;3/,'O: Financia" /ana$e1entF Tata Mc0ra"--ill% E
th
edition.
WE#7ITE7
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72
doc_623855581.doc
Here is my MBA PROJECT ON CAPTIAL BUDGITING IN ANANTHA PVC PIPES PVT LTD,
INTRODUCTION
The term Capital Budgeting refers to long term planning for proposed capital
outlay and their financing. It includes raising long-term funds and their utilization. It
may be defined as a firm’s formal process of acquisition and investment of capital.
Capital Budgeting May also be defined as The decision ma!ing process by
"hich a firm evaluates the purchase of ma#or fi$ed assets. It involves firm’s decision to
invest its current funds for addition% disposition% modification and replacement of fi$ed
assets.
It deals e$clusively "ith investment proposals% "hich an essentially long term
pro#ects and is concerned "ith the allocation of firm’s scarce financial resources among
the available mar!et opportunities.
&ome of the e$amples of Capital '$penditure are
(i) Cost of acquisition of permanent assets as land and buildings.
(ii) Cost of addition% e$pansion% improvement or alteration in the fi$ed assets.
(iii) *+, pro#ect cost% etc.%
Definitions:
Capital budgeting is long term planning for ma!ing and financing proposed
capital outlays
T.-.*/0*''/
Capital budgeting is concerned "ith allocation of the firm’s scarce financial
resources among the available mar!et opportunities. The consideration of investment
opportunities. The consideration of investment opportunities involves the comparison
of the e$pected future streams of earnings from a pro#ect "ith immediate and
subsequent streams of e$penditures for it1.
2
In any gro"ing concern% capital budgeting is more or less a continuous process
and it is carried out by different functional areas of management such as production%
mar!eting% engineering% financial management etc. 3ll the relevant functional
departments play a crucial role in the capital budgeting decision process of any
organization% yet for the time being% only the financial aspects of capital budgeting
decision are considered.
The role of a finance manager in the capital budgeting basically lies in the
process of critically and in-depth analysis and evaluation of various alternative
proposals and then to select one out of these. 3s already stated% the basic ob#ectives of
financial management is to ma$imize the "ealth of the share holders% therefore the
ob#ectives of capital budgeting is to select those long term investment pro#ects that are
e$pected to ma!e ma$imum contribution to the "ealth of the shareholders in the long
run.
4
REVIEW OF LITERATURE
Introduction
.ne of the three ma#or decisions made by managers is the decision to invest in
fi$ed assets. Investments in fi$ed assets involve large capital outlays and the
consequences of these investments decisions impact a firm’s operations for a very long
time. Therefore a variety of quantitative and analytical techniques are applied by
managers in pro#ect selection to enable them to ma!e good decisions in this area.
2. Literature
It is "idely accepted that discounted cash flo" methods are the best "ay to
evaluate capital budgeting proposals. 5hile several decades ago discounted cash flo"
methods may not have been "idely used (Istvan% 2672) more recent studies (8im% Cric!
and 8im% 2697) suggest that increasingly firms are adopting discounted cash flo"
analysis. Much of the empirical research on capital budgeting practices adopted by
corporate managers is based on :& data (&ee for e$ample Mu!her#ee and -ingorani%
2666.) 3 fe" studies such as those by ;ayne% -eath% and 0ale (2666)% % p. 29) note% learning occurs "hen closely similar
problems are frequently encountered% especially if the outcomes of decisions are
quic!ly !no"n and provide unequivocal feedbac!.1 In most firms% managers
infrequently encounter ma#or investment policy decisions% e$perience long delays
before learning the outcomes of pro#ects% and usually receive noisy feedbac!.
?urthermore% managers often have difficulty re#ecting the notion that every situation is
ne" in important "ays% allo"ing them to ignore feedbac! from past decisions
altogether. Bearning from e$perience is highly unli!ely under these circumstances
('inhorn and -ogarth%26C9D Brehmer% 269A).
E
Third% unsuccessful managers are less li!ely to retain their #obs and be
promoted. Those "ho succeed may become overconfident because of a self-attribution
bias. Most people overestimate the degree to "hich they are responsible for their o"n
success (Miller and *oss% 26C=D Banger and *oth% 26C=D /isbett and *oss% 269A). This
self-attribution bias causes successful managers to become overconfident (,aniel%
-irshleifer% and &ubrahmanyam% 2669D 0ervais and .dean% 4AA2).
?ourth% managers may be more overconfident than the general population
because of a selection bias. Those "ho are overconfident and optimistic about their
prospects as managers are more li!ely to apply for these #obs. Moreover% as 0oel and
Ta!or (4AA9) sho"% firms may endogenously select and promote on the basis of
overconfidence% as overconfident individuals are more li!ely to have generated
e$tremely good outcomes in the past. ?inally% as 0ervais% -eaton% and .dean (4AA6)
argue% overconfident managers may simply be easier to motivate than their rational
counterparts and so hiring them is more appealing to firms.
