Capital Budgeting Full Project 1st Trail For 1st 2nd Chapters

Chapter-I
INTRODUCTION
INTRODUCTION
Tata Motors Limited, an automobile company, engages in the manufacture and sale of
commercial and passenger vehicles primarily in India. The company offers cars, utility vehicles,
trucks, buses, and defense vehicles, as well as develops electric and hybrid vehicles for personal
and public transportation. It also involves in distributing and marketing cars; and financing the
vehicles sold by the company. In addition, the company engages in the provision of engineering
and automotive solutions, as well as machine tools and factory automation solutions;
construction equipment manufacturing; automotive vehicle components manufacturing and
supply chain activities; tooling and plastic and electronic components for automotive and
computer applications; and automotive retailing and service operations. It offers its products and
services through its dealership, sales, services, and spare parts network. The company also
markets its commercial and passenger vehicles in Europe, Africa, the Middle East, South East
Asia, South Asia, and South America. The company was formerly known as Tata Engineering
and Locomotive Company Limited and changed its name to Tata Motors Limited in July 2003.
Tata Motors Limited was founded in 1945 and is based in Mumbai, India.
Tata Motors in one of the major players of the automobile manufacturing companies in India. It
has three different manufacturing units in India they are, Jamshedpur in the East, Pune in the
West and Lucknow in the North and all three manufacturing units specialize in the
manufacturing of different automobile like Jamshedpur unit produces trucks, engines and axles,
the Pune unit caters to the production of Medium Heavy Commercial vehicles and Heavy
Commercial Vehicles, utility vehicles an passenger cars and the Lucknow unit produces MCVs,
Tata Sumos along with a number of spare parts. Some of the well known cars manufactured by
Tata Motors are: Tata Indica, Tata Indigo, Tata Indigo Marina, Tata Sumo and Tata safari.
Vishnu Carriers Pvt. Limited is the Dealer for TATA Motors
Commercial Vehicles providing sales, service and spares at Visakhapatnam. Vishnu Carriers's
strength & the success tip being High Level of Customer Satisfaction, with fully equipped
Work-Shop and Show room, dealing in the following range of TATA Vehicles.
Capital budgeting has its origins in the natural resource and infrastructure sectors.
The current demand for infrastructure and capital investments is being fueled by deregulation in
the power, telecommunications, and transpiration sectors, by the globalization of product
markets and the need for manufacturing scale, and by the privatization of government owned
entities in developed and developing countries. The capital budgeting decision procedure
basically involves the evaluation of the desirability of an investment proposal. It is obvious that
the firm most have a systematic procedure for making capital budgeting decisions. The
procedure for making capital budgeting decisions. It consists of units mainly engaged in
manufacturing motor vehicles or motor vehicle engines Products and Services.The primary
activities of this industry are Motor cars manufacturing Motor vehicle engine manufacturing. The
major products and services in this industry are Passenger motor vehicle manufacturing segment
(Passenger Cars, Utility Vehicles & Multi Purpose Vehicles) Commercial Vehicles (Medium &
Heavy and Light Commercial Vehicles) Two Wheelers Three Wheelers.
The supply chain of automotive industry in India is very similar to the supply chain of
the automotive industry in Europe and America. The orders of the industry arise from the bottom
of the supply chain i. e., from the consumers and goes through the automakers and climbs up
until the third tier suppliers. However the products, as channeled in every traditional automotive
industry, flow from the top of the supply chain to reach the consumers. Automakers in India are
the key to the supply chain and are responsible for the products and innovation in the industry.[1]
The description and the role of each of the contributors to the supply chain are discussed below.
Third Tier Suppliers: These companies provide basic products like rubber, glass, steel, plastic
and aluminium to the second tier suppliers.
Second Tier Suppliers: These companies design vehicle systems or bodies for First Tier
Suppliers and OEMs. They work on designs provided by the first tier suppliers or OEMs. They
also provide engineering resources for detailed designs. Some of their services may include
welding, fabrication, shearing, bending etc.
First Tier Suppliers: These companies provide major systems directly to assemblers. These
companies have global coverage, in order to follow their customers to various locations around
the world. They design and innovate in order to provide black-box solutions for the
3
requirements of their customers. Black-box solutions are solutions created by suppliers using
their own technology to meet the performance and interface requirements set by assemblers.
First tier suppliers are responsible not only for the assembly of parts into complete units like
dashboard, breaks-axel-suspension, seats, or cockpit but also for the management of second-tier
suppliers.
Automakers/Vehicle
Manufacturers/Original
Equipment
Manufacturers
(OEMs):
After
researching consumers wants and needs, automakers begin designing models which are tailored
to consumers demands. The design process normally takes five years. These companies have
manufacturing units where engines are manufactured and parts supplied by first tier suppliers
and second tier suppliers are assembled. Automakers are the key to the supply chain of the
automotive industry. Examples of these companies are Tata Motors, Maruti Suzuki, Toyota, and
Honda. Innovation, design capability and branding are the main focus of these companies.
Dealers: Once the vehicles are ready they are shipped to the regional branch and from there, to
the authorised dealers of the companies. The dealers then sell the vehicles to the end customers.
Parts and Accessory: These companies provide products like tires, windshields, and air bags etc.
to automakers and dealers or directly to customers.
Service Providers: Some of the services to the customers include servicing of vehicles, repairing
parts, or financing of vehicles. Many dealers provide these services but, customers can also
choose to go to independent service providers.
NEED FOR THE STUDY
Capital budgeting decisions are the investment decisions of a firm are

generally known as the capital budgeting, or capital expenditure decisions. A capital budgeting
decision may be defined as the firms decision to invest in current funds most efficiently in the
long term assets in anticipation of an expected flow of benefits over a series of years. The long
Term assets are those that affect the firms operations beyond the one year period. The firms
investment decisions would generally include expansion, acquisition modernization and
replacement of the long term assets. Sale of a division or business is also an investment
decision. Decisions like the change in the methods of sales distribution, or an advertisement
campaign or research and development program have long- term implications for the firms
expenditures and benefits, and therefore they should also be evaluated as investment decisions.
Capital investments, representing the growing edge of a business, are deemed to be very
important for three inter- related reasons.The influence firm growth in the long term
consequences capital investment decisions have considerable impact on what the firm can do in
future.They affect the risk of the firm; it is difficult to reverse capital investment decisions
because the market for used capital investments is ill organized and /or most of the capital
equipments bought by a firm to meet its specific requirements. Capital investment decisions
involve substantial out lays.Whether or not funds should be invested in long term projects such
as setting of an industry purchase of plant and machinery etc.Analyse the proposal for expansion
of creating additional capacities. To decide the replacement of permanent asset such as building
and equipments
Capital budgeting has its origins in the natural resource and infrastructure sectors.
The current demand for infrastructure and capital investments is being fueled by deregulation in
the power, telecommunications, and transpiration sectors, by the globalization of product
5
markets and the need for manufacturing scale, and by the privatization of government owned
entities in developed and developing countries.
The capital budgeting decision procedure basically involves the evaluation of the
desirability of an investment proposal. It is obvious that the firm most have a systematic
procedure for making capital budgeting decisions. The procedure for making capital budgeting
decisions. It consists of units mainly engaged in manufacturing motor vehicles or motor vehicle
engines Products and Services.The primary activities of this industry are Motor cars
manufacturing Motor vehicle engine manufacturing. The major products and services in this
industry are Passenger motor vehicle manufacturing segment (Passenger Cars, Utility Vehicles &
Multi Purpose Vehicles) Commercial Vehicles (Medium & Heavy and Light Commercial
Vehicles) Two Wheelers Three Wheelers.
OBJECTIVES
To measure the present value of rupee invested in the company.
To study the techniques of capital budgeting for decision-making in the company.
To study the relevance of capital budgeting in evaluating the project.

