A

Project Report

On

“A STUDY OF CAPITAL BUDGETING’

AT

SHARAD B. JADHAV & CO.(CHARTERED ACCOUNTANTS)

Submitted to

The savitribai Phule Pune University,

In partial fulfilment of requirement for the award of the degree of

Masters of Business Administration

BY

VIKAS NANDU KASBE

Under the guidance of

Prof. Dr. Srilatha Palekar

ASM’ S INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH

CHINCHWAD PUNE-19

(2020-22)
 A

Project Report

On

“A STUDY OF CAPITAL BUDGETING’

AT

SHARAD B. JADHAV & CO.(CHARTERED ACCOUNTANTS)

Submitted to

The savitribai Phule Pune University,

In partial fulfilment of requirement for the award of the degree of

Masters of Business Administration

BY

VIKAS NANDU KASBE

Under the guidance of

Prof. Dr. Srilatha Palekar

ASM’ S INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH

CHINCHWAD PUNE-19

(2020-22)
 DECLARATION

I, VIKAS NANDU KASBE, hereby declare that the presented report of Internship

entitled “A STUDY OF CAPITAL BUDGETING’’ AT SHARAD B. JADHAV &

CO.(CHARTERED ACCOUNTANTS)” Written and submitted by me to the

savitribai phule pune university . in the partial fulfilment of requirement for the award

of the degree of Masters of Business Administration under the my guidance of (prof.

Dr. srilatha palekar) is my original work is uniquely prepared by me after the

completion of two months’ work at SHARAD B. JADHAV & CO. CHARTERED

ACCOUNTANTS in Shrirampur office I also confirm that the report is only prepared

for my academic requirement, not for any other purpose. It might not be used with the

interest of the opposite party of the corporation.

PLACE :
DATE :

VIKAS NANDU KASBE

 ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to my teacher

prof. Dr.srilatha palekar and prof. T. Srinivas as well as our Director Dr.Asha
pachpande (Director ASM IBMR,) who gave me the golden opportunity to do this
wonderful project on the topic “A STUDY OF CAPITAL BUDGETING” which
also helped me in doing a lot of Research and i came to know about so many new
things I am really thankful to them.

Secondly i would also like to thank Mr.CA SHARAD B.JADHAV (Chartered

accountant) Give me the internship opportunity I had with CA SHARAD B.
JADHAV & CO. was a great chance for learning and professional development.
Therefore, I consider myself as a very lucky individual as I was provided with an
opportunity to be a part of it. I am also grateful for having a chance to meet so many
wonderful people and professionals who led me though this internship period.

A Bearing in mind previous I am using this opportunity to express my deepest

gratitude and special thanks to the prof. T. Srinivas of who in spite of being
extraordinarily busy with his duties, took time out to hear, guide and keep me on the
correct path and allowing me to carry out my project at during the training I perceive
as this opportunity as a big milestone in my career development.

Sincerely,

Vikas Nandu Kasbe

MBA (Finance)
CHAPTER TOPIC PAGE NO

1 EXECUTIVE SUMMARY 1
2 INTRODUCTION 3
3 COMPANY PROFILE 25

4 OBJECTIVE AND SCOPE 26

5 RESEARCH AND METHODOLOGY 33

6 DATA ANALYSIS 42

7 CONCLUSION 54

8 FINDINGS AND SUGGESTIONS 55

9 BIBLIOGRAPHY 60

10 ANNEXURE 62
 LIST OF TABLES

Table No. Particulars PAGE NO

table 1.1 Table shows the calculation of cumulative cash flow 18

table 5.1 table showing the balance sheet of two years 27

table 5.2 Table showing profit and loss account 30

table 6.1 Table showing Comparison of NET PRESENT VALUE for five 42
years from 2014 to 2018

table 6.2 Table showing comparision of Pay Back period for five 44
years from 2014 to 2018
table 6.3 Table showing Comparison of accounting rate of return for 45
five years 2014 to 2018
table 6.4 Table is showing comparision of cash flow statement for 46
five years 2014 to 2018
table 6.5 Table is showing comparision of return on net worth for 47
five years from 2014 to 2018
table 6.6 Table is showing comparision of return on capital and 48
employed for five years from 2014to 2018
table 6.7 able is showing comparision of return on assets for five 49
years from 2014 to 2018
 LIST OF TABLE AND GRAPH

Graph No. Particulars Page No.

Graph 1.1 Graph showing Non-current liabilities 37

Graph 6.1 Graph showing Current liabilities 43

table 6.8 Table is showing comparison of cash earnings rention ratio 50

for five years 2014 to 2018

table 6.9 table is showing comparision of valuation ratio for five 51

years 2014 to 2018
table 6.10 Table is showing comparision of retention ratio for five 52
years 2014 to 2018
 Executive summary

The summer project that do is to get an experience of how the corporate world
function and

How the theory is different from the practical aspects of the industry. For the same
purpose

Got an opportunity for my project at Shared B jadhav & CO. (chartered accountant)

The first chapter of the project report, the basic information regarding the industry
like

Industry major players, industry competitiveness and their products the second
chapter

Consist data regarding company profile, like vision, mission, quality policy and its
products.

Information collected from both primary and secondary sources. Third chapter tells
about the

Conceptual background it comprises information regarding capital budgeting, and its

various

Technique like NPV, ARR, PBP and IRR etc. and literature review. In while chapter
four will

Give information about research design like type research methodology used, method
used

For data collection and also limitation. Chapter six comprises data analysis and

Interpretation in which financial statement of the company is analyzed by using

various ratios.

And last chapter will tells about findings, suggestion and conclusion regarding the
project.

1
INTRODUCTION

CHAAPTER-2

2
 INTRODUCTION

The project report at Shared B jadhav & CO. (chartered accountant)

On the topic capital budgeting has

Been done for a period four of weeks. The report is first to have the theoretical insight

About the techniques of capital budgeting and how practically these techniques can be

Applied to the manufacturing sector like TVS Motor company before making the

Investment in any proposals. Capital budgeting is a tool for maximizing a company's

Future profits since most companies are able to manage only a limited number of
large

Projects at any one time.

 Definition of Capital Budgeting

Capital budgeting is the process a business undertakes to evaluate potential major

projects or investments. Construction of a new plant or a big investment in an outside
venture are examples of projects that would require capital budgeting before they are
approved or rejected.

 The capital budgeting process consists of five steps:

1. Identify and evaluate potential opportunities. The process begins by exploring

available opportunities
2. Estimate operating and implementation costs
3. Estimate cash flow or benefit
4. Assess risk
5. Implement.