Revies and A!!ea"s of Ca!ita" #ud$etin$
In the corporate finance capital budgeting survey literature the capital
budgeting process has been described in terms of four stagesF (2) identification% (4)
development% (>) selection% and (E) control. The identification stage comprises the
overall process of pro#ect idea generation including sources and submission procedures
and the incentivesGre"ard system% if any. The development stage involves the initial
screening process relying primarily upon cash flo" estimation and early screening
criteria. The selection stage includes the detailed pro#ect analysis that results in
acceptance or re#ection of the pro#ect for funding. ?inally% the control stage involves the
evaluation of pro#ect performance for both control purposes and continuous
improvement for future decisions.
=
3ll four stages have common areas of interest including personnel% procedures%
and methods involved% along "ith the rationale for each. 3ll four stages are critical to
the overall process% but the selection stage is arguably the most involved since it
includes the choices of analytical methodsGtechniques used% ho" the cost of capital is
determined% ho" ad#ustments for pro#ects ris!s are assessed and reflected% and ho"% if
relevant% capital rationing affects pro#ect choice. The selection stage has also been the
most investigated by survey researchers% particularly in the area of selection techniques%
resulting in a relative neglect of the other stages. This in turn has led to appeals to
future researchers to consider the other stages in their survey research efforts
As %ordon and &inc'es ()*+,- Vie:
Most of the literature on the sub#ect of capital budgeting has emphasized the
selection phase% giving little coverage to the other phases. Instead% it is usually assumed
that a set of "ell-defined capital investment opportunities% "ith all of the informational
needs clearly specified suddenly appears on an e$ecutive’s des! and all that is needed is
for the manager to choose the pro#ect (s) "ith the highest e$pected payoff. -o"ever% as
most managers quic!ly learn% this is not the case. ?urther% once pro#ects are chosen% the
evaluation of an individual pro#ect’s subsequent performance is usually either ignored
or often inappropriately handled. .ur contention is that the capital budgeting process
must be vie"ed in its entirety% and the informational needs to support effective
decisions must be built into the firm’s decision support system
7
T.EROTICAL FRA/E WOR0
Introduction
Capital Budgeting May also be defined as The decision ma!ing process by
"hich a firm evaluates the purchase of ma#or fi$ed assets. It involves firm’s decision to
invest its current funds for addition% disposition% modification and replacement of fi$ed
assets.
Features of Ca!ita" #ud$etin$:
? The important features% "hich distinguish capital budgeting decisions in other
,ay-to-day decisions% are
? Capital budgeting decisions involve the e$change of current funds for the
benefits to be achieved in future.
? The futures benefits are e$pected and are to be realized over a series of years.
? The funds are invested in non-fle$ible long-term funds.
? They have a long terms are significant effect on the profitability of the concern.
? They involve huge funds.
? They are irreversible decisions. They are strategic decisions associated "ith
high degree of ris!.
I/&ORTANCE OF CA&ITAL #UD%ETIN%F
The importance of capital budgeting can be understood from the fact that an
unsound investment decision may prove to be fatal to the very e$istence of the
organization.
The importance of capital budgeting arises mainly due to the follo"ingF
C
). Lar$e invest1ent:
Capital budgeting decision% generally involves large investment of funds. But
the funds available "ith the firm are scarce and the demand for funds for e$ceeds
resources. -ence% it is very important for a firm to plan and control its capital
e$penditure.
2. Lon$ ter1 co11it1ent of funds:
Capital e$penditure involves not only large amount of funds but also funds for
long-term or an permanent basis. The long-term commitment of funds increases the
financial ris! involved in the investment decision.
2. Irreversi3"e nature:
The Capital e$penditure decisions are of irreversible nature. .nce% the decision
for acquiring a permanent asset is ta!en% it becomes very difficult to dispose of these
assets "ithout incurring heavy losses.
,. Lon$ ter1s effect on !rofita3i"it4:
Capital budgeting decision has a long term and significant effect on the
profitability of a concern. /ot only the present earnings of the firm are affected by the
investments in capital assets but also the future gro"th and profitability of the firm
depends up to the investment decision ta!en today. Capital budgeting decision has
utmost importance to avoid over or under investment in fi$ed assets.
5. Difficu"ties of invest1ent decision:
The long terms investment decisions are difficult to be ta!en because
uncertainties of future and higher degree of ris!.
9
6. Notiona" I1!ortance:
Investment decision though ta!en by individual concern is of national
importance because it determines employment% economic activities and economic
gro"th.
FACTOR7 INFLUENCIN% CA&ITAL E8&ENDITURE DECI7ION7:
There are many% factors financial as "ell as non financial "hich influence the
capital e$penditure decisions and the profitability of the proposal yet% there are many
other factors "hich have to be ta!en into consideration "hile ta!ing a capital
e$penditure decision. They areF
). UR%ENC9: sometimes% an investment is to be made due to urgency for the
survival of the firm or to avoid heavy losses. In such circumstances% proper
evaluation cannot be made through profitability tests. '$amples of such urgency are
brea!do"n of some plant and machinery% fire accidents etc.