To understand an item wise study of the company of financial performance of the
company.
To evaluate the investment proposal by using capital budgeting techniques.
To suggest for improving the financial positions of the company.
To Determine the proposal and investments, inflows and out flows.
To identify the better investment proposals
To give suitable suggestion regarding the best in the investment proposal.
METHODOLOGY
Methodology is a systematic procedure of collecting information in order to analyze

and verify a phenomenon. The collection of information is done two principle sources. They are
as follows:
1.
Primary Data
2.
Secondary Data
Primary Data
It is the information collected directly without any references. In this study it is gathered through
interviews with concerned officers and staff, either individually or collectively, sum of the
information has been verified or supplemented with personal observation conducting personal
interviews with the concerned officers of finance department of GREATER HYDERABAD
MUNCIPAL CORPORATION.
Secondary Data:
The secondary data was collected from already published sources such as, pamphlets of
annual reports, returns and internal records, reference from text books and journals relating to
financial management.
The data collection includes
a) Collection of required data from annual records of Greater Hyderabad Muncipal Corporation.
b) Reference from text books and journals relating to financial management.
LIMITATIONS
8
Though the project is completed successfully a few limitations may be there.
Since the procedure and polices of the company will not allow to disclose confidential
financial information, the project has to be completed with the available data given to us.
The study is carried basing on the information and documents provided by the
organization and based on the interaction with the various employees of the respective
departments.
There was no scope of gathering current information, as the auditing has not been done
by the time of project work.
COMPANY PROFILE
9
Tata Motors Limited, an automobile company, engages in the manufacture and

sale of commercial and passenger vehicles primarily in India. The company offers cars, utility
vehicles, trucks, buses, and defense vehicles, as well as develops electric and hybrid vehicles for
personal and public transportation. It also involves in distributing and marketing cars; and
financing the vehicles sold by the company. In addition, the company engages in the provision of
engineering and automotive solutions, as well as machine tools and factory automation solutions;
Tata Motors in one of the major players of the automobile manufacturing companies
in India. It has three different manufacturing units in India they are, Jamshedpur in the East, Pune
in the West and Lucknow in the North and all three manufacturing units specialize in the
ORGANISATIONAL PROFILE
Vishnu carriers private ltd:
Vishnu Carriers Pvt. Limited is the Dealer for TATA Motors Commercial Vehicles
providing sales, service and spares at Visakhapatnam. Vishnu Carriers strength & the success tip
being High Level of Customer Satisfaction, with fully equipped Work-Shop and Show room,
dealing in the following range of TATA Vehicles.
Brief Introduction about Vishnu Group:
10
Vishnu group operates four business sectors Automobiles, Hotels, Textiles,

Engineering Products etc. Total Vishnu Group net worth 51 Cores Total Turnover 80 Cores
Group of companies listed below
Vishnu Motor Plaza Ltd.,

Vishnu Cars Private Ltd.,
Sree Ramakrishna Engineering co.,
Meghalaya Hotels Private Ltd.,
Vishnu Multiform Private Ltd.,
Vishnu Carriers Private Ltd.,
VCPL is one of the leading player in passenger &commercial segment having
52% Market share in Visage Market being Tourism spot the floating population will be high like
international airport, IT industries targeting in Visakhapatnam Size of site 2868.65 sq yards we
have our presence in the Payakaraopeta, Thagarapuvalasa, Narsipatnam, Anakapalli, Kakinada,
East Godavari. Vcpl is dedicated to provide its customers with the best possible service our
business model allows us to meet our customers economic and technical challenges in the
Market Place. We work with customer as a partner to satisfy their requirements in a simple cost
effective Manner. We provide all levels of services from simple staffing to a complete
professional services Vcpl recognized by ISO standards maintain quality of services to the
customer.
Expansion Plans :
VCPL is on the threshold for rapid expansion. The revenues are slated to grow
substantially with new lines of business emerging like Tata Products different geographies.
Products :
Medium commercial vehicles

Intermediate commercial vehicles
Light commercial vehicles
Small commercial vehicles
11
Medium commercial vehicles :

Tata Motors introduces the all new LPT 909EX, which is geared up to meet and
provide solutions to a range of highly demanding transport applications from inner city and
regional distribution to long distance trips. This vehicle comes with the superior EX features like
extra Torque, extra fuel-efficiency, extra reliability and durability, extra maneuverability (through
reduction in turning circle diameter). extra safety, with S-Cam Air Brakes and extra drivercomfort. All these mean superior drivability, extra revenues and lower operating costs, thus extra
profit.
Intermediate commercial vehicles
The Tata Motors, LPT 1109 turbo truck works with 4 cylindered engine operating on
497 turbo charged inter cooled diesel with dual-circuit full air S-Cam brakes
Light commercial vehicles :
Powerful Turbocharged engine provides superior pick-up and ensures peak
performance and fuel economy in all kinds of application. A higher starting torque and a flatter
torque curve provides more pulling power and enhances performance in both city and long
distance traveling.
Reliable and Durable Performance:
From roughest road toughest job, Tata vehicles are built to give years of
dependable service even in extreme road and weather conditions. The cabs and frames are
designed to be highly rigid and are extensively treated to prevent corrosion.
Small commercial vehicles :
The ACE is a small vehicle that opens up big opportunities. You can now pursue
plans never thought possible before starting a new business or expanding an existing one,
transporting from city to city deep into rural areas. Get the big ACE advantage. Make a small
decision.
12
Commercial passenger vehicles:

Enter into the world of Tata Motors buses and allow us to take you on a journey that
will redefine road travel in India for luxury seekers, intercity travelers, city commuters and
school children alike.
Vishnu Group Competitors:
TATA
LAYLAND
EICHER
M&M
PAIGGO
SWARAJ
FORCE
Strategies : (Sales)
One to one Customer reception & care
Studying & analyzing the needs & suitable advises
Timely delivery with ready stock as committed
Free training to operators (customers) by setting up separate training center
Extended warranty & various finance schemes tying up with financiers
Support in the events of accidents & insurance claims
Separate marketing teams for bulk institutional & other individual customers for better
focus.
Educating the customers to get optimum use out of it
Strategies : (Service)
24x7 Customer care & service availability

On call On site service
Service Reward points Little boon to customer satisfaction
Reminders on regular intervals for periodical check During and after warranty
Timely delivery with ready stock of spares, Excellent service setup & high quality service
by well trained & experienced technicians.

Excellent customer Relations with full data base
Departments:
Service:
Work shop D1D2 (Light Vehicles Division)
Work shop D4 (Heavy Vehicle Division)
Work shop D12 (Accidental Vehicle Division)
Spares
13
CRM
Sales
Service
Sales
Human Resource Department
Accounts Department
Security Department
Maintenance Department
Front office
Manpower Particulars :
Total Manpower 240
S.No
Department Name
Total
no
employees
01
Workshop D1D2
Supervisors
Mechanics
Asst. Mechanics
02
Helpers
Workshop D4
Supervisors
Mechanics
Asst Mechanics
03
Helpers
Workshop D12
Supervisor
Mechanics
14
of
Asst. Mechanics
04
05
06
07
Spares
Sales
HRD
Accounts
15
INDUSTRIAL PROFILE
Industry Definition:
Vehicle engines. This class consists of units mainly engaged in manufacturing motor
vehicles or motor vehicle engines Products and Services.
The primary activities of this industry are:
Motor cars manufacturing Motor vehicle engine manufacturing The major products and services
in this industry are:
Passenger motor vehicle manufacturing segment (Passenger Cars, Utility Vehicles & Multi
Purpose Vehicles) Commercial Vehicles (Medium & Heavy and Light Commercial Vehicles)
Two Wheelers Three Wheelers
Supply Chain of Automobile Industry
Supply Chain of Indian Automobile Industry[1]

The supply chain of automotive industry in India is very similar to the supply chain of the
automotive industry in Europe and America. The orders of the industry arise from the bottom of
the supply chain i. e., from the consumers and goes through the automakers and climbs up until
the third tier suppliers. However the products, as channeled in every traditional automotive
the key to the supply chain and are responsible for the products and innovation in the industry.
16
The description and the role of each of the contributors to the supply chain are discussed
below. Third Tier Suppliers: These companies provide basic products like rubber, glass, steel,
plastic and aluminum to the second tier suppliers.
suppliers.
Automakers/Vehicle Manufacturers/Original Equipment Manufacturers (OEMs): After
automotive industry. Examples of these companies are Tata Motors, Maruti Suzuki, Toyota,
and Honda. Innovation, design capability and branding are the main focus of these companies.
17
Product and service segmentation
The automotive industry of India is categorised into passenger cars, two
wheelers, commercial vehicles and three wheelers, with two wheelers dominating the market.
The passenger vehicles are further categorised into passenger cars, utility
vehicles and multi-purpose vehicles. All sedan, hatchback, station wagon and sports cars fall
under passenger cars. Tata Nano, is the worlds cheapest passenger car, manufactured by Tata
Motors - a leading automaker of India. Multi-purpose vehicles or people-carriers are similar in
shape to a van and are taller than a sedan, hatchback or a station wagon, and are designed for
maximum interior room.
Commercial vehicles are categorised into heavy, medium and light. They account
for about 5% of the market. Three wheelers are categorised into passenger carriers and goods
carriers. Three wheelers account for about 4% of the market in India.
Indian automotive companies
Chinkara Motors Beachster, Hammer, Roadster 1.8S, Rockster, Jeepster, Sailster
Hindustan Motors : Ambassador
ICML: Rhino Rx
Mahindra : Major, Xylo, Scorpio, Bolero, Thar, Verito, Genio
Premier Automobiles Limited Sigma, RiO
San Motors Storm
18
Tata Motors : Nano, Indica, Indica Vista, Indigo, Indigo Manza, Indigo CS, Sumo,
Venture, Safari, Xenon, Aria
Commercial vehicle manufacturers in India