3
  5 Methods for Capital Budgeting (Capital Budgeting
Techniques)

I. Internal Rate of Return

II. Net Present Value
III. Profitability Index
IV. Accounting Rate of Return
V. Payback Period

 Techniques and Methods used in Capital Budgeting (with

advantages, disadvantages, examples, formula and

calculations)
Capital budgeting is the most important decision in financial management. Capital
budgeting is concerned with long-term investment of funds to create production
capacity of a firm in anticipation of an expected flow of benefits over a long period of
time.
According to Charles T. Horngren and George Foster, “Capital budgeting is as the
making of long-term planning decisions for investments and their financing.”
Capital budgeting is an important technique widely used for the evaluation of various
capital investment proposals and selecting the most appropriate source of finance for
the chosen investment proposal. In general, investing in long-term fixed assets is
called capital budgeting.
In capital budgeting, we forecast a set of cash flows, find the present value of these
cash flows, and make the investment only if the present value of the inflows is greater
than the investment’s cost.
A number of capital budgeting techniques (investment criteria) are used in taking a

capital investment decision.

4
  These techniques can be grouped in the two categories as
mentioned below
1. Non-Discounted Cash Flow Techniques
(a) Accounting Rate of Return Method
(b) Payback Period Method
2. Discounted Cash Flow Techniques:
(a) Net Present Value Method
(b) Internal Rate of Return Method
(c) Profitability Index Method
The Net Present Value (NPV) is the best method, primarily because it addresses
directly the central goal of financial management-maximizing the shareholders’
wealth. However, all of the methods provide useful information, and all are used in
practice at least to some extent
1. Non-Discounted Cash Flow Techniques:
(a) Accounting Rate of Return Method:
The accounting rate of return, also known as the return on investment, is calculated on
the basis of accounting statements. The accounting rate of return is equal to the
average net operating profit divided by the average investment.

It is calculated by applying the following formula

Average profit after

= =tax
Accouting rate of return= X 100
Average investment

Where,

(Initial cost –salvage value)

Average investment = ____________________ + salvage value inc.in WC

The project is accepted, if the accounting rate of return is more than the required rate
of return

5
The average rate of return method has the following merits

(i) Simplicity- This method of capital budgeting is simple to understand and use.
(ii) Accounting profitability- In this method, accounting profits over the economic life
of the project are considered in evaluating the project. The required data are easily

available from the firm’s financial statements.

 Demerits of Average Rate of Return Method:

The average rate of return method has the following demerits
(i) No consideration of time value- This method ignores time value of the earnings.
(ii) Overlook of cash flows- Accounting profit is taken into consideration instead of
cash flows from the project.
(iii) Inconsistent with the objective- This method is inconsistent with the objective of
maximizing shareholders’ wealth.
(iv) Arbitrary cut-off- Firms using average rate of return use arbitrary cut-off rate in
taking a decision about a project.

(b) Payback Period Method:

Payback period method is traditional and simple most method of capital budgeting. It
is defined as the length of time that is required for a stream of cash inflows from the
investment to recover the original cash outlay invested in the project

When periodic cash inflows from the investment are equal, the following formula
is used to compute payback period

Initial investment
Payback period = _________________
Annual cash inflow

Merits of Payback Period Method

Payback period method has following merits
1. Simplicity- It is simple to understand and easy to calculate.
2. Emphasis on early returns- This method lays emphasis on early returns.
Investments with shorter payback period will be less risky.
3. Based on cash flows- The evaluation of capital expenditures is carried out on the
basis of cash inflows arising from the investments.

6
Limitations of Payback Period Method
Though the payback period method is simple and lays emphasis on
liquidity and risk, it has following limitations

I. No consideration of time value- This method ignores time value of the earnings.
II. Overlook of remaining cash flows- Cash flows from the project after the recovery
of cost are ignored.
III. Inconsistent with the objective- This method is inconsistent with the objective of
maximizing shareholders’ wealth as it does not take into consideration all cash flows.
IV. Supplementary technique- Payback period method does not say anything about
selection or rejection of projects. It can be used as supplementary technique to
discounted techniques
Capital budgeting. This technique lays emphasis on
2. Discounted Cash time value of money. This method is consistent with
Flow Techniques the objective of shareholders’ wealth maximization.
(a) Net Present Value In this method, present values of all cash flows are
Method computed. Cost of capital (required rate of return) is
employed as discount rate. The excess of present
value of all inflows over present value of initial
Net present value investment is equal to net present value of the
technique is most popular investment made in the project.
and most widely used
technique of
Net present value = present value or cash inflows –cost of initial investment

C1 C1 C1
NPV= + CN
= +……….+ - CO
(1+K) (1+K) 2
(1+K) 3
(1+K) N

Where NPV net present value

Co- initial cost of investment,

C1 , ……. C2,, cash inflow in period 1….2.

7
K .., Cost of capital
If the net value of project is more than zero, project is selected in case of mutually
exclusive project , the projects with highest net present value is accepted .the amount
of net present value is the addition to the wealth of shareholders

 Merits of Net Present Value Method:

Net Present Value method has following merits

1. Recognition of time value of money- In net present value method, present values
of all cash inflows are computed. Decision is taken on the basis of excess of present
value of all cash flows over present value of cash outflows.

2. Consideration of all cash flows- This method considers cash inflows rather than
accounting profits. All cash flows are considered.
3. Consistent with objective- Net present value method is consistent with the objective
of maximization of shareholders’ wealth. Net present value of the project is addition
to the shareholders’ wealth.

Demerits of Net Present Value Method

Net Present value method has following limitations

1. Difficult to compute- Net present value method is difficult to understand and

calculation of net present value is difficult and requires skills.
2. Work out of appropriate cost of capital difficult- Net present value cannot be
computed if cost of capital is unknown. Weight average of capital is used to find the
present values of cash inflows. It is particularly difficult to measure cost of equity.
3. Not suitable in capital rationing- Net present value method is not suitable for
evaluating capital expenditure when funds are limited.
4. Misleading result in case of mutually exclusive projects- If projects having
different life span and capital size are to be evaluated, net present value method can
give the misleading results. In such situation, profitability index is more suitable.

8
(b) Internal Rate of Return Method

A project’s internal rate of return is the discount rate that makes the present value of
its inflows equal to its cost. This is equivalent to forcing the net present value to equal
to zero. The internal rate of return is an estimate of the project’s rate of return. The
internal rate of return is also known as yield on investment and marginal efficiency of
capital.
A project is selected if the internal rate of return is more than the required rate of
return (cost of capital). Net present value method is preferred in evaluating the capital
projects. In small project, the internal rate of return may be higher, but its net present
value may be lower than the net present value of large project. Since the objective in
financial management is to maximize the shareholders’ wealth, net present value
method is preferred to the internal rate of return method of capital expenditure

evaluation.