2. DE%REE OF UNCERTAINIT9F profitability is directly related to ris!% higher
the profits% greater is the ris! or uncertainty &ometimes% a pro#ect "ith some lo"er
profitability may be selected due to constant flo" of income as compared to another
pro#ect "ith an irregular and uncertain inflo" of income.
2. INTAN%I#LE FACTOR7F sometimes% a capital e$penditure has to be made due
to certain emotional and intangible factors such as safety and "elfare of the
"or!ers% prestigious pro#ect% social "elfare% good"ill of the firm etc.
,. AVAILA#ILIT9 OF FUND7F as the capital e$penditure generally requires the
provisions of la" is solely influenced by this factor and although the pro#ect may
not be profitable% yet the investment has to be made.
6
5. AVAILA#ILIT9 OF FUND7F as the capital e$penditure generally requires large
funds the availability of funds is an important factor that influences the capital
budgeting decisions. 3 pro#ect ho"soever profitable may not be ta!en for "ant of
funds and a pro#ect "ith lesser profitability may sometimes be preferred due to
lesser pay bac! period for "ant of liquidity.
6. FUTURE EARNIN%7: a pro#ect may not be profitable as compared to another
today% but it may promise better future earnings. In such cases% it may be preferred
to increase future earnings
RI70 AND UNCERTAINIT9 IN CA&TIAL #UD%ETIN%:
3ll the techniques of Capital Budgeting require the estimation of future cash
inflo" and cash outflo". The cash flo"s are estimated% based on the follo"ing factors.
? '$pected economic life of the pro#ect
? &alvage value of the asset at the end of the economic life
? Capacity of the pro#ect
? &elling price of the product
? ;roduction cost
? ,epreciation rate
? *ate of ta$ation
? ?uture demand of the product% etc.%
But% due to uncertainties about the future% the estimates of demand% production%
sales% costs% selling price% etc cannot be e$act. ?or e$ample a product may become
obsolete much earlier than anticipated due to une$pected technological developments
all these elements of uncertainties have to be ta!en into account in the form of forcible
ris! "hile ta!ing a decision on investment proposals. It is perhaps the most difficult
tas! "hile ma!ing an investment decision. But some allo"ances for the element of ris!
has to be provided.
2A
CA&ITAL E8&ENDITURE CONTROL:
Capital e$penditure involves non-fle$ible long term commitment of funds. The
success of an enterprise in the long run depends upon the effectiveness "ith "hich the
management ma!es capital e$penditure decisions. Capital e$penditure decisions are
very important as their impact is more or less permanent on the "ell being and
economic health of the enterprise. Because% of its large scale mechanization and
automation and importance of capital e$penditure for increase in the profitability of a
concern. It has become essential to maintain an effective system of capital e$penditure
control.
O#:ECTIVE7 OF CONTROL OF CA&ITAL E8&ENDITURE:
? To ma!e an estimate of capital e$penditure and to see that the total cash outlay
is "ithin the financial resources of the enterprise.
? To ensure timely cash inflo"s for the pro#ects so that non availability of cash
may not be a problem in the implementation of the problem.
? To ensure that all capital e$penditure is properly sanctioned.
? To properly co-ordinate the pro#ects of various departments.
? To measure the performance of the pro#ect.
? To ensure that sufficient amount of capital e$penditure is incurred to !eep pace
"ith the rapid technological development.
? To prevent over e$pansion.
LON% TER/ 7OURCE7 OF FINANCE
It is natural phenomenon that the firm is al"ays in deficit of funds. There are t"o
methods of raising funds.
2) Bong term sources
4) &hort term sources.
22
Capital budgeting decisions involve long term funds. The different long term
sources of finance generally follo"ed by companies areF
2) &hares
4) ,ebentures
>) Term Boans.
7.ARE7:
&hares include ordinary or common shares and preference shares. .rdinary or
common shares are the source of permanent capital since they do not have a maturity
date. The holders of ordinary shares are share holders or stoc! holders are the legal
o"ners of the company.
;reference share is considered to be hybrid security as it has many features of
both ordinary shares and debentures. ;reference shares may be issued "ith or "ithout
maturity date. The holders of preference shares get dividend at a fi$ed rate and have
preference over ordinary share holders.
DE#ENTURE7:
,ebentures are a long term promissory note for raising loan capital. The
debenture trust deed defines the legal relationship bet"een the issuing company and the
debenture trustee "ho represent the debenture holders.
TER/ LOAN7:
Term loans for more than a year maturity. It is generally available for a period
of 2A years. Interest on term loans is ta$ deductable. They are obtained from ban!s and
specially created financial institutions li!e I?CI% ICICI I,BI etc. the purpose of term
loans is mostly to finance the company’s capital e$penditure. They are generally
obtained for financing large e$pansion% modernization or diversification pro#ects.
-ence% this method of financing is also called proA#ect financing. This is the most
"idely used source of financing.