Indian brands:
Force
Hindustan Motors Premier
Tata AMW Eicher Motors
Basis of Competition
Competition in this industry is high. Competition in this industry is
increasing. Automotive industry is a volume-driven industry, and certain critical mass is a
pre-requisite for attracting the much-needed investment in research and development and
new product design and development. Research and development investment is needed
for innovations which is the lifeline for achieving and retaining competitiveness in the
industry. This competitiveness in turn depends on the capacity and the speed of the
industry to innovate and upgrade. The most important indices of competitiveness are
productivity of both labour and capital.
Key Success Factors

The Key Success factors in the Motor Vehicle Manufacturing industry are:
Efficiency factor - Improve labour productivity, labour flexibility, and capital efficiency
Resource Availability - Quality manpower availability, infrastructure improvements, and raw

material availability Effective cost controls - Close relationship with supplies and goods
distribution channels. Establishment of export markets - Growth of export markets Having an
extensive distribution/collection network - Goods distribution channels Successful industrial
relations policy - Ethical and tactical industrial relations Access to the latest available and most
efficient technology and techniques - The degree of investment in technological improvements
and product development Optimum capacity utilisation - The level of plant utilisation
Management of high quality assets portfolio - Understanding implications from Government
policies
19
Introduction: Methodology is a systematic procedure of collecting information in order to analyze and verify a
phenomenon. The collection of information is done two principle sources. They are as follows:
3.
Primary Data
4.
Secondary Data
Primary Data
It is the information collected directly without any references. In this study it is gathered through
interviews with concerned officers and staff, either individually or collectively, sum of the
information has been verified or supplemented with personal observation conducting personal
interviews with the concerned officers of finance department of GREATER HYDERABAD
MUNCIPAL CORPORATION.
Secondary Data
The secondary data was collected from already published sources such as, pamphlets of annual
reports, returns and internal records, reference from text books and journals relating to financial
management.
The data collection includes.
a)
Collection of required data from annual records of Greater Hyderabad Municipal

Corporation.
b)
Reference from text books and journals relating to financial management.
20
DATA
SOURCES
PRIMARY
SOURCES
MANAGEME
NT
RESPONDEN
TS
PERSONAL
OBSERVANCE
SECONDARY
SOURCES
INSIDE THE
COMPANY
OUTSIDE THE
COMPANY
ANNUAL
REPORTS
TEXT BOOKS,
JOURNALS
RESEARCH PROBLEM
Research Methodology is a way to systematically solve the research problem. It may be
considered as a science of studying how research is being done scientifically.
S.NO
KEY ISSUES NO
SELECTED OPINIONS
Data Source
Primary Data and Secondary Data
Research Approach
Descriptive Research
21
RESEARCH DESIGN:
In this research, the descriptive research design is used.
Descriptive research studies are those studies, which are concerned with describing the
characteristics of a particular individual, or of a group. The method of data collection happens to
be observation and interview techniques.
TOOLS &TECHNIQUES:
Payback period (PBP)
.
Payback
Initial Investment Co
=
Annual cash flow C
Accounting Rate of Return (ARR)
Average income
A R R =
Average
investment
x 100
Net Present Valued Method (NPV)

C 1 + C 2 + C 3 + + Cn
N PV = -
(1+k)
(1+k)2 (1+k)3
(1+k)n
Profitability Index:
PV of cash inflow
PI=
Initial Cash
outlay
22
Co
SAMPLING DESIGN:
Unit of analysis:
The populations to be studied in this research study in Greater Hyderabad Municipal
Corporation.
LIMITATIONS OF THE STUDY

Though the project is completed successfully a few limitations may be there.
Since the procedure and polices of the company will not allow to disclose confidential
financial information, the project has to be completed with the available data given to us.
The period of study that is 8 weeks is not enough to conduct detailed study of the project.
The study is carried basing on the information and documents provided by the
organization and based on the interaction with the various employees of the respective
departments.
There was no scope of gathering current information, as the auditing has not been done
by the time of project work.
23
THEORETICAL FRAME WORK

An efficient allocation of capital is the most important finance function in the
modern times. It involves decisions to commit the firms funds to the long - term assets. Capital
budgeting for investment decisions is of considerable importance to the firm since they tend to
determine its value by influencing its growth, evaluation of capital budgeting decisions.
NATURE OF INVESTMENT DECISIONS.
The investment decisions of a firm are generally known as the capital budgeting, or
capital expenditure decisions. A capital budgeting decision may be defined as the firms decision
to invest its current funds most effectively in the long- term assets in anticipation of an expended
flow of benefits over a series of years. The long-term assets are those that affect the firms
operational beyond the one year period.
Investment decisions generally include expansion, acquisition modernization and replacement of
the long-term assets. Sale of a division or business (Divestment) is also an investment decision.
Decision like the change in the methods of sales distribution, or an advertisement campaign or a
research and development program have long-term implications for the firms expenditures and
benefit, and therefore, they should also be evaluated as investment decisions.
The following are the features of investment decisions.
The exchange of current funds for future benefits.
The funds are invested in long-term assets.
The feature benefits will occur to the firm over a series of years.
OBJECTIVES OF INVESTMENT DECISIONS

Understand the nature and importance of investment decisions.
Explain the methods of calculating net present value (NPV) and internal rate of return
(IRR)
Show the implicated of net present value (NPV) and internal rate of return (IRR)
Describe the Non- DCF evaluation Criteria. Payback period and accounting rate of return
(ARR).
24
Institute the competition of the discounted payback.

Compare and contract NPV and IRR and emphasize the superiority of NPV rule.
PROCESS OF INVESTMENT DECISIONS.

Capital Budgeting is a complex process which may be divided into the following phases.
Figure of Capital Budgeting Process
Identification
of investment
opportunities
Performanc
e
Review
Assembling of
investments
Decision
Making
Implemen
t
Action
25
Preparation of
Capital Budget
Identification of Investment Opportunities

The capital budgeting process begins with the identification of
potential investment opportunities. Typically, the planning body (it may be an individual or
committee organized formally or informally) develops estimates of future sales which serves as
the basis for setting production targets. This information, in turn, is helpful in identifying
required investments in plant and equipment.
Identification of investment ideas it is helpful to:
Monitor external environment regularly to scout investment opportunities.
Formulate a well defined corporate strategy based on through analysis of strengths,
weaknesses, opportunities, and threats.
Share corporate strategy and respective with persons.
Motivate employees to make suggestions.
Assembling of investment proposals.
Investment proposals identified by the production department and other departments are
usually submitted in a standardized capital investment proposal form. Generally, most of the
proposals, before they reach the capital budgeting committee or somebody who assembles them,
are rated through several persons. The proposal is viewed from different angles. It also helps in
creating a climate for bringing about co ordination of inters related activities.
Investment, proposals are usually classified into various categories for facilitating
decision- making, budgeting, and control.
Replacement investments
Expansion investments.
New product investments
Obligatory and welfare investments.
26
Decision Making
A system of rupee gateways usually characterizes capital investment decision making.
Under this system executive are vested with the power to okay investment proposals up to
certain limits.
Preparation of capital Budget
Projects involving smaller out lays and which can be decided by executives at lower levels
are often covered by a blanket appropriation for expenditures action. Projects involving larger
out lays are included in the capital budget after necessary approvals. Before under facing such
projects an appropriation order is usually required. The purpose of this check is mainly to ensure
that the funds position of the firm satisfactory at the time of implementation.
Implementation
Translating an investment proposal into a concrete project is a complex, time consuming,
and risk- fraught task.
Adequate formulation of projects
The major reason for delay is insinuate formulation of projects put differently, if necessary
homework in terms of preliminary comprehensive and detailed formulation of the project.
Use of the principle of responsibility accounting
Assigning specific responsibility to project managers for completing the project within the
defined time-frame and cost limits is helpful for expeditious execution and cost control.
Use of Network Techniques
For project planning and control several network techniques like PERT (Programme
Evaluation Review Techniques) and CPM (Critical Path Method) are available.
Performance Review
27
Performance review, or post completion audit, is a feedback device. It is a means for

comparing actual performance with projected performance. It may be conducted, most
appropriately. When the operations of the project have stabilized.
It is useful several ways.
It throws light on how realistic were the assumptions underlying the project.
It provided a documented log of experience that is highly valuable for decision making.
Importance of Investment Decisions
Investment decisions require special attention because of the following reasons.
They influence the firms growth in the long term.
They affect the risk of the firm.
They involve commitment of large amount of funds.
They are irreversible, or reversible at substantial loss.
They are among the most difficult decisions to make
Types of investment decisions
There are many ways to classify investments one classification is as follows;
Expansion of existing business.
Expansion of new business.
Replacement and modernization.
EXPANSION AND DIVERIFICATION

A company may add capacity to its existing product lines to expand existing operations. For
example, the (GHMS) may increase its plant capacity to manufactures more liquid steel. It is an
example of related diversification.
A firm mat expand is activities in a new business expansion of a new business requires
investment in new products and new kind of production activating within the firm. If packing
manufacturing company invests in a new plant and machinery to produce ball bearings, which
28
the firm has not manufactured before, this represents expansion of new business or unrelated
diversification. Sometimes a company acquires existing firms to expand its business.
Replacement and modernization.