1. Calculation of IRR when Cash Inflows are Equal

When cash inflows are equal, the concept of present value of an annuity is applied.

That,

P = C × PVFA (r%, n)
Where,
P = present value of an annuity
C = annual cash inflow
PVFA = present value factor for annuity
After finding PVFA, we can read the rate of interest corresponding to the calculated
PVFA and the life of the project (number of years) from PVFA table. This rate of

interest is the internal rate of return of the project.

9
The following steps are needed in computing the internal rate of
return of a project
(i) Calculate payback period as given below and treat it as PVFA.

Initial investment
Payback period = ________________
Annual cash inflow after tax

(ii) In PVFA table, move in the row which is equal to the life of the project and find
the value which is equal to the payback period calculated above. If we get the exact
value, the rate of interest corresponding to this value in the PVFA table is equal to the
internal rate of return of the project.

(iii) In case we do not find the exact value in the PVFA table, we note down two
values from the table, one lower than calculated payback period and another higher
than payback period. Then, we find corresponding interest rates to the values from
PVFA table. These interest rates are treated as lower discount rate (L) and higher
discount rate (H).

 The following formula is used to find exact internal rate of return

by interpolation

PV of CFAT at L-PV of Initial investment

IRR= _______________________________________ X (H-L)%
PV of CFAT at L-PV of CFAT at H

Where, IRR= internal rate of return

L= lower discount rate

H= higher discount rate

PV= present value

CFAT= cash flow after tax

10
 2. Calculation of IRR when Cash Inflows are Unequal

When cash inflows are unequal, the trial and error approach is used to find the
discount rate that makes present value of cash inflows from the project equal to the
initial investment. This discount rate is the internal rate of return.

The following steps are used to find the internal rate of return

(i) Find the fake payback period by dividing the initial investment by average cash
inflows.

Initial investment
Fake payback period = ________________
Average cash inflow after tax

(ii) Move in the row which is equal the life of the project in PVFA table, and find the
value which is equal to the fake payback period. If exact value is not found, look for
the value approximate to fake payback period. Note down the corresponding interest
rate to the approximate value from PVFA table.

(iii) Compute the present value of cash inflows at discount rate equal to rate of
interest noted above. If the present value is greater than initial investment, designate
this as lower discount rate (L). Now, move to higher discount rate and repeat this
process until we get the discount rate which makes the present value of cash inflows
lower than the initial investment. Designate this rate as higher discount rate (H)

If the present value is lower than initial investment, designate this as higher discount
rate (H). Now, move to lower discount rate and repeat this process until we get the
discount rate which makes the present value of cash inflows higher than the initial
investment. Designate this rate as lower discount rate (L)

Merits of Internal Rate of Return Method

11
 Internal rate of return method of capital budgeting has following merits
1. Recognition of time value of money- In internal rate of return method, present
values of all cash inflows are computed. Decision is taken on the basis of equality of
present value of all cash flows to present value of cash outflows.
2. Consideration of all cash flows- This method considers cash inflows rather than
accounting profits. All cash flows are considered.
3. No requirement of cost of capital- There in no pre-requirement of knowledge of
cost of capital. Internal rate of return can be calculated without the required rate of
return. However, the decision is taken by comparing the internal rate of return with
the cost of capital of investment.
4. Consistent with the objective- In the selected project, internal rate of return is more
than cost of capital. So, there is net present value of the project, which is addition to
the wealth of shareholders.
Demerits of Internal Rate of Return Method:
The internal rate of return method has following limitations:
1. Difficult to calculate- The calculation of internal rate of return is complicated.
2. Unrealistic reinvestment assumption- It is assumed that cash flows generated by the
project can be reinvested at its internal rate of return. This assumption is unrealistic.
3. Negative or multiple results- In some cases, IRR may be negative. In non-
conventional projects there is possibility of multiple internal rate of returns.
(c) Profitability Index Method:
Profitability index method of capital expenditure evaluation is a version of net present
value method. In this method, the ratio of present value of cash inflows to present
value of cash outflow is calculated and the decision is taken on the basis of this.

Profitability index
Profitability index = ___________________
Present value of cash inflows

In situation of capital rationing, profitability index method is preferred to net present

value method. If unlimited capital is available, the net present value method is
suitable.
In case of limited capital, net present method may give misleading decision.
Profitability index method removes this limitation of net present value method.

12
A project is selected if its profitability ratio is greater than one. The profitability index
of less than one indicates loss in undertaking the project. In this situation, firm’s cost
of capital exceeds the rate of return.

 Techniques of capital budgeting with examples , advantages and

disadvantage

Capital budgeting decision involves three steps. First, to compute the cash flows
associated with the project. Second, to estimate the cost of capital or minimum
required rate of return, that is used to calculate present value of cash flows of the
project. The third step is to apply some investment evaluation criteria to assess the
viability of a project. This Investment assessment criteria is termed as capital
budgeting technique.

The decision to accept or reject a project is done by applying some capital budgeting
technique
These capital budgeting techniques can be classified as
1. Traditional (or Non-Discounting) Techniques and
2. Modern (or Discounted Cash Flow- DCF) Techniques.

1. Traditional or Non-Discounting Cash Flow Techniques

Traditionally, capital projects have been evaluated on the basis of average profits or
cash flows without considering time value of money. There are two Non-Discounting
techniques- Accounting Rate of Return (ARR) and Pay Back Period (PB Period).
i. Accounting Rate of Return (ARR)
ii. Payback Period (PB Period)
These techniques are explained below:
i. Accounting Rate of Return
Accounting rate of return is based on accounting profits. This is a simple technique
for calculating expected return from a project. This is the simplest way of computing
the return from any project. Accounting rate of return, also known as the Average rate
of return or ARR calculates the return, generated from average profit of the project.
Accounting rate of return is calculated as a percentage of average investment.

13
Computation of AAR
Accounting rate of return is computed by dividing the average
annual profits after tax by the average investment by using the
following formula

Estimated average annual profit x 100

ARR = _______________________
Average investment

Average Annual Profits after Taxes

There are two situations for which we need to compute the average
profits after taxes
(a) Equal Annual Profits
When the amount of annual profits is expected to be same for all the years, the
average annual profit will be equal to the amount of annual profit after taxes. Suppose
there is a project which is expected to generate an equal, amount of annual profit after
tax of Rs.10, 000 for the next five years, then the expected average annual profit for
this project will be equal to Rs.10,000.
(b) Unequal Amount of Annual Profits
It is quite unrealistic to assume that the expected annual profits will remain same
throughout the life of the project. In reality, expected profits differ in different years
and therefore we need to calculate average profit. Average profit is normally
calculated using simple average. If annual profits are P1, P2, P3……..PN upto N
years than the average profit will be –

P1+P2+P3….PN
Average profit = ____________________X100
Average Investment N

Average investment is used in the denominator of ARR formula.