24
LEA7E FINANCIN%:
3 lease is an agreement for the use of an asset for a specified rental. The o"ner
of the asset is called the lesser and the user the lessee. T"o important categories of
lease are:
2) .perating leases
4) ?inancial leases
.perating leases are short term cancelable leases "here the ris! of obsolescence
is born by the lesser.
?inancial leases are long tern non-cancellable leases "here any ris! in the use of
asset is borne by the lessee and he en#oys the return too.
#U9IN% OR &ROCURIN%:
Buying or procurement involves purchasing an asset permanently in the form of
cash or credit.
LEA7IN% (V7- #U9IN%:
Beasing equipment has the ta$ advantage of depreciation "hich can mutually
benefit both the lesser and lessee. .ther advantages of leasing include convenience and
fle$ibility as "ell as specialized services to the lessee. Bease proves handy to those
firms to those firms "hich cannot obtain loan capital from normal sources. The pros
and cons of leasing and buying are to be e$amined thoroughly before deciding the
method of procurement i.e.% leasing or buying.
CA&ITAL #UD%ETIN% &ROCE77:
Capital budgeting is a comple$ process as it involves decisions relating to the
investment of current funds for the benefit to be achieved in future and the future is
al"ays uncertain. -o"ever% the follo"ing procedure may be adopted in the process of
Capital Budgeting.
2>
Identification of invest1ent !ro!osa"s:
The capital budgeting process begins "ith the identification of investment
proposals. The proposal about potential investment opportunities may originate either
from top management or from any officer of the organization. The departmental head
analysis the various proposals in the light of the corporate strategies and submits the
suitable proposals to the capital e$penditure planning.
7creenin$ &ro!osa"s:
The e$penditure planning committee screens the various proposals received
from different departments. The committee vie"s these proposals from various angles
to ensure that these are in accordance "ith the corporate strategies or selection criterion
of the firm and also do not lead departmental imbalances.
Eva"uation of Various &ro!osa"s:
The ne$t step in the capital budgeting process is to various proposals. The
methods% "hich may be used for this purpose such as% paybac! period method% *ate of
return method% /.;.@ and I.*.* etc.
&riorities:
3fter evaluating various proposals% the unprofitable uneconomical proposal may
be re#ected but may not be possible for the firm to invest immediately in all the
acceptable proposals due to limitation of funds. Therefore% it essential to ran! the
pro#ectsGproposals after considering urgency% ris! and profitability involved there in.
FINAL A&&ROVAL AND &RE&ERATION OF CA&ITAL E8&ENDITURE
#UD%ETF
;roposals meeting the evaluation and other criteria are finally approved to be
included in the capital e$penditure budget. The e$penditure budget lays do"n the
amount of estimated e$penditure to be incurred on fi$ed assets during the budget
period.
2E
I1!"e1entin$ &ro!osa"s:
;reparation of a capital e$penditure budget and incorporation of a particular
proposal in the budget doesn’t itself authorize to go ahead "ith the implementation of
the pro#ect. 3 request for authority to spend the amount should be made to the capital
e$penditure committee% "hich revie"s the profitability of the pro#ect in the changed
circumstances. *esponsibilities should be assigned "hile implementing the pro#ect in
order to avoid unnecessary delays and cost overruns. /et"or! techniques li!e ;'*T
and C;M can be applied to control and monitor the implementation of the pro#ects.
&erfor1ance Revie:
The last stage in the process of capital budgeting is the evaluation of the
performance of the pro#ect. The evaluation is made by comparing actual and budgeted
e$penditures and also by comparing actual anticipated returns. The unfavorable
variances% if any should be loo!ed in to and the causes of the same be identified so that
corrective action may be ta!en in future.
0IND7 OF CA&ITAL #UD%ETIN% DECI7ION7
The overall ob#ectives of capital budgeting are to ma$imize the
profitability of a firm or the return on investment. These ob#ectives can be achieved
either by increasing revenues or by reducing costs. This% capital budgeting decisions
can be broadly classified into t"o categories. 2. Increase revenue% 4. *educe costs
The first category of capital budgeting decisions is e$pected to increase revenue
of the firm through e$pansion of the production capacity or size of the firm by reducing
a ne" product line. The second category increases the earning of the firm by reducing
costs and includes decisions relating to replacement of obsolete% outmoded or "orn out
assets. In such cases% a firm has to decide "hether to continue the same asset or replace
it. The firm ta!es such a decision by evaluating the benefit from replacement of the
asset in the form or reduction in operating costs and the costH cash needed for
replacement of the asset. Both categories of above decision involve investments in
fi$ed assets but the basic difference bet"een the t"o decisions are in the fact that
increasing revenue investment decisions are sub#ect to more uncertainty as compared to
cost reducing investments decisions.
2=
?urther% in vie" of the investment proposal under consideration% capital
budgeting decisions may be classified asF
). Acce!t Re;ect Decision:
3ccept re#ect decisions relate independent pro#ects do not compute "ith
one another. &uch decisions are generally ta!en on the basis of minimum return on
investment. 3ll those proposals "hich yield a rate of return higher than the minimum
required rate of return of capital are accepted and the rest re#ected. If the proposal is
accepted the firm ma!es investment in it% and the rest are re#ected. If the proposal is
accepted the firm ma!es investment in it% and if it is re#ected the firm does not invest
in the same.