The main objective of modernization and replacement is to improve operating
efficiency reduce costs. Cost savings will reflect in the increased profits, but the firms revenue
may remain unchanged. Assets become outdated and absolute with technological changes. The
firm must decide to replace those assets with new assets that operate more economically.
Replacement decisions help to introduce more efficient and economical assets and therefore, are
also called cost- reduction investments.
How ever replacement decisions that involve substantial modernization and technological
improvements expand revenues as well as reduce costs.
Yet another useful way to classify investments is as follows;
Mutually exclusive investments
Independent investments
Contingent investments
Mutually exclusive investments

Mutually exclusive investments serve the same purpose and compete with each other.
If one investment understands others will have to be excluded. Accompany May, for example,
either use a more labour- intensive, semi- automatic machine, or employ a more capital intensive,
highly automatic machine for production.
Independent investments
Independent investments serve different purposes and do not compete with each other. For
example, a heavy engineering company may have been considering expansion of its plant
capacity to manufacture additional excavators and addition of new production facilities to
manufacture a new product.
29
Contingent Investments
Contingent investments are dependent projects; the choice of one investment
necessitates understanding one or more other investments for example, if a company decides to
build a factory in a remote, backward area, it may have to invest in houses, roads, hospitals,
schools, etc., and the total expenditure will be treated as one single investment.
Investment Evaluation Criteria
Three steps are involved in the evaluation of investment.
Estimation of cash flows
Estimation of the required rate of return
(the opportunity cost of capital )
Application of a decision rule for making the choice.
Evaluation Criteria
A number of investment criteria (or capital budgeting techniques) are in use in practice. They
may be grouped in the following two categories.
Capital budgeting techniques.
Capital Budgeting Techniques
DCF Criteria
Net
Present
Value
Internal
Rate of
Return
Non DCF Criteria
Payback
period
Profitabil
ity Index
30
Accounting Rate
of Return
Non DCF Criteria:

Payback period (PB)
The payback period (PB) is one of the most popular and widely recognized traditional methods
of evaluating investment proposals. Pay back is the number of years required to recover the
original cash outlay invested in a project.
If the project generates constant annual cash inflows, the payback period can be computed by
dividing cash outlay by the annual cash inflow.
Total Investment Co
Payback =
Annual cash flow C
Co
Initial Investment
Annual Cash in flow
In case of UN equal cash inflows, the payback period can be found out by adding up the cash
inflows until the total is equal to the initial cash outlay.
Merits:
The pay back method has the following merits:
a) Uncertainty: The method is very useful in evaluation those projects which involve high
Uncertainty. Political instability rapid technological development of cheap substitutes etc. is
some of the reasons which discovered one to take up projects having long gestation period.
Payback method is useful in such cases.
b) Clear: The method makes it clear that no profit arises till the payback period is over.
This helps new companies in deciding when they should start paying dividends.
c) Simple: The method is simple to understand and easy to workout.
31
d) Reduces the loss: The method reduces the possibility of loss on account of obsolescence
as the method prefers investment in short term projects.
Demerits:
The method has the following demerits:
a) Rigid: This method is dedicate and rigid. A slight change in the operation cost will affect
the cash inflow and the pay back period.
b) Does not take into account the depreciation: It des not take into account the life of the
project, depreciation, scrap value, interest factor etc.
c) Ignore cash: It completely ignores cash inflows after the pay back period.
d) Ignore profitability: The profitability of the project is completely ignored.
e) Not justifiable: It gives more importance to liquidity as a goal of capital expenditure
decisions which is not justifiable.
f) Ignores time value of money: It ignores time value of money cash flows received in
different years is treated equally.
32
Accounting Rate of Return (ARR)

The accounting rate of return (ARR) also known as the return on investment (ROI) uses
accounting information, as revealed by financial statements, to measure the profitability of an
investment. The Accounting rate of return is the ratio of the average after fax profit divided by
the average investment. The average investment would be equal to half of the original investment
if it were depreciated constantly.
Average income
A R R =
Average investment
100
Merits:
The following are the merits of accounting rate of return method.
1. Simple: It is simple to understand and easy to calculate.
2. Weightage: This method gives due weightage to the profitability of the project.
3. Consideration: It takes into consideration the total earnings from the project during its
life time.
4. Calculation: Rate of return may be readily calculated with the help of accounting data.
Demerits:
This method suffers from the following weakness:
1. Doesnt use cash inflows:
It uses accounting profits and not the cash inflows in
appraising the project.
33
2. Ignore time value of money: it ignores the time value of money. Profits earned in
different period are valued equally.
3. Rate of Return: It considers only the rate of return and not the life of the project.
4. Ignore the facts: It ignores the fact that profits can be reinvested.
5. Fair Rate of Return on Investment: This method does not determine the fair rate of return
on investment.
6. Reduction reliability: There are different methods for calculating the Accounting Rate of
Return due to many concepts of investments as well as profit. Each method gives different
results. This reduces the reliability of the method
Net Present Valued Method (NPV)
The NPV present value (NPV) method is the classic economic method of evaluating the
investment proposals. If is a DCF technique that explicitly recognizes the time value at different
time periods differ in value and are comparable only when their equipment present values- are
found out.
N P V =
- Co
Where
N P V = Net present value
Cfi = Cash flows occurring at time
k = the discount rate
n = life of the project in years
Co = Cash out lay
Internal Rate of Return (IRR)
The internal rate of return (IRR) method is another discounted cash flow technique which takes
account of the magnitude and thing of cash flows, other terms used to describe the IRR method
34
are yield on an investment, marginal efficiency of capital, rate of return over cost, time- adjusted
rate of internal return and soon.
n
N P V =
Where
i=0
Cf SV+WC
+
(1+k)i (1+k)n
Cfi = Cash flows occurring at different point of time

k = the discount rate
n = life of the project in years
Co = Cash out lay
SV & WC = Salvage value and Working Capital at the end of the n years.
Where
L
: Lower discount rate at which NPV is positive
: Higher discount rate at which NPV is negative
: NPV at lower discount rate, L
: NPV at higher discount rate, H
Profitability Index (PI)

Yet another time- adjusted method of evaluating the investment proposals is the benefit- cost
(B/C.) ratio or profitability index (PI) Profitability Index is the ratio of the present valued of cash
inflows, at the required rate of return, to the initial cash out flow of the investment.
Present Value of cash inflow
PI=
Present Value of outlay
Similarities in results Under NPV and IRR:

35
Both NPV and IRR will give the same result (i.e.., acceptance or rejection) regarding an
investment proposal in following cases:
1. Projects involving conventional cash flows i.e.., when an initial outflow is followed by a
series of inflow.
2. Independent investment proposals i.e.., proposals the acceptance of which does not
procedure the acceptance of others.
The reason for similarity in results in the above cases is simple. In case of NPV method, a
proposal is accepted if its NPV is positive. NPV will be positive only when the actual return
on investment is more than the cut of rate. In case of IRR method a proposal is accepted
only when the IRR is higher than the cut-off rate thus both methods will give consistent
results since the acceptance or rejection of the proposal under both of them is based on the
actual return being higher than the cut-off rate.
Conflict in results under NPV and IRR:
NPV and IRR methods may give conflicting results in case of mutually exclusive projects
i.e.., projects where acceptance of one would result in non-acceptance of the other. Such
conflict of result may be due to any one or more of the following reasons:
1. The projects require different cash outlays.
2. The projects have unequal lives
3. The projects have different patterns of cash flows.
36
In such a situation the result given by the NPV method should be relied upon. This is
because the objective of a company is to concern with the rate of return on investment rather
than total yield on investment hence it is not compatible with the goal of wealth
maximization. NPV methods consider the total yield on investment. Hence in case of
mutually exclusive projects, each having a positive NPV, the one with the largest NPV will
positive NPV, the one with the largest NPV will have the most beneficial effect on
shareholders wealth.
In case of projects requiring different cash outlays the problems can also be resolved by
adopted incremental approach, a modified form of IRR method. According to this approach
in case of two mutually exclusive projects requiring different cash outlays, the IRR is
incremental outlay of the project requiring a higher initial investment is calculated. In case
this IRR is higher than the required rateof return the project having greater non-discounted
cash flows should be accepted otherwise it should be rejected.
37
3. DATA ANALYSIS & INTERPRETATION
1.SOCIAL WELFARE
Table No.1
PAY BACK PERIOD:
S.NO
YEAR
CASH
INFLOWS
TOTAL PV.OF CASH