 It can also be computed in different ways as explained below
i. Original Cost of Investment – When no information is given regarding the
depreciation and salvage value, the original cost of investment can be used as average
investment. For example- there is machine costing Rs.1,50,000 and has installation

14
expenses of Rs.50,000. Then the average investment amount for this machine would
be Rs.2,00,000.
ii. Average investment after considering depreciation and salvage value
We know that all investments are subject to depreciation and they also have some
salvage value. Hence depreciation as well as salvage value should be considered
while calculating average investment.
When the investments are subject to depreciation and salvage value,
we calculate average investment by using the following formula
Please note that here we assume Straight Line Method (SLM) of depreciation.

Average investment =
Original cost +installation cost- salvage value
____________________________________ + salvage value
2

Decision Making Criteria using ARR

Accounting rate of return (ARR) is considered as a measure of return from the
project. It is compared with some benchmark or predetermined or minimum required
rate of return so as to decide about the acceptability of the project.
In Case of Independent Projects
If accounting rate of return is higher than the minimum required rate of return then the
project is accepted, if ARR is less than the minimum required rate of return then the
project is rejected. When ARR is equal to the minimum required rate of return then
there is indifference.
In Case of Mutually Exclusive Projects (or where Projects Need to be
Ranked)
Mutually exclusive projects mean that the selection of one project precludes the
selection of others. In essence, we can select only one out of the given mutually
exclusive projects. Hence we need to ‘Rank’ projects and select the one with the
highest rank. Therefore, In case of mutually exclusive projects, we can rank the
projects on the basis of their ARR. The project having highest ARR is given Rank No.
1 and the project with lowest ARR is ranked in the last. Then the project with 1st rank
is accepted.

15
Decision Rule – ARR method
Accept if ARR > Predetermined or Benchmark Rate of Return
Reject if ARR < Predetermined or Benchmark Rate of Return
Indifferent if ARR = Predetermined or Benchmark Rate of Return
Rank the projects from Highest ARR to Lowest ARR
Advantages of ARR
ARR is one of the simplest methods for the evaluation of capital projects.
This method has the following Advantages:
i. Simple and Easy – It is simple, easy to compute and understand.
ii. Based on Accounting Data – It is based on accounting data which can be easily
accessed from the company’s books of account and future accounting profits can also
be estimated using past data.
iii. Expressed in Percentage Terms – It measures the benefits in percentage terms
which makes it easily comparable and provides an easy rule to make investment
decision.
Limitations (Disadvantages) of ARR
i. It is based on Accounting Profits and not on Cash flows and hence
is not consistent with objective of shareholders’ wealth maximisation
The first problem with ARR method is that it is based on accounting profit rather than
cash flows. The objective of financial management is to maximize the wealth of the
shareholders. To attain this goal, the focus must be on the cash flows rather than on
the accounting profits. Further accounting profit is a vague and ambiguous term.
Profit can be measured in a variety of ways such as gross profit, net profit, profit
before tax, profit after tax, operating profit etc.
ii. No consideration of Time Factor:
The other major limitation of this method is that it does not take into consideration the
time value of money. This method treats all profits generated in different years at par
which can be added together for the calculation of Average profit. Thus it does not
consider the timing of benefits and a profit of Rs.10,000 in 1st year is considered to
have same value as Rs.10,000 profit in 2nd year.

16
 Payback Period Method
Another Traditional or Non-Discounting Method is Payback Period Method.
This is also one of the simplest and most commonly used non discounting
techniques of capital budgeting. As the term suggests the ‘Payback period’ is the
time period required to recover the original cost of investment. Using this method,
the firm aims to find out the time period or time span in which the cost of
investment will be recovered. Hence Payback period provides a signal about the
liquidity of a project.
if payback period is say 3 years then it means that the project will recover its

initial cost in 3 years’ time. Beyond three years it will generate only benefits .

Computation
Payback period method is based on cash flows i.e. CFAT (Cash flows
after tax).
Payback period may be computed in two ways
I. When Annual Cash Flows are Equal
The first type of project is one which involves equal amount of cash flows for various
years.
The payback period is computed by using the following formula
PB = Investment / Annual NCF
For example- suppose there is a project which is expected to generate Rs.5,000 for the
next five years. If the cost of the project is Rs.12,500 then the payback period for the
project is –
PB =12,500 / 5,000
PB = 2.5 years
The PB period comes out to be 2.5 years. Thus, it will take 2 years and 6 months for
this project to cover the initial investment of Rs.12,500.
II. When Annual Cash Flows are Unequal
In reality we have different cash flows in different years. In this case the cash flows
are unequal. Here we use the concept of cumulative cash inflows. The cash flows are
added for various years and cumulative cash inflows are computed until the sum total
of cash inflows becomes equals to initial investment.
Let us assume that a project has Rs.4,00,000 of cost of investment and it generates the
following cash flows over its five years’ life – i.e. Rs.1,25,000, 1,40,000, 1,35,000,
1,20,000 and Rs.1,25,000 respectively
The following table shows the calculation of cumulative CFAT
17
year cash flows cumulative cash flows
1 125,000 125,000
2 140,000 265,000
3 135,000 400,000
4 120,000 120,000
5 125,000 145,000

Table 1.1: Table shows the calculation of cumulative cash flow

As you can see the payback period is three years because cumulative cash flows are
equal to initial investment of Rs.4,00,000 at the end of three years.
In the above example, cumulative cash flows are matched with the cost of investment
at the end of a particular year, however, it is also possible that cumulative cash flows
are not exactly matching with the cost of the project at the end of a specific year. In
such a case we make use of ‘Interpolation’.
Decision Making Criteria
he payback period method can also use to take accept-reject decision for any project.
The companies usually have some predetermined or target payback period which
works as a benchmark. Actual PB period is compared with some benchmark or target
or predetermined payback period so as to decide about the acceptability of the project.
a. In Case of Independent Projects
If calculated Payback period is less than the target payback period then the project is
accepted. If it is more than the target payback period then the project is rejected.
When Payback period is equal to the target payback period then there is point of
indifference.
b. In Case of Mutually Exclusive Projects (or Where Projects Need to
be Ranked)
Mutually exclusive projects mean that the selection of one project precludes the
selection of others. In essence, we can select only one out of the given mutually
exclusive projects. Hence we need to ‘Rank’ projects and select the one with the
highest rank. Therefore, In case of mutually exclusive projects, we can rank the
projects on the basis of their PB period. The project having lowest PB period is given
Rank No. 1 and the project with highest PB period is ranked in the last. The project
with 1st rank is accepted.