2. /utua""4 E4
;lastics have changed our "orld and day-by-day they are becoming important.
They o"n their success to "hole series of advantage% "hich they have over
conventional materials such asF
? Bight"eight
? '$cellent mould ability
? 3ttractive colors
? Bo" energy requirements for convention
? Bo" labor and cost of manufacture
? Bo" maintenance + -igh strength "eight ratio
Econo1ic ro"e:
3griculture is the chief occupation in India. ?or the developing countries li!e
India modernization of the agriculture practices assumes pivotal places in improving
the economic status and the process of modernization. Includes% usage of higher
productive plastics supplement to greater e$tent manufacturing of tools required for
ne" agricultural practices.
The usage of poly vinyl chloride pipes in agricultural fields% lesser "ater
seepage% "hich "as predominant in earlier practices% "ith services of ;[email protected] pipes%
"ater can be transported efficiently "ith lesser from the place of higher potential to the
place of lo"er "ater potential.
;resently the revolutionary tried in "ater management spea!s much about drip
irrigation% "hich is developed in Israel and is practiced by all agricultural based nations
in the "orld. ,rip irrigation greatly ;[email protected] pipes as core tools of implementation "ith
the services of this sort% ;[email protected] pipes one "ay or the other strengthening the hands of
country’s economy.
3 part "ith the referred ;[email protected] pipes supplemented "ith fitting is used in houses
for electrical connection and other domestic purposes. 3part from these t"o
applications it has got "ide applications even in industrial sectors. ;[email protected] pipes "ith
>>
much unique heart% chemical and physical characteristics serve many industrial
purposes.
'ven characteristics of "eight and lo" price attract many more applications.
*igid ;@C pipes have been manufactured in India from the 7A’s on imported e$trusion
lines and there after indigenous plan "ere fe" pipes manufactures up to 26C6-9>. 5hen
many e$trusion lines "ere imported from batten field% Cincinnati% !raaus-maffi etc. the
0ovt. allo"ed the imports of sophisticated and high output plants% "hich "ere not
available indigenously.
&VC &I&E7 IN INDIA
;ipes products have found "ide acceptance in India and abroad. ;@C is one of
the more versatile plastics. It can be e$truded% molded% calendared and thermoformed
into a multitude of furnished products. The ;@C resin can be formulated to give a "ide
range of properties ranging from hand% tough materials for load bearing application
lime pipes% "indo"s and doors to fle$ible materials for products a due as "ire and
cable insulation and shooting and flooring.
;@C products cater to both interiors and e$teriors. In interiors it can be used for
flooring% profile and cable tray% "all covering modular office systems% houses and
furniture. ?or e$teriors it is used for doors and "indo"s% fencing partitions and
paneling% roofing and rain systems.
The other e$ternal applications are in the field of irrigation% portable "ater
supplies. In the field of irrigation there are several methods to irrigate the fields. There
are minor irrigation pro#ects and ma#or irrigation pro#ects apart from individual sources
li!e "ells% tube "ells% bore "ells. Ma#or irrigation sector small pro#ects "ill have canals
and lift irrigation schemes etc.% "ill have canals and lift irrigation schemes etc.% "ill
have pipelines. Cement and 0I pipes "ere the pipes used in conventional methods of
>E
irrigation. /o"-a-days ;@C pipes replaced the conventional pipes and they constituted
almost 6AN in this respect.
,rip irrigation popular in the agricultural sector especially in the field of
horticulture commercial cropping and green ply houses. The drip irrigation concept is
becoming more popular "ith its advantages li!e highly yield% "ater conversion% less
labour cost% less fertilizer% less past management costs% less po"er costs and many more
advantages. The demand for this concept is increasing at a place of >AN-EAN per
annum.
3griculture a sunrise industry in the Indian economy is mainly dependent on the
;@C pipes for the sea"ater sector and pumping to their aqua ponds. They are using
pipelines of four to five !ilometers of 2A-27 diameters pipes.
The state 0ovt. of 3.; is using rigid ;@C pipes for the irrigation "ater supplies
for the past fe" years. The state 0ovt. is producing ;@C pipes through 3;&I,C
(3ndhra ;radesh &tate Irrigation ,evelopment Corporation) for its lift irrigation
schemes. The panchayatra# department is producing pipes for public "ater supply
schemes. These pipes can be used for the main distributors% sub-distributors and
individual connections.
>=
CO/&AN9 &ROFILE
Introduction:
3 dynamic entrepreneur &ri & ; O *eddy "as established a blac! pipes
manufacturing company in 26CC and the name of the company is /andi ;ipes ;vt Btd
at /andyal% 8urnool district. 3nita ;@C ;ipes ;vt Btd "as incorporated in the year
4AA4. The factory is situated at /--C% -ampapuram village% *aptadu mandal% and
3nantapur district and it "as ta!en over by /andi 0roup Company. The company is
managed by team of professionals under the guidance of young% e$perienced% and "ell
qualified dynamic managing director Mr. &. &reedhar *eddy.