INFLOWS
1998-99
1493
1493
99-2000
1316
2809
2000-01
1457
4266
2001-02
2645
6911
2002-03
3022
9933
2003-04
3100
13033
2004-05
3331
16364
2005-06
3519
19883
2006-07
3553
23436
10
2007-08
3619
27055
11
2008-09
3686
30741
12
2009-10
3755
34496
13
2010-11
3839
38335
14
2011-12
3931
42266
15
2012 - 13
4030
46296
(a)
Cash Outlay : 8692

38
Initial Investment
(b) Payback Period
Base Year +
Annual Cash Flow
1781
=
4 years +
3022
4 Years 5 months
Interpretation:
It is assumed that the profit earning of the project will start from 1994-95.
Taken consideration of (incremental adjusted cash flow) i.e. expansion
Base year, for calculation pay back period
Depreciation is charged on Diminishing Balance Method
Estimated profits are taken from the data provided. (See annexure )
For arriving at Cash Inflows we have added depreciation to profit after tax &
then computed Cumulative In flows
So the projected payback period is calculated as 4.5 years.

Rounding of payback period from 4.5 to 5 years will be right, as will give more assistance to the
calculation as future is uncertain.
Table No.2
39
AVERAGE RATE OF RETURN(ARR)

TOTAL PV.OF
CASH
INFLOWS
S.NO
YEAR
CASH
INFLOWS
1998-99
1493
1493
99-2000
1316
2809
2000-01
1457
4266
2001-02
2645
6911
2002-03
3022
9933
2003-04
3100
13033
2004-05
3331
16364
2005-06
3519
19883
2006-07
3553
23436
10
2007-08
3619
27055
11
2008-09
3686
30741
12
2009-10
3755
34496
13
2010-11
3839
38335
14
2011-12
3931
42266
15
2012 - 13
4030
46296
Average profit
40
ARR =
x 100
Average investment
Total cash inflows

Average Profit =
No. of years
46296
=
=
15
3086.4
Average investment:
Investment
Average investment
=
2
8692
ARR
4346
3086.4
X 400
4346
ROI
71.01%
Average Annual Profit

41
X 100
Total Initial Investment
3086.4
=
X 100
8692
35.51
Interpretation:
For the calculation of ARR, Profit after tax and depreciation is taken and then average of total
profit is calculated. ARR shows the average return of the firm which it earns on long run basis.
42
TABLE NO.3
NPV (NET PRESENT VALUE)
SL.No
Years
Cash
Inflows
DCF(19%)
Present Values of
Cash Inflows
1998-99
1967
0.840
1652.28
99-2000
1790
0.706
1263.74
2000-01
1984
0.593
1176.51
2001-02
3519
0.499
1755.98
2002-03
3941
0.419
1651.28
2003-04
4024
0.352
1416.45
2004-05
4016
0.296
1188.74
2005-06
4026
0.249
1002.47
2006-07
4066
0.209
849.79
10
2007-08
4137
0.176
728.11
11
2008-09
4210
0.148
623.08
12
2009-10
4284
0.124
531.22
13
2010-11
4374
0.104
454.90
14
2011-12
4471
0.088
393.45
15
2012 - 13
4576
0.074
338.62
Total Present Values of Inflows
N P V = Total Present Value of Cash inflows Total Outlay

= 15026.62 8692 = 6334.62
43
15026.62
Interpretation:
NPV is the discounted cash inflow that are calculated at the values of the discounting factor of
Re.1 at the end of each year. Discounting cash factor is based on interest rate, cost of capital and
market state.
While choosing a project it is appropriate to calculate NPV to get an appropriate decision as it is
more reliable than simple cash inflows.
44
INTERNAL RATE OF RETURN

TABLE NO.4
Discount rate taken as 18%
(in crores)
SL.No
Years
Cash Inflows
DCF(18%)
Present Values
of Inflows
99-2000
1967
0.847
1666.049
2000-01
1790
0.718
1285.220
2001-02
1984
0.609
1208.256
2002-03
3519
0.516
1815.804
2003-04
3941
0.437
1722.217
2004-05
4024
0.370
1488.880
2005-06
4016
0.314
1261.024
2006-07
4026
0.266
1070.916
2007-08
4066
0.225
914.850
10
2008-09
4137
0.191
790.167
11
2009-10
4210
0.162
682.020
12
2010-11
4284
0.137
586.908
13
2011-12
4374
0.116
507.384
14
2012 - 13
4471
0.099
442.629
45
Cash
Years
1998-99
1967
0.741
1457.5
99-2000
1790
0.549
982.71
2000-01
1984
0.406
805.5
2001-02
3519
0.301
1059.2
2002-03
3941
0.223
878.84
2003-04
4024
0.165
663.96
2004-05
4016
0.122
489.95
2005-06
4026
0.091
366.37
2006-07
4066
0.067
272.42
10
2007-08
4137
0.050
206.85
11
2008-09
4210
0.037
155.77
12
2009-10
4284
0.027
115.67
13
2010-11
4374
0.020
87.48
14
2011-12
4471
0.015
67.065
15
2012 - 13
4576
0.011
50.336
Inflows
DCF(35%)
Present Values of
SL.No
46
Inflows
7659.621
Discount rate taken as 35%(in crores)
A - Cash out lay

L+
IRR
X (H L)
A-B
15826.708 - 8692
18 +
X (35-18)
15826.708 7659.6921
7134.708
=
18 +
X 17
8167.016
18 +
0.874
X 17
32.85
Interpretation:
In this, calculations are done on the basis of trail and error method by taking various percentages
of DCF. So that an appropriate percentage of Internal Rate of return can be judge out.
Calculated figure is 32.85%, so we can take it as 35% cause at market
Uncertainty.
47
PROFITABILITY INDEX METHOD

TABLE NO.5
SL.No
Years
Cash
Inflows
DCF(19%)
Present Values of
Inflows
1998-99
1967
0.840
1652.28
99-2000
1790
0.706
1263.74
2000-01
1984
0.593
1176.51
2001-02
3519
0.499
1755.98
2002-03
3941
0.419
1651.28
2003-04
4024
0.352
1416.45
2004-05
4016
0.296
1188.74
2005-06
4026
0.249
1002.47
2006-07
4066
0.209
849.79
10
2007-08
4137
0.176
728.11
11
2008-09
4210
0.148
623.08
12
2009-10
4284
0.124
531.22
13
2010-11
4374
0.104
454.90
14
2011-12
4471
0.088
393.45
15
2012 - 13
4576
0.074
338.62
48
15026.62
Present Value of Cash Inflows

P.I
=
Present Value of Cash Outflows
15026.62
=
8692
=
1.73
Interpretation:
In calculation of Profitability Index, Cash inflow is taken in to consideration.
P.I =1.73.
49
2.R&B (ROADS&BUILDINGS)
PAY BACK PERIOD:
TABLE NO.1
S.NO
YEAR
CASH INFLOWS
TOTAL PV.OF CASH

INFLOWS
1998-99
7695
7695
99-2000
7870
15565
2000-01
8100
23665
2001-02
8472
32137
2002-03
8740
40877
2003-04
8900
49777
2004-05
9210
58987
2005-06
9420
68407
2006-07
9700
78107
10
2007-08
9760
87867
11
2008-09
9997
97864
12
2009-10
10500
108364
13
2010-11
11200
119564
14
2011-12
12300
131864
15
2012 - 13
12500
144364
(a) Cash Outlay : 30000
50
Initial Investment
(b) Payback Period
Base Year +
Annual Cash Flow
6335
=
3 years +
8472
3 Years 7 months
Interpretation:
For arriving at Cash Inflows we have added depreciation to profit after tax & then
computed Cumulative In flows

51

TABLE NO.2
S.NO
YEAR
CASH
INFLOWS
TOTAL PV.OF CASH

INFLOWS
1998-99
7695
7695
99-2000
7870
15565
2000-01
8100
23665
2001-02
8472
32137
2002-03
8740
40877
2003-04
8900
49777
2004-05
9210
58987
2005-06
9420
68407
2006-07
9700
78107
10
2007-08
9760
87867
11
2008-09
9997
97864
12
2009-10
10500
108364
13
2010-11
11200
119564
14
2011-12
12300
131864
15
2012 - 13
12500
144364
Average profit
ARR =
x 100
Average investment
Total cash inflows

Average Profit=
52
No. of years
=
144364
15
9624.26
Average investment:
Investment
Average investment
=
2
30000
=
2
ARR
15000
9624.24
X 100
15000
64.16%
Average Annual Profit
ROI
X 100
Total Initial Investment
9624.24
X 100
30000
32.08%
53
Interpretation:
54