Decision Rule – PB Period

Accept if PB period < Predetermined or Target PB period
Reject if PB period > Predetermined or Target PB period
Indifferent if PB period = Predetermined or Target PB period
Rank the projects from Lowest PB period to Highest PB period.
Advantages of PB Period
payback period is one of the simplest methods for the evaluation of capital projects.
This method has the following advantages
i. Simple and Easy to Calculate and Understand
It is simple, easy to compute and understand. Its calculation does not require special
skills in computation and its interpretation is also straight forward. It is expressed in
number of years which can be compared across projects.
ii. Based on Cash Flows
Payback period is based on Cash flows unlike ARR method which is based on
accounting profit. Cash flows is a precise term and is considered better option in
measurement of future benefits.
iii. Provides an Indication of Liquidity of the Project
Payback period is the time period in which the initial cost of the project is recovered.
Hence it clearly provides an idea about the liquidity of the project. Most of the firms
place very high important on the liquidity. It tells us the time when the original
investment will be recovered and companies can arrange funds accordingly.
iv. Indicates Riskiness of the Project
It can give us very good indication of riskiness of the project. The longer the time it
takes to recover the initial investment, the more risky is the project. This is because
future is uncertain. It helps in identifying the risk of the project on the basis of the
time taken to recover the cost.
Net Present Value (NPV) Method 19

Net Present Value (NPV) method is the most theoretically sound method for
evaluation of capital projects. This method is consistent with the objective of
shareholders’ wealth maximisation. In NPV method we consider cash flows as well as
time value of money.
NPV is excess of present value of all cash inflows over present value of all cash
outflows.
NPV = Present Value of all Cash inflows – Present Value of all Cash outflows
The amount of NPV is the net addition to the wealth of the shareholders in present
value terms.
Computation

PV of the project is present value of the cash inflows minus present value of cash
outflow.
If project involves initial cash outflow and is followed by cash inflows then NPV
formula will be
n
CFAT
NPV =∑ - COo
(1+K)1
t =1

Where,

time ‘t’ is ranging from 1 to ‘n’, CFATt is the cash flow after tax at the end of

time ‘t’, k is the cost of capital which is used as a discount rate, and COo is the
cash outflow arising in the beginning of the year

If project involves cash outflow not just in initial year but in later years as well then
NPV formula will be –

n n
CFAT CO1
NPV =∑ -∑
t =1 (1+K)1 t =0 (1+K)1

All the terms are same as given above. COt is cash outflow in year t
 20

Decision Making Criteria

The NPV technique is most frequently used technique of capital budgeting. NPV is
20
positive when present value of cash inflows is higher than present value of cash
outflows. NPV is negative when present value of cash inflows is lower than present
value of cash outflows. NPV is zero when present value of cash inflows is equal to
present value of cash outflows.
Net present value shows how much present value is added to shareholders’ wealth if
the project is taken up. For example if NPV of a project is Rs.12,000, then we can say
that shareholders’ wealth will increase by Rs.12,000 if the project is accepted. On the
other hand if NPV is negative say -12,000 rupees then we can say that shareholders’
wealth will decrease by Rs.12, 000 if the project is accepted.
Therefore we accept a project when NPV is positive, we reject a project when NPV is
negative and we are indifferent when NPV is zero.
When the projects are mutually exclusive and we need to rank the projects then 1st
rank goes to the project with highest NPV and last rank to the one having lowest
NPV.

Decision Rule – NPV Method

Accept if NPV > 0 or positive
Reject if NPV < 0 or negative
Indifferent if NPV = 0
Rank the projects from Highest NPV to Lowest NPV
 21

 Profitability Index Method

One of the main limitations of NPV technique is that it is expressed in absolute terms
in rupees. There is no problem if the projects are independent and there is unlimited
amount of capital for investment. However in reality we have limited amount of
capital to be invested in worthy projects.
Therefore we cannot use NPV method when there is situation of capital rationing.
Capital rationing means that limited amount of capital is invested in a number of
projects so as to maximise NPV. In such a case we, need to use a relative measure
such as Profitability index.
Profitability index is a relative measure which is computed by dividing present value
of cash inflows by present value of cash outflows.
Profitability index is also known as benefit cost ratio. It is a useful tool for ranking
projects in case of capital rationing situation.
PI = Present Value of Cash Inflow / Present Value of Cash Outflows
It must be noted that Profitability Index (PI) is a relative concept. It shows how much
present value of cash inflows is generated for every one rupee invested. It is a number
not expressed in any unit of measurement unlike NPV which is expressed in absolute
value in rupees. If PI is 1.5 then it means that a rupee invested in the project generates
Rs.1.5 present value of cash inflows.
Decision Making Criteria
It can be seen from the formula of Profitability Index (PI) that when present value of
cash inflows is higher than present value of cash outflows PI is more than 1 and hence
project should be accepted. When present value of cash inflows is lower than present
value of cash outflows then PI is less than 1 and hence project should be rejected.
When present value of cash inflows is equal to present value of cash outflows then PI
is equal to 1 and here we are indifferent.
Decision Rule – PI Method
Accept if PI > 1
Reject if PI < 1
Indifferent if PI = 1
Rank the projects from Highest PI to Lowest PI
Relationship between NPV and PI Methods:
It must be noted that NPV and PI methods are related. Whenever PI is more than one, 22
NPV must be positive because in such a case present value of cash inflows is greater
than present value of cash outflows. When PI is less than one, NPV must be negative
because here present value of cash inflows is less than the present value of cash
outflows. When PI is equal to one, NPV must be zero because here present value of
cash inflows is equal the present value of cash outflows.
Relationship between NPV and PI Method
When PI > 1, NPV is positive
When PI < In NPV is negative
When PI = 1, NPV is zero
Advantages of PI Method
PI technique is a modification to NPV method and hence it contains all the benefits
which are applied for NPV method. It is better than NPV method when there is
limited amount of capital or situation of capital rationing. In such a case limited
capital needs to be distributed over a number of projects so as to maximise NPV. PI
method is used to rank and select projects in such a situation.

Disadvantages of Profitability Index

In addition to the aforesaid advantages, there are also certain disadvantages featured
by the profitability index.
These include
(a) An estimate about the cost of capital is required so as to calculate the profitability
index of a firm.
(b) The profitability index of a firm might not, sometimes, provide the correct
decision while being used to compare mutually exclusive projects under
consideration.
 23

CHAPTER NO 3
COMPANY PROFILE
 24

COMPANY PROFILE

September 2019 CA SHARAD JADHAV established the CA firm.