Ori$inF
*ayalaseema is economically bac!"ard area in 3ndhra ;radesh% "as rare field
region for industries. 3 dynamic entrepreneur sir &.;.O.*eddy "ho is basically
mechanical engineer started a unit at /andyal% "hich manufactures blac! pipes in 26CC.
The determination and hard "or! of &ri &.;.O.*eddy helped him to overcome the
problems faced by the company in the initial years% and "ith financial assistance from
local commercial ban!s. The company could overcome the problems of the merger and
no" it is running smoothly.
Bater the company started manufacturing of ;@C pipes "hich terminated the
manufacturing of blac! pipes. This resulted in the formation of a ;vt. Btd. company
called &:=A dealers in
3ndhra ;radesh and "ho are directly serviced by company sales force and 74A dealers
in &outh India.
Trans!ortation:
Transportation vehicles of 3/3/T-3 ;@C ;I;'& ;@T BT,. outnumber the
fleet of the competitor’s vehicle. This unique strength of the organization enables the
delivery system to be efficient. This event helps the dealers to reduce inventory levels
to the minimum. The dealers are also supplemented "ith the benefit of the lo"er paid
up capital in the form of inventory.
ANANT.A &VC &I&E7 &VT LTD:
EA
/ANUFACTURER CON7U/ER
/ANUFACTURER DEALER CON7U/ER
3/3/T-3 ;@C ;I;'& ;@T BT,. "as incorporated in the year ?eb 4AA4.
The factory is situated at /--C% -ampapuram village% *aptadu mandal% and 3nantapur
district. It "as ta!en over by /andi group company% and it is one of the sister company
among the /andi groups.
Its annual production capacity is 29%AAA mts. 3nd it is one of the leading
manufacturers of ;@C pipes in south India. This company is equipped "ith technical
collaboration from Batten field of 5est 0ermany. It has made possible fe" other small
ventures. ;ipes are sold under the brand names of M./3*C-% 8.-I/..* and
8*I&-/3.
3/3/T-3 ;@C ;I;'& "ith their good quality% trouble free services% durability
and commercial use are a better choice than mild steel% galvanized steel% cast iron and
plastic pipes.
The company is managed by a term of professionals under the guidance of a
young% e$perienced and "ell qualified dynamic managing director Mr. &reedhar *eddy.
/ission 7tate1ent:
The mission statement of 3/3/T-3 ;@C ;I;'& ;@T BT,. is as follo"sF
• To be preferred supply chain partner to out customer.
• To be recognized as the best in the "orld at "e do.
• To create ne" values in the quality for our customers and employees.
Vision 7tate1ent:
The vision statement of 3/3/T-3 ;@C ;I;'& ;@T BT,. is as follo"sF
Creating ne" values in quality by "or!ing together for you1
Functiona" de!art1ents of t'e co1!an4:
E2
Financia" de!art1ent:
Through initially the company approached the e$ternal source for financial aid%
no" the financial status of the company is very sound and is being run only "ith self
finance e$cepting for loans ta!en for hypothecation of machinery and stoc! from &BI
/andyal.
The company follo"s cash and carry policy for monarch brand. The product is
not delivered until the cash is paid and financial department "ith the help of mar!eting
department loo!s after these transactions.
/ar@etin$ de!art1ent:
Mar!eting ,epartment is headed by the '$ecutive ,irector. Mar!eting Manager
is in charge of all operations "ho reports to the '$ecutive ,irector. Mar!eting Manager
and >= &ales *epresentatives are under the control of '$ecutive ,irector. There are
also 4A salesmen "ho have to report to the sales representatives above them.
&ersona" De!art1ent:
The ;ersonal department consists the details of the e$ecutives and "or!ers of
the organization. The organization is formed "ith &ri.&.;.O.*eddy as the managing
,irector. T"o Mar!eting managers% financial managers% public relations officer and
quality control officer "ho all reports to e$ecutive director. .ther% than e$ecutives there
are thousands "or!ers in the organization.
;anel consisting of managing director% e$ecutive director and managers of
concerned departments ma!es the recruitment and selections of persons. 3part from the
attractive salaries company provides health card facilities.
E4
&urc'asin$ de!art1ent:
The perple$ing situation i.e. conformed by the manufactures of the ;@C pipes is
scarcity of resin. Though the government of India has ta!en various steps to improve
the supply conditions of ;@C resin% the Indian manufactures could meet only =A
percent of demand and remaining =A percent is met from imports. The ma#or
petrochemical company is *eliance ;etrochemical Btd. The lead time for the
acquisition of ra" materials is E days.
The follo"ing lines highlight the human resources policies and practicesF
? 'ffective utilization of manpo"er.
? To provide good "or!ing condition.
? To promote industrial development.
A!!"ication of &VC !i!es:
• 3griculture and irrigation schemes.