TABLE NO.3
SL.No
Years
Cash
Inflows
DCF(19%)
Present Values of
Cash Inflows
1998-99
7695
0.840
6463.8
99-2000
7870
0.706
5556.22
2000-01
8100
0.593
4803.3
2001-02
8472
0.499
4227.53
2002-03
8740
0.419
3662.06
2003-04
8900
0.352
3132.8
2004-05
9210
0.296
2726.16
2005-06
9420
0.249
2345.58
2006-07
9700
0.209
2027.3
10
2007-08
9760
0.176
1717.76
11
2008-09
9997
0.148
1479.56
12
2009-10
10500
0.124
1302
13
2010-11
11200
0.104
1164.8
14
2011-12
12300
0.088
1082.4
15
2012 - 13
12500
0.074
925

= 42616.26 30000 = 12616.26
55
42616.264
Interpretation:
market state.
56

TABLE NO.4
SL.No
Years
Cash Inflows
DCF(24%)
Present Values
of Inflows
1998-99
7695
0.886
6202.17
99-2000
7870
0.650
5115.5
2000-01
8100
0.504
8100.53
2001-02
8472
0.422
3575.18
2002-03
8740
0.341
3766.94
2003-04
8900
0.275
2447.5
2004-05
9210
0.221
2035.41
2005-06
9420
0.178
1676.76
2006-07
9700
0.144
1396.8
10
2007-08
9760
0.116
1132.16
11
2008-09
9997
0.093
929.72
12
2009-10
10500
0.075
787.5
13
2010-11
11200
0.061
683.2
14
2011-12
12300
0.049
602.7
15
2012 - 13
12500
0.039
487.5
Total Present Values of Inflows 38939.57
57
SL.No
Years
Cash
Inflows
DCF(34%)
Present Values of
Inflows
1998-99
7695
0.746
5740.47
99-2000
7870
0.556
4375.72
2000-01
8100
0.415
3361.5
2001-02
8472
0.310
2626.32
2002-03
8740
0.231
2018.94
2003-04
8900
0.172
1530.8
2004-05
9210
0.128
1178.88
2005-06
9420
0.096
904.32
2006-07
9700
0.071
688.7
10
2007-08
9760
0.053
517.28
11
2008-09
9997
0.039
389.88
12
2009-10
10500
0.029
304.5
13
2010-11
11200
0.022
246.4
14
2011-12
12300
0.016
196.8
15
2012 - 13
12500
0.012
150
58
24230.51
A - Cash out lay

IRR=
X (H L)
L+
A-B
38939.57 -30000
=
X (34-24)
24 +
38939.57 24230.51
8939.57
=
24 +
X 10
14709.05
24 + 0.607 X 10
30.07
Interpretation:
Calculated figure is 30.07%, so we can take it as 34% cause at market Uncertainty.
59

TABLE 5 :
60

P.I
=
42616.26
30000
1.42
Interpretation:
P.I =1.42.
61
3. ADMINISTRATION
PAY BACK PERIOD:
TABLE NO :1
S.NO
YEAR
CASH INFLOWS
TOTAL PV.OF CASH

INFLOWS
1998-99
1527
1527
99-2000
1610
3137
2000-01
1690
4827
2001-02
1600
6427
2002-03
1750
8177
2003-04
1794
9971
2004-05
1834
11805
2005-06
1870
13675
2006-07
1947
15622
10
2007-08
2200
17822
11
2008-09
2350
20172
12
2009-10
2642
22814
13
2010-11
2730
25544
14
2011-12
2900
28444
15
2012 - 13
3400
31844
62
Initial Investment
(b) Payback Period
Base Year +
Annual Cash Flow
1213
=
4 years +
1750
4 Years 6 months
Interpretation:
For arriving at Cash Inflows we have added depreciation to profit after tax & then computed
Cumulative In flows

63

TABLE NO : 2
TOTAL PV.OF CASH
S.NO
YEAR
CASH INFLOWS
1998-99
1527
1527
99-2000
1610
3137
2000-01
1690
4827
2001-02
1600
6427
2002-03
1750
8177
2003-04
1794
9971
2004-05
1834
11805
2005-06
1870
13675
2006-07
1947
15622
10
2007-08
2200
17822
11
2008-09
2350
20172
12
2009-10
2642
22814
13
2010-11
2730
25544
14
2011-12
2900
28444
15
2012 - 13
3400
31844
64
INFLOWS
Average profit
ARR=
x 100
Average investment
Total cash inflows
Average Profit=
No. of years
=
31844
15
2122.93
Average investment:
investment
Average investment =
2
=
7640
2
3820
2122.93
ARR
x 100
3820
55.57%
Average Annual profit
ROI
x 100
Total initial investment
ROI
2122.93
x 100
7640
ROI
27.78%
65
Interpretation:
66

TABLE NO : 3
SL.No
Years
Cash
Inflows
DCF(13%)
Present Values of
Cash Inflows
1998-99
1527
0.884
1349.87
99-2000
1610
0.783
1260.63
2000-01
1690
0.693
1171.17
2001-02
1600
0.613
980.8
2002-03
1750
0.542
948.5
2003-04
1794
0.480
861.12
2004-05
1834
0.425
779.45
2005-06
1870
0.376
703.12
2006-07
1947
0.332
646.40
10
2007-08
2200
0.294
646.8
11
2008-09
2350
0.260
611
12
2009-10
2642
0.230
607.66
13
2010-11
2730
0.204
556.92
14
2011-12
2900
0.180
522
15
2012 - 13
3400
0.159
540.6

=12186.04 7640 = 4546.04
67
Interpretation:
market state.
68

TABLE NO : 4
Discount rate taken as 16% (in crores)
SL.No
Years
Cash Inflows
DCF(16%)
Present Values
of Inflows
1998-99
1527
0.862
1316.27
99-2000
1610
0.743
1196.23
2000-01
1690
0.640
1081.6
2001-02
1600
0.552
883.2
2002-03
1750
0.476
833
2003-04
1794
0.410
735.54
2004-05
1834
0.353
647.40
2005-06
1870
0.305
570.35
2006-07
1947
0.262
510.11
10
2007-08
2200
0.226
497.2
11
2008-09
2350
0.195
458.25
12
2009-10
2642
0.168
443.86
13
2010-11
2730
0.145
395.85
14
2011-12
2900
0.125
362.5
363.8
15
2012 - 13
3400
0.107
69
10295.17
SL.No
Years
Cash
Inflows
DCF(27%)
Present Values of
Inflows
1998-99
1527
0.787
1201.75
99-2000
1610
0.620
998.2
2000-01
1690
0.488
824.72
2001-02
1600
0.384
614.4
2002-03
1750
0.302
528.5
2003-04
1794
0.238
426.97
2004-05
1834
0.187
342.96
2005-06
1870
0.147
274.89
2006-07
1947
0.116
225.85
10
2007-08
2200
0.091
200.2
11
2008-09
2350
0.072
169.2
12
2009-10
2642
0.056
147.95
13
2010-11
2730
0.044
120.12
14
2011-12
2900
0.035
101.5
15
2012 - 13
3400
0.027
91.8

IRR=
A - Cash out lay

L+
X (H L)
70
A-B
10295.17 -7640
16 +
X (27-16)
10295.17 6269.03
16+
2655.17
4026.15
16 +
23.25
X 11
0.659 X 11
Interpretation:
Calculated figure is 23.2%, so we can take it as27% cause at market
Uncertainty.
71

TABLE NO : 5
SL.No
Years
Cash
Inflows
DCF(13%)
Present Values of
Cash Inflows
1998-99
1527
0.884
1349.87
99-2000
1610
0.783
1260.63
2000-01
1690
0.693
1171.17
2001-02
1600
0.613
980.8
2002-03
1750
0.542
948.5
2003-04
1794
0.480
861.12
2004-05
1834
0.425
779.45
2005-06
1870
0.376
703.12
2006-07
1947
0.332
646.40
10
2007-08
2200
0.294
646.8
11
2008-09
2350
0.260
611
12
2009-10
2642
0.230
607.66
13
2010-11
2730
0.204
556.92
14
2011-12
2900
0.180
522
15
2012 - 13
3400
0.159
540.6
72

P.I
=
12186.04
=
7640
=
1.59
Interpretation:
In calculation of Profitability Index, Cash inflow is taken in to consideration
P.I = 1.59.
73
4.MECHANICAL SWEEPING
PAY BACK PERIOD:
TABLE NO : 6
S.NO
YEAR
CASH INFLOWS
TOTAL PV.OF CASH