Mission

We believe in Growing Together. We see our growth as a reflection of the success of

our client

Values

Respect

Integrity

Innovation

Excellence

Leadership
 Personal strength 25

Partners : 0
Employees (Chartered Accountants) : 0
Employees (Company Secretary) : 0
Executives (Non-CA) : 1
Article Trainees : 2
Support Staff : 3

26
 CHAPTER NO 4
OBJECTIVE AND SCOPE

27
 OBJECTIVE AND SCOPE

Title of the study:

“A study on Capital Budgeting”

1 Statement of the Problem

Capital planning is a well ordered proceduring that business used to decide the
benefits of a speculation venture the choice of wheather to acknowledgment our
everyday and ventures extends as a major aspects of an organization speculation side
of the arrival that such a is regarded satisfactory are worthy is explicit to the
organization just as the undertaking.

2 Need for study

Capital Planning is critical on the grounds that it makes responsibility and another
was to put its assets in a undertaking without understanding the hazard and return
involved would be considered as mindful by its very own investors for the more if an
individual as no chance to get of exempting the viability and its speculation choices
chances are that business will have minimal possibility of getting by in the aggressive
commercial center.

3 Objectives of the study

 To determine the average rate of return

 To evaluate the cash inflows and out flows of the company
 To analyze the company’s investment decisions by Applying capital budgeting
techniques
 To determine the net cash available for the investment purpose.

4 Scope of the study

The study has been conducted from information over a period of 5 years from
financial year 2014 to 2018

28
  Limitations of Capital Budgeting

The following are the limitations of capital budgeting.

1. The economic life of the project and annual cash inflows are only an estimation.
The actual economic life of the project is either increased or decreased. Likewise, the
actual annual cash inflows may be either more or less than the estimation.
Hence, control over capital expenditure can not be exercised.
2. The application of capital budgeting technique is based on the presumed cash
inflows and cash outflows. Since the future is uncertain, the presumed cash inflows
and cash outflows may not be true. Therefore, the selection of profitable project may
be wrong.

3. Capital budgeting process does not take into consideration of various non-financial
aspects of the projects while they play an important role in successful and profitable
implementation of them. Hence, true profitability of the project cannot be highlighted.

4. It is also not correct to assume that mathematically exact techniques always

produce highly accurate results.

5. All the techniques of capital budgeting presume that various investment proposals
under consideration are mutually exclusive which may not be practically true in some
particular circumstances.

6. The morale of the employee, goodwill of the company etc. cannot be quantified
accurately. Hence, these can substantially influence capital budgeting decision.
7. Risk of any project cannot be presumed accurately. The project risk is varying
according to the changes made in the business world.

8. In case of urgency, the capital budgeting technique cannot be applied.

9. Only known factors are considered while applying capital budgeting decisions.
There are so many unknown factors which are also affecting capital budgeting
decisions. The unknown factors cannot be avoided or controlled.
  Rationale of capital budgeting decisions
29

The rationale behind the capital budgeting decisions is efficiency. A firm has to
continuously invest in new plant or machinery for expansion of its operations or
replace worn out machinery for maintaining and improving efficiency. The main
objective of the firm is to maximize profit either by way of increased revenue or by
cost reduction. Broadly, there are two types of capital budgeting decisions which
expand revenue or reduce cost

Investment decisions affecting revenue

It includes all those investment decisions which are expected to bring additional
revenue by raising the size of firm’s total revenue. It is possible either by expansion of
present operations or the development of new product in line. In both the cases fixed

assets are required.

Investment decisions reducing costs

It includes all those decisions of the firms which reduces the total cost and leads to
increase in its total earnings i.e. when an asset is worn out or becomes outdated, the
firm has to decide whether to continue with it or replace it by new machine. For this,
the firm evaluates the benefit in the form of reduction in operating costs and outlays
that would be needed to replace old machine by new one. A firm will replace an asset
only when it finds it beneficial to do so. The above decision could be followed
decisions following alternative courses: i.e., Tactical investment
decisions to strategic investment decisions, as briefly defined below

Tactical investment decisions

It includes those investment decisions which generally involves a small amount of

funds and does not constitute a major departure from what the firm has been doing in
the past.

30
Strategic investment decisions

Such decisions involve large sum of money and envisage major departure from what
the company has been doing in the past. Acceptance of strategic investment will
involve significant change in the company’s expected profits and the risk to which
these profits will be subject. These changes are likely to lead stock-holders and
creditors to revise their evaluation of the company.