• *ural and urban "ater supplies scheme.
• Tube "ell casing.
• 0as and oil supply lines.
• Industrial effluent disposal.
• &e"erage and drainage scheme.
• 3ir-condition ducting.
• Building installations.
• Industrial ducting.
E>
&RODUCT &ROFILE
;ipe hollo" structure usually cylindrical% for conducting materials. It is used
primarily to convey liquids% gases or solid suspended in a liquid for e.g. slurry and also
used for electric "ires. The earliest pipes "ere probably made of bamboo. :sed by the
Chinese to carry "ater c.=AAA BC. The 'gyptians made the first metal pipe of copper
c.>AAA BC until the cost iron became relatively% Copper or bronze. Modern materials
include cast iron "eight iron% steel% copper% brass% bead% concrete% "ood% and glass%
plastic. In lying an oil pipeline% EA’ft (24-m) sections of seamless steel pipe are
electrically "elded together "hile held over a trench. Before being lo"ered into place
the pipe is coated "ith a protective paint and "rapped "ith a substance composed of
treated asbestos felt and fiberglass.
;umping section located =A to C= ml (9A-24A!m). 3 part boosts the d"indling
pressure bac!up as much as 2=AA’lb per inch. The piping must be !ept clean either by
applying a negative electronic charge to the pipe or by regular use of a pig1% or
scrubbing ball% inserted at one end and carried along by the current. 3n oil pipe line 7
inches (2= cm) to 4E inches (7A cm) in diameter "ill move it contents at about > to 7 ml
(=-2A) per hr. 5ater has moved since ancient times in pipelines called aqueducts.
EE
DATA ANAL97I7 AND INTER&RETATION
INVE7T/ENT EVALUATION CRITERIA
Three steps are involved in the evaluation of an investmentF
? 'stimation of Cash ?lo"s.
? 'stimation of the required rate of return.
? 3pplication of a decision rule for ma!ing the choice.
The investment decision rules may be referred to as capital budgeting techniques
or investment criteria. 3 sound appraisal technique should be used to measure the
economic "orth of the investment pro#ect. The essential property of a sound technique
is that it should ma$imize the shareholder’s "ealth.
D-ere% in the data analysis the financial Manager to suggest their information to
ta!ing the initial investment from the year 4AAC. Because% the company registered in
the year before% the 4AA7 on that year the company is a proprietary companyE.
3 number of capital budgeting techniques are used in practice. They may be
grouped as follo"sF
? ;aybac! period (;B
E=
? 3verage rate of return (3**)
? /et ;resent @alue (/;@)
? ;rofitability Inde$(;I)
? Internal *ate of *eturn(I**)
3ll these methods of capital budgeting techniques are e$plained in detail belo"
Initial Investment 4%AA%AA%AAA *s. Ta$ percentage 4=N (such as 2AN) and the
depreciation the company "ill be provided in the Balance &heet. these are all the based
to calculate the ;rofit after Ta$ and cash flo"s.
&A9 #AC0 &ERIOD:
The paybac! period is one of the most popular and "idely recognized
traditional methods of evaluating investment proposals. It is defined as the number of
years required in a pro#ect. If the pro#ect generates constant annual cash inflo"s% the
paybac! period can be computed by the follo"ing formulaeF
Initial Investment
;ay Bac! period J
3nnual Cash ?lo"s
In case of unequal cash inflo"s% the paybac! period can be computed by
calculating the cumulative cash inflo" and chec!ing "hether the values are recovered
to the original outlay and ta!ing the remaining amount and apply the formulae i.e.%
*equired C?3T
;B; J base year K
Ne>%74=
=>
9ears
&rofit after
Ta< De!reciation After Ta< N&V H5F
&resent
Va"ue Cas'
f"o
4AAC >CE=EA.62 4E>46=7 49ACE67.62 A.6=4>9A6=4> 47C>9A7.=9
4AA9 >AE6=E7.>4 427C2=4 =427769.>4 A.6ACA46EC9E EC>2766.2=
4AA6 E>9AAE9.24 4E>C2E7 792C26E.24 A.97>9>C=69= =996AC=.CC
4A2A =>AA>CE.>= >2A4A67 9EA4ECA.>= A.944CA4ECEC 7624C79.76
4A22 7567635 5611603 13179238 0.783526165 10326277
Total >A=>>74=
Initial Investment cash outflo" J 4% AA% AA%AAA
>%A=%>>%74=
;rofitability Inde$ J
4% AA% AA%AAA
J ).5266
Net &rofita3i"it4 Inde< A &I ?)