INFLOWS
1998-99
2700
2700
99-2000
2940
5640
2000-01
3500
9140
2001-02
4320
13460
2002-03
5090
18550
2003-04
5720
24270
2004-05
6130
30400
2005-06
6910
37310
2006-07
7800
45110
10
2007-08
7810
52920
11
2008-09
10400
63320
12
2009-10
14230
77550
13
2010-11
15700
93250
14
2011-12
16100
109350
15
2012 - 13
18000
127350
(a)
Cash Outlay : 40000
Initial
(b) Payback Period
Investment
= Base Year +
Annual Cash Flow
2690
=
8 years +
7800
74
8 Years 3 months
Interpretation:

75

TABLE NO : 7
S.NO
YEAR
CASH INFLOWS
TOTAL PV.OF
CASH INFLOWS
1998-99
2700
2700
99-2000
2940
5640
2000-01
3500
9140
2001-02
4320
13460
2002-03
5090
18550
2003-04
5720
24270
2004-05
6130
30400
2005-06
6910
37310
2006-07
7800
45110
10
2007-08
7810
52920
11
2008-09
10400
63320
12
2009-10
14230
77550
13
2010-11
15700
93250
14
2011-12
16100
109350
15
2012 - 13
18000
127350
Average profit
ARR
x 100
Average investment
Total cash inflows
Average Profit
=
No. of years
=
127350
15
8490
76
Average investment:
Investment
Average investment
=
2
40000
=
2
=
20000
8490
ARR
x 100
20000
42.45%

ROI
x 100
8490
ROI
x 100
40000
ROI
21.26%
Interpretation:
77

TABLE NO : 8
SL.No
Years
Cash
Inflows
DCF(10%)
Present Values of
Cash Inflows
1998-99
2700
0.909
2454.3
99-2000
2940
0.826
2428.44
2000-01
3500
0.751
2628.5
2001-02
4320
0.683
4320.68
2002-03
5090
0.620
3155.8
2003-04
5720
0.564
3226.08
2004-05
6130
0.513
3144.69
2005-06
6910
0.466
3220.06
2006-07
7800
0.424
3307.2
10
2007-08
7810
0.385
3006.84
11
2008-09
10400
0.350
3640
12
2009-10
14230
0.318
4525.14
13
2010-11
15700
0.289
4537.3
14
2011-12
16100
0.263
4234.3
15
2012 - 13
18000
0.239

=52131.29-40000 = 12131.29
78
4302
52131.29
Interpretation:
market state.
79

TABLE NO 9
SL.No
Years
Cash Inflows
DCF(18%)
Present Values
of Inflows
1998-99
2700
0.847
2286.9
99-2000
2940
0.718
2110.92
2000-01
3500
0.608
2128
2001-02
4320
0.515
2224.8
2002-03
5090
0.437
2224.33
2003-04
5720
0.370
2116.4
2004-05
6130
0.313
1918.69
2005-06
6910
0.266
1838.06
2006-07
7800
0.225
1755
10
2007-08
7810
0.191
1491.71
11
2008-09
10400
0.161
1674.4
12
2009-10
14230
0.137
1949.51
13
2010-11
15700
0.226
1821.2
14
2011-12
16100
0.098
1577.8
15
2012 - 13
18000
0.083
1494
80
28611.72
SL.No
Years
Cash
Inflows
DCF(10%)
Present Values of
Inflows
1998-99
2700
0.909
2454.3
99-2000
2940
0.826
2428.44
2000-01
3500
0.751
2628.5
2001-02
4320
0.683
4320.68
2002-03
5090
0.620
3155.8
2003-04
5720
0.564
3226.08
2004-05
6130
0.513
3144.69
2005-06
6910
0.466
3220.06
2006-07
7800
0.424
3307.2
10
2007-08
7810
0.385
3006.84
11
2008-09
10400
0.350
3640
12
2009-10
14230
0.318
4525.14
13
2010-11
15700
0.289
4537.3
14
2011-12
16100
0.263
4234.3
15
2012 - 13
18000
0.239
4302
81
52131.29

IRR
L+
A - Cash out lay
X (H L)
A-B
=
10+
52131.29 -40000
X (18-10)
52131.29-28611.72
=
10+
12131.29
X8
23519.57
=
10 +
14.12
0.515 X 8
Interpretation:
Calculated figure is14.12%, so we can take it at 18% cause at market
Uncertainty.
82

TABLE NO : 10
SL.No
Years
Cash
Inflows
DCF(10%)
Present Values of
Cash Inflows
1998-99
2700
0.909
2454.3
99-2000
2940
0.826
2428.44
2000-01
3500
0.751
2628.5
2001-02
4320
0.683
4320.68
2002-03
5090
0.620
3155.8
2003-04
5720
0.564
3226.08
2004-05
6130
0.513
3144.69
2005-06
6910
0.466
3220.06
2006-07
7800
0.424
3307.2
10
2007-08
7810
0.385
3006.84
11
2008-09
10400
0.350
3640
12
2009-10
14230
0.318
4525.14
13
2010-11
15700
0.289
4537.3
14
2011-12
16100
0.263
4234.3
15
2012 - 13
18000
0.239
4302

P.I
=
52131.29
=
40000
=
1.30
83
52131.29
Interpretation:
P.I =1.30.
84
5.URBAN COMMUNITY DEVELOPMENT

PAY BACK PERIOD:
TABLE NO : 11
S.NO
YEAR
CASH INFLOWS
TOTAL PV.OF CASH

INFLOWS
1998-99
5000
5000
99-2000
5400
10400
2000-01
6000
16400
2001-02
7000
23400
2002-03
7600
31000
2003-04
8000
39000
2004-05
9000
48000
2005-06
10000
58000
2006-07
10100
68100
10
2007-08
10400
78500
11
2008-09
10600
89100
12
2009-10
9000
98100
13
2010-11
7100
105000
14
2011-12
8700
113900
15
2012 - 13
8460
122360
85
(a)
Cash Outlay : 50000

Initial Investment
(b) Payback Period = Base Year +

Annual Cash Flow
2000
=
7 years +
10000
7 Years 2 months
86
Interpretation:

87

TABLE NO : 12
CASH
TOTAL PV.OF CASH
INFLOWS
INFLOWS
1998-99
5000
5000
99-2000
5400
10400
2000-01
6000
16400
2001-02
7000
23400
2002-03
7600
31000
2003-04
8000
39000
2004-05
9000
48000
2005-06
10000
58000
2006-07
10100
68100
10
2007-08
10400
78500
11
2008-09
10600
89100
12
2009-10
9000
98100
13
2010-11
7100
105000
14
2011-12
8700
113900
15
2012 - 13
8460
122360
S.NO
YEAR
Average profit
ARR
x 100
Average investment
Total cash inflows
Average Profit
=
No. of years
88
122360
=
15
=
8157.33
Average investment:
Investment
Average investment
=
2
50000
=
2
=
25000
8157.33
ARR
x 100
25000
ROI=
32.62%

=
x 100
8157.33
ROI
x 100
50000
ROI
16.31%
Interpretation:
89

TABLE NO : 13
SL.No
Years
Cash
Inflows
DCF(12%)
Present Values of
Cash Inflows
1998-99
5000
0.892
4460
99-2000
5400
0.797
4303.8
2000-01
6000
0.711
4266
2001-02
7000
0.635
4445
2002-03
7600
0.567
4309.2
2003-04
8000
0.506
4048
2004-05
9000
0.452
4068
2005-06
10000
0.403
4030
2006-07
10100
0.360
3636
10
2007-08
10400
0.321
3338.4
11
2008-09
10600
0.287
3042.2
12
2009-10
9000
0.256
2304
13
2010-11
7100
0.229
1625.9
14
2011-12
8700
0.204
1774.8
15
2012 - 13
8460
0.182
1539.72
90

=51191.02-50000
= 1191.02
Interpretation:
market state.
more reliable than simple cash inflows
91

TABLE NO : 15
SL.No
Years
Cash Inflows
DCF(11%)
Present Values
of Inflows
1998-99
5000
0.900
4500
99-2000
5400
0.811
4379.4
2000-01
6000
0.731
4386
2001-02
7000
0.658
4606
2002-03
7600
0.593
4506.8
2003-04
8000
0.534
4272
2004-05
9000
0.481
4329
2005-06
10000
0.433
4330
2006-07
10100
0.390
3939
10
2007-08
10400
0.352
3660.8
11
2008-09
10600
0.317
1452.2
12
2009-10
9000
0.285
2565
13
2010-11
7100
0.257
1824.7
14
2011-12
8700
0.231
2009.7
15
2012 - 13
8460
0.209
1768.14
92
52528.74
SL.No
Years
Cash
Inflows
DCF(20%)
Present Values of
Inflows
1998-99
5000
0.833
4165
99-2000
5400
0.694
3747.6
2000-01
6000
0.578
3468
2001-02
7000
0.482
3374
2002-03
7600
0.401
3047.6
2003-04
8000
0.334
2004-05
9000
0.279
2511
2005-06
10000
0.232
2320
2006-07
10100
0.193
1949.3
10
2007-08
10400
0.161
1674.4
11
2008-09
10600
0.134
1420.4
12
2009-10
9000
0.112
1008
13
2010-11
7100
0.093
660.3
14
2011-12
8700
0.077
669.9
15
2012 - 13
8460
0.064
541.44
2672
93
33228.94
IRR=
L+
A - Cash out lay