31
CHAPTER NO 5
RESEARCH AND
METHODOLOGY

32
 RESEARCH AND METHODOLOGY

Financial statements

BALANCE SHEET OF 2 YEARS

2018 2017
EQUITIES AND LIABLITIES

SHARE HOLDER FUNDS

EQUITY SHARE CAPITAL 47.51 47.51

RESERVERS AND SURPLUS 2360.82 1889.29

TOTAL RESERVE AND SURPLUS 2360.82 1889.29

TOTAL SHARE HOLDERS FUNDS 2408.33 1936.80

NON CURRENT LIABLITIE

LONG TERM BORROWINGS 468.76 494.23

DEFERRED TAX LIABLITY 125.70 175.67

LONG TERM PROVISIONS 50.80 39.90

Table no 5.1 : table showing the balance sheet of two years

33
TOTAL NON CURRENT LIABLITIES 645.26 709.89

CUURENT LIABLITIES

SHORT TERM BORROWINGS 616.38 264.23

TRADE PAYABLES 1859.36 1543.71

OTHER CURRENT LIABLITIES 312.47 449.47

SHORT TERM PROVISIONS 62.87 58.47

TOTAL CURRENT LIABLITIES 2581.08 2315.88

TOTAL CAPITAL AND LIABLITIES 5904.67 4962.57

ASSETS

NON CURRENT ASSETS

TANGIBLE ASSETS 1930.64 1545.93

INTANGIBLE ASSETS 53.23 46.92

CAPITAL WORK IN PROGRESS 62.28 30.96

FIXED ASSETS 2046.15 1623.81

NON CURRENT INVESTMENTS 1587.90 1184.57

34
LONG TERM LOANS AND ADVANCE 0.12 136.65

OTHER NON CURRENT ASSETS 83.61 0.00

TOTAL NON CURRENT ASSETS 3717.28 2945.03

CURRENT ASSETS

INVENTORIES 966.65 825.97

TRADE RECIVABLES 723.77 578.69

ASH AND CASH EQUIVALENT 8.51 32.84

SHORT TERM LOANS AND ADVANCES 0.00 521.91

OTHER CURRENT ASSETS 487.66 58.13

TOTAL CURRENT ASSETS 2186.89 2017.54

TOTAL ASSET 5904.67 4962.57

35
 PROFIT AND LOSS ACCOUNT

2018 2017

INCOME

REVENUE FROM OPERATIONS 13063.82 12904.50

LESS:EXCISE/SERVICE 1054.75 988.25

REVENUE FROM OPERATIONS 12009.07 11106.25

OTHER OPERATING REVENUES 126.24 137.62

TOTAL OPERATING REVENUES 12135.31 11243.87

OTHER INCOME 173.37 51.31

TOTAL REVENUE 12308.68 11295.18

EXPENSES

COST OF MATERIAL CONSUMED 8620.88 7703.54

PURCHASE OF STOCKS 291.22 251.42

CHANGES IN INVESTMENT OF FG WIP AND -58.73 70.53

STOCK IN TRADE

36
 EMPLOYEE BENFIT EXPENSES 745.64 664.23

FINANCE COSTS 43.95 46.24

DEPRICATION AND AMORTISATION EXPENSES 287.81 287.81

OTHER EXPENSES 1679.23 1803.42

TOTAL EXPENSES 11610.00 10729.21

Table 5.2: Table showing profit and loss account

Graph 5.1 Graph showing non-Current Liabilities Comparison of Non-Current

Liabilities

715.46
709.89
720

700
total non current liabiliblity

645.26 640.43
680

660 620.26

640

620

600

2018 2017 2016 2015 2014

580

560

Interpretation :
From the above graph we can see that the total non-current liabilities have come
down drastically decreased for the current financial year of 2018. It was highest in the
year 2016. Graph 1.2: Graph showing current Liabilities’

37
Comparison of Current Liabilities

Total Current Liabiliti es

2018 2017 2016 2015 2014

3,000.00 2
2.4

2,500.00
2
4.4
3
1.8

2,000.00

2,851.08
5
2.8
1,500.00 2,315.88 2,243.38

1,529.16
1,000.00 1,254.17

500.00 2018 2017 2016 2015 2014

Interpretation :
From the above graph we can see that the total current liabilities has increased to
almost double from the past 4 years of total current liabilities. It was the lowest in the
financial year of 2014

38
 RESEARCH METHODOLOGY :

The method I used for research methodology was

 Primary Data

 Secondary data

PRIMARY DATA

The primary data is the data which is collected fresh and first hand and for the first
time which is originals nature. Primary data can collect through personal interview
questionnaire etc. To support the secondary data

Sources of data collection

Company yearly Reports

Company audited financial statements.

Tools used

Following techniques are used to make decision regarding capital

budgeting

I. Payback period

II. Accounting rate of return.

III. Net present value.

IV. Internal rate of return.

39
Limitations

 A strong unwillingness on the part of the company officials, to participate

and aid the research.

 The study was limited to the geographical region of Bangalore

 The study is limited only to one company

40
CHAPTER NO. 6
DATA ANALYSIS

41
 Data Analysis

Table no 6.1
Table showing Comparison of NET PRESENT VALUE for five years from 2014 to 2018

Year 2018 2017 2016 2015 2014

Initial Investment 2,408.33 1,936.80 1,645.36 1,415.28 1,224.67

Net Cash Flow per -96.89 25.49 -77.61 65.57 173.38

annum

NPV -2144.33 -2,339.33 -1434.36 1236.28 -752.67

Analysis and Interpretation :

From the above graph we can see that the NPV has been fluctuating over the past five
financial years. It stood at about -2144.33 for the current financial year as compared
to the previous financial years figure of about -2339.33. The NPV is negative for two
years where the company is not able to get the cash inflows out of the fund invested.

42
Graph No. 6.1

Graphs showing Comparison of NET PRESENT VALUE for five years from 2014 to 2018

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
1 2 3

Analysis and Interpretation :

From the above graph we can see that the NPV has been fluctuating over the past five
financial years. It stood at about -2144.33 for the current financial year as compared
to the previous financial years figure of about -2339.33. The NPV is negative for two
years where the company is not able to get the cash inflows out of the fund invested.

43
Table no.6. 2

Table showing comparison of Pay Back period for five years from 2014 to 2018

YEAR 2018 2017 2016 2015 2014

Cost of
machinery 850000 615000 585000 568000 515000
Annual cash
flow 185000 165000 145000 136000 127000

PBP 4.59 3.72 4.0 4.17 4.05

Analysis and Interpretation :

From the above graph we can see that the PBP has been fluctuating over the past five
financial years. It stood at about 4.59 for the current financial year as compared to the
previous financial years figure of about 4.05

44
 Table no. 6.3

Table showing Comparison of accounting rate of return for five years 2014 to 2018

YEAR 2018 2017 2016 2015 2014

Average accounting
profit 662.59 558.08 489.28 347.83 261.63

Average investment 748.12 519.52 493.27 259.84 98.49

ARR 0.88 1.07 0.99 1.33 2.65

Interpretation :

From the above table we can see that the Accounting rate of return figures have come
down from 2.65 in the financial year of 2014 to about 0.88 for the current financial
year of 2018

45
 Table no 6.4

Table is showing comparison of cash flow statement for five years 2014 to 2018

YEAR 2018 2017 2016 2015 2014

Net Profit/Loss Before
Extraordinary Items And Tax 698.68 565.97 456.16 348.45 162.79

Net Cash Flow From Operating

Activities 723.93 845.65 84.84 523.79 418.12

Net Cash Used In Investing

Activities 748.12 -519.52 -493.27 -259.84 -98.49

Net Cash Used From Financing

Activities 72.70 300.64 330.82 -198.38 -146.25

Net Inc/Dec In Cash And

Cash Equivalents -96.89 25.49 -77.61 65.57 173.38

Cash And Cash Equivalents

Begin of Year -131.95 2.85 80.46 14.89 -207.65

Cash And Cash Equivalents

End Of Year -228.84 28.34 2.85 80.46 -34.27

From the above Table we can see that the net cash flow from operating activities has
increased which stood at its lowest in the financial year of 2016. Then onwards, it
started to increase and stands at 723.93 for the current finance year of 2018

46
 Table no. 6.5
Table is showing comparison of return on net worth for five years from 2014 to 2018

year 2018 2017 2016 2015 2014

Return on Net
worth / Equity 30.02 32.25 31.16 27.38 25.96
(%)

Net income 12308.68 11295.18 10130.83 7992.06 7088.84

Shareholder 2408.33 1936.80 1645.36 1415.28 1224.67

equity

Return on Net worth / Equity = Net Income / Shareholders equity

Interpretation :
From the above table I, can see that the return on net worth or equity percentage has
stood at 30.02 for the current financial year of 2018

47
 Table no. 6.6

Table is showing comparison of return on capital and employed for five years
from 2014to 2018

year 2018 2017 2016 2015 2014

Return on Capital
Employed (%) 18.27 16.32 14.73 12.85 6.22

Net operating
profit 12009.07 11106.25 9916.57 7854.45 6965.40

Capital employed 2408.33 1936.80 1645.36 1415.28 1224.67

Return on Capital Employed = Net Operating Profit / (Total assets – Current

Liabilities)

Interpretation:

From the above graph we can see that the return on capital employed percentage has
seen an increasing trend and stands almost at triple for the financial year of 2018

48
Table no.6.7

Table is showing comparisons of return on assets for five years from 2014 to 2018

year 2018 2017 2016 2015 2014

9.45 8.70 7.55 7.33 3.71

Return on Assets (%)

12308.68 11295.18 10130.83 7992.06 7088.84

Net income

Total assets 5904.67 4962.57 4604.20 3564.70 3119.27

Return on Assets = Net Income / Total Assets

Interpretation

From the above table I , can see that the return on assets percentage has been
increasing after the financial year of 2014. It is the highest in the financial years 2018

49
 Table no. 6.8

Table is showing comparision of cash earnings rention ratio for five years 2014 to
2018

year 2018 2017 2016 2015 2014

Cash earnings
retention ratio 19.18 16.72 15.77 17.11 16.60

Retained
earnings 2360.82 1889.29 1597.85 1367.77 1177.16

Net income 12308.68 11295.18 10130.83 7992.06 7088.84

Cash Earnings Retention Ratio = Retained Earnings / Net Income

Interpretation :

From the above table I can see that the cash earnings retention ratio percentage has
been almost constant over the last 4 financial years from 2014 to 2018. However it
increased for the current financial year and stood highest.

50
 Table no 6.9

table is showing comparision of valuation ratio for five years 2014 to 2018

year 2018 2017 2016 2015 2014

Market capital 0.39 0.42 0.47 0.60 0.68

Net operating revenue 12009.07 11106.25 9916.57 7854.45 6965.40

Capital 47.51 47.51 47.51 47.51 47.51

Market Capital/Net Operating Revenue = Revenue generated by real estate -

Operating expenses

Interpretation :

From the above table we can see that the market capital or net operating revenue has
been steadily increasing for the last 5 financial years and for the current financial year
of 2018 it has stood at about 0.3

51
 Table no.6.10

Table is showing comparision of retention ratio for five years 2014 to 2018

Year 2018 2017 2016 2015 2014

Retention Ratios (%) 78.71 72.51 74.04 74.57 50.85

Interpretation :

From the above table we can see that the retention ratio percentage has been showing
a slight fluctuating trend over the past five financial years and for the current financial
year of 2018 it is about 78.71.

52
Chapter No. 7
Conclusion

53
 CONCLUSION

The spending plan is one of the key procedures for budgetary administration to

assess the proficiency of the undertaking. So purchasing new hardware, beginning

business, extending, changing the oldness of old apparatus. The cutting edge approach

is more successful than the customary technique on the grounds that the advanced

strategy is thinking about the time estimation of cash. The Capital Budget has its own

impediment however its favorable circumstances spread its unfriendly impacts with

its utilization. In any case, in India, the capital spending procedure can not be utilized

legitimately at the dimension of institutional and administrative administration.

Subsequent to considering this theme, I comprehend the hugeness of the spending

plan. I figure capital aptitudes can be used in government organization ventures like

corporate and open organization administrations, open transportation administrations.

I for one figure the open dislikes to utilize this strategy later on because of absence of

information. Capital spending plans can be utilized from local dimensions to MNCs

and this sentence can express the significance of the capital spending plan.

54
 CHAPTER NO .8
FINDING AND SUGGESTIONS

FINDING AND SUGGESTIONS 55

FINDINGS:

1. Speculation put resources into property is recouped amid a brief timeframe, and the
offer is suitable for an organization
2. Paid benefit is useful for the organization The review rate to come back to 2018 is
56.94%. The capital returns the expense of their costs. ARR has a standard rate.

3. Since the net present esteem is sure, the venture will in the long run be practical by
the organization

4. The reimbursement time frame gives some data about the danger of venture. Be
that as it may, the solid choice does not give the criteria to demonstrate whether
speculation will build the estimation of the organizations.

5. The capital spending technique gives crude liquidity of liquidity yet overlooks the
danger of money streams, cash time valuation and future income past the expansion
time frame.

6. This technique likewise needs to evaluate the expense of money to ascertain

recompense yet disregard money streams over the limited reimbursement time frame

7. Net present esteem estimation of the capital spending states that the speculation can
expand the estimation of the firm, however the expense of the capital expense is
required to compute the net present esteem.

8. The inner rate of return procedure for the capital spending plan may not be
esteemed - augmenting the choice utilized when contrasted with one another's
individual tasks.

2 SUGGESTIONS: 56
• The exhortation made for the organization is that the accompanying counsel ought to
be embraced in the organization's every day exercises.

• This is a valid justification to receive the NPV strategy in settling on a budgetary

choice since it depends on the present esteem. Supplanted PBP
• The organization must have a decent match between various offices

• It is important to keep up an arrangement of book books that can enable you to settle
on a superior choice.

• The organization must have a similar procedure to compute the venture choice,
generally befuddling it.

• Cost components ought to be viewed as when choosing what is ideal, for example,
work costs, bookkeeping costs, and so forth.

57

Chapter No.9
BIBLIOGRAPHY
 58
BIBLIOGRAPHY

1. Klammer, Thomas P. ”Empirical Evidence of the Adoption of Sophisticated Capital

Budgeting Techniques,” The Journal of Business, July 1972, 387-397.

2. Klammer, Thomas P. and Michael C. Walker, “The Continuing Increase in the Use
of Sophisticated Capital Budgeting Techniques, “California Management Review, fall
1984, 137-148

3. Block Stanley; Capital budgeting techniques used by small business firms in the
1990s, The Engineering Economist, Summer 1997, v42 n4 p289(14)
4. Jog Vijay M and Srivastava Ashwani K., Capital budgeting practices in corporate
Canada, Financial Practice & Education, Fall/Winter 1995, pp 37-43

5. Block Stanley; Capital budgeting techniques used by small business firms in the
1990s, The Engineering Economist, Summer 1997, v42 n4 p289(14)

Text Books

 Copeland =, T.E.and Weston ,J.F., Financial Theory and