A2.=477 I 2
AG.5266
Inferences:
3s the profitability Inde$ is L2% the pro#ect should be accepted
=E
Interna" Rate of Return:
The internal rate of return (I**) method is another discounted cash flo"
technique% "hich ma!es account of the magnitude and timing of cash flo"s. .thers
terms used to describe the I** Method are yield on investment% marginal efficiency of
capital% rate of return over cost% time ad#usted rate of internal return and so on. The
concept of internal rate of return is quite simple to understand in the case of one-period
pro#ects. The I** is calculated by interpolating the t"o rates "ith the help of the
follo"ing formulaF
;@ of cash inflo"s at lo"er rate - ;@ of cash outflo"s
IRR J B*K (-
r
- B
r
)
;@ of cash inflo"s at lo"er rate-;@ of cash inflo"s at higher rate
5here%
B
r
J *ate of interest that is lo"er of the t"o rates at "hich ;@ of Cash
inflo"s have been Calculated.
-
r
J *ate of interest that is higher of the t"o rates at "hich ;@ of Cash
inflo"s have been Calculated.
ACCE&TANCE RULE
The accept pro#ect rule% using the I** method% is to accept the pro#ect if its internal
rate of return is higher than the opportunity cost of capital (rL!) note that ! is also
!no"n as the required rate of return or cut-off rate. The pro#ect shall be re#ected if its
==
internal rate of return is lo"er than the opportunity cost of capital. Thus the I**
acceptance rules areF
? 3ccept if rL!
? *e#ect if rM!
? May accept if rJ!
7.OWIN% T.E CALCULATION7 OF INTERNAL RATE OF RETURN
(In Ru!ees-
Fro1 t'e a3ove ta3"e ca"cu"ated va"ues are:
/et ;resent @alue of cash flo" of B.5'* *3T' (B*) J 2,59,07,717
/et ;resent @alue of cash flo" of -I0-'* *3T' (-*) J 1,92,55,978
Therefore%
;resent value T B * I Initial Investment
I** J B*I $ *ate ,ifference
;resent value T B * I ;resent value T - *
=7
9EAR7
&ROFIT
AFTER
TA8
DE&RI?
CIATION
CA7.
FLOW
AFTER
TA8 N&V H)GF
&RE7ENT
VALUE
CA7.
FLOW
N&V
H2GF
&RE7ENT
VALUE
CA7.
FLOW
4AAC >CE=EA.62 4E>46=7 49ACE67.62 A.6A6A6A6 4==4476 A.9>>>> 4>>6=9A
4AA9 >AE6=E7.>9 427C2=4 =427769.>4 A.947EE74 E>22>4A A.76EEE >744CA7
4AA6 E>9AAE9.7E 4E>C2E7 792C26E.24 A.C=2>EEC =2429=9 A.=C9CA >6E=2>=
4A2A =>AA>CE.>= >2A4A67 9EA4ECA.>= A.79>A2>E =C>6AAA A.E9E44 EA=422C
4A22 7567635 5611603 13179238 0.6209213 8183270 0.40187 5296440
Total 25907717 Total 19255978
=6%AC%C2C
J 2AN I $ 2A
77%=2%C>6
J 2AN K A.996 $ 2A
J 29.96N
Inferences:
Therefore% I** lies at 29.96N. It is a point "here outflo" J inflo"
3nd I**L8% Therefore it is accepted.
=C
FINDIN%7
? The company had ta!en longer period i.e.% paybac! period is > years 4 months
4A days to recover its initial investment.
? The average rate of return is not good i.e.% 3** J E2.>EN as it "as #ust to
compensate the marginal profits.
? The net present value of 3/3/T-3 ;@C ;I;'& ;@T. Btd is satisfactory as
/;@ J >%A=%>>%74=.
? The internal rate of return i.e.% I**J 29.96N is fairly good.
? The profitability inde$ is fairly good is it "as gradually increasing in each year
as sho"n graphically.
? The unit cost and other e$penditures are eligible to claim from the potential
buyer as approved by the *egulatory Commission
=9
7U%%E7TION7
? Company should go for the improvement in the technology to improve
efficiency.
? The Company can go for different pro#ects as it has huge reserves and surplus%
to e$pand its operations.
? The Company is beneficial enough to e$pand its business by utilizing reserves
and surplus.
? The firm has to decrease the cost of production per unit.
? ?or society "ith lo"er income levels or belo" poverty line Company should go
for subscribed rates and for industries it should increases its rate marginally to
cover the losses.
? In order to diversify its operations it has to invest in more products so that /;@
"ill be fairly high.
=6
CONCLU7ION
:nder the light of inferences dra"n from the analysis the company has to
concentrate on ;ay Bac! ;eriod and /;@ for acceptance of the pro#ect. The
discounting methods are most preferable as the rate of returns is depending on the
present values. 3ll the techniques "hich "as used for the pro#ect resulted positively
e$pect on ;ay Bac! ;eriod. ?inally it is concluded that firm can generate huge profits
by investing in more pro#ects diversifying its operations.
7A
#I#LO%RA&.9
2. M. ;3/,'O: Financia" /ana$e1entF vi!as publishing house pvt ltd% 6
th
edition.
4. ;*3&3//3 C-3/,*3F Financia" /ana$e1entF Tata Mc0ra"--ill% C
th
edition.
>. I.M. ;3/,'O: Financia" /ana$e1entF Tata Mc0ra"--ill% E
th
edition.
WE#7ITE7
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