X (H L)
A-B
52528.74 -50000
11+
X (20-11)
52528.74-33228.94
2528.74
11+
X9
19299.8
11 +
12.18
0.131 X 9
Interpretation:
Calculated figure is12.18%, so we can take it at 11% cause at market
Uncertainty.
94

TABLE NO : 15
SL.No
Years
Cash
Inflows
DCF(10%)
Present Values of
Cash Inflows
1998-99
5000
0.892
4460
99-2000
5400
0.797
4303.8
2000-01
6000
0.711
4266
2001-02
7000
0.635
4445
2002-03
7600
0.567
4309.2
2003-04
8000
0.506
4048
2004-05
9000
0.452
4068
2005-06
10000
0.403
4030
2006-07
10100
0.360
3636
10
2007-08
10400
0.321
3338.4
11
2008-09
10600
0.287
3042.2
12
2009-10
9000
0.256
2304
13
2010-11
7100
0.229
1625.9
14
2011-12
8700
0.204
1774.8
15
2012 - 13
8460
0.182
95
1539.72
51191.02

P.I
=
51191.02
=
50000
=
1.02
Interpretation:
P.I =1.02.
96
SUMMARY
Capital budgeting has its origins in the natural resource and infrastructure sectors. The current
demand for infrastructure and capital investments is being fueled by deregulation in the power,
telecommunications, and transpiration sectors, by the globalization of product markets and the
need for manufacturing scale, and by the privatization of government owned entities in
developed and developing countries. The capital budgeting decision procedure basically involves
the evaluation of the desirability of an investment proposal. It is obvious that the firm most have
a systematic procedure for making capital budgeting decisions. The procedure for making capital
budgeting decisions. It consists of units mainly engaged in manufacturing motor vehicles or
motor vehicle engines Products and Services.The primary activities of this industry are Motor
cars manufacturing Motor vehicle engine manufacturing. The major products and services in this
industry are Passenger motor vehicle manufacturing segment (Passenger Cars, Utility Vehicles &
Multi Purpose Vehicles) Commercial Vehicles (Medium & Heavy and Light Commercial
Vehicles) Two Wheelers Three Wheelers.
The supply chain of automotive industry in India is very similar to the supply chain of
the automotive industry in Europe and America. The orders of the industry arise from the bottom
of the supply chain i. e., from the consumers and goes through the automakers and climbs up
until the third tier suppliers. However the products, as channeled in every traditional automotive
the key to the supply chain and are responsible for the products and innovation in the industry.[1]
The description and the role of each of the contributors to the supply chain are discussed below.
Third Tier Suppliers: These companies provide basic products like rubber, glass, steel, plastic
and aluminium to the second tier suppliers.
97
suppliers.
Automakers/Vehicle
Manufacturers/Original
Equipment
Manufacturers
(OEMs):
After
automotive industry. Examples of these companies are Tata Motors, Maruti Suzuki, Toyota, and
Honda. Innovation, design capability and branding are the main focus of these companies.
Tata Motors Limited, an automobile company, engages in the manufacture and

sale of commercial and passenger vehicles primarily in India. The company offers cars, utility
vehicles, trucks, buses, and defense vehicles, as well as develops electric and hybrid vehicles for
98
personal and public transportation. It also involves in distributing and marketing cars; and
financing the vehicles sold by the company. In addition, the company engages in the provision of
engineering and automotive solutions, as well as machine tools and factory automation solutions;
Tata Motors in one of the major players of the automobile manufacturing companies in India. It
has three different manufacturing units in India they are, Jamshedpur in the East, Pune in the
West and Lucknow in the North and all three manufacturing units specialize in the
Vishnu Carriers Pvt. Limited is the Dealer for TATA Motors
Commercial Vehicles providing sales, service and spares at Visakhapatnam. Vishnu Carriers's
strength & the success tip being High Level of Customer Satisfaction, with fully equipped
Work-Shop and Show room, dealing in the following range of TATA Vehicles.
FINDINGS & SUGGESTIONS

FINDINGS
99
The payback period of the project in GHMC is 3 years and 10 months. The payback period
is less than the completion period so the project may be accepted
The NPV of the project is positive than the Initial Outlay so the project can be accepted
The Internal rate of return is Internal rate of 32.85% it is greater than the cost of capital i.e.,
32% so the project accepted
The profitability index is also more than the investment so the project is accepted.
The estimated cash flows of the project include interest and tax
Before expansion the EPS value is Rs. 297
For only expansion the EPS (at 7 : 3) of GHMC is Rs. 322.646
SUGGESTIONS:
100
The Marketing department can be further strengthened for order book of more legacy
products.
Has to check the man power requirement and existed at present.
Young and energetic workforce induction is need of the hour for as its average employees.
CONCLUSION
The organization is getting more and more profits when compared to the previous years.. The
NPV of the project is positive than the value of the capital. The Internal rate of return is Internal
101
rate of 24.44 % it is greater than the cost of capital i.e., 15% so the project accepted. The
profitability index is also more than 3 times returns on investment so the project is accepted. The
estimated cash flows of the project include interest and tax. Thus the overall capital budgeting of
the organization is very efficient.
BIBLIOGRAPHY
102
BOOKS
Maheswari S.N. Financial Management New Delhi, Sultan Chant & Sons.
Edition 1996
KAPUR, Dr. Sudharsan Financial Management Theory & Practice,
New Delhi S.K. Publishers Edition 1999
PANDEY, I.M. Financial Management, New Delhi.

Vikas Publishing house Pvt. Ltd.,
Website
www.capitalbudget.com
www.google.com
www.ghmc.gov.in
103

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Chapter-I

NEED FOR THE STUDY

Capital budgeting decisions are the investment decisions of a firm are

To measure the present value of rupee invested in the company.

To study the techniques of capital budgeting for decision-making in the company.

To study the relevance of capital budgeting in evaluating the project.

To give suitable suggestion regarding the best in the investment proposal.

Methodology is a systematic procedure of collecting information in order to analyze

Though the project is completed successfully a few limitations may be there.

Tata Motors Limited, an automobile company, engages in the manufacture and

Vishnu group operates four business sectors Automobiles, Hotels, Textiles,

Vishnu Motor Plaza Ltd.,

Medium commercial vehicles

Medium commercial vehicles :

Commercial passenger vehicles:

24x7 Customer care & service availability

by well trained & experienced technicians.

Supply Chain of Indian Automobile Industry[1]

Chinkara Motors Beachster, Hammer, Roadster 1.8S, Rockster, Jeepster, Sailster

Hindustan Motors : Ambassador

Mahindra : Major, Xylo, Scorpio, Bolero, Thar, Verito, Genio

Premier Automobiles Limited Sigma, RiO

San Motors Storm

Commercial vehicle manufacturers in India

Hindustan Motors Premier

Tata AMW Eicher Motors

Key Success Factors

Resource Availability - Quality manpower availability, infrastructure improvements, and raw

Collection of required data from annual records of Greater Hyderabad Municipal

Reference from text books and journals relating to financial management.

Primary Data and Secondary Data

Accounting Rate of Return (ARR)

Net Present Valued Method (NPV)

LIMITATIONS OF THE STUDY

THEORETICAL FRAME WORK

The exchange of current funds for future benefits.

The funds are invested in long-term assets.

OBJECTIVES OF INVESTMENT DECISIONS

Institute the competition of the discounted payback.

PROCESS OF INVESTMENT DECISIONS.

Identification of Investment Opportunities

Performance review, or post completion audit, is a feedback device. It is a means for

EXPANSION AND DIVERIFICATION

Replacement and modernization.

Mutually exclusive investments

Mutually exclusive investments

Non DCF Criteria

Non DCF Criteria:

Annual Cash in flow

Accounting Rate of Return (ARR)

It uses accounting profits and not the cash inflows in

appraising the project.

Cfi = Cash flows occurring at different point of time

: Lower discount rate at which NPV is positive

: Higher discount rate at which NPV is negative

: NPV at lower discount rate, L

: NPV at higher discount rate, H

Profitability Index (PI)

Present Value of outlay

Similarities in results Under NPV and IRR:

3. DATA ANALYSIS & INTERPRETATION

TOTAL PV.OF CASH

Cash Outlay : 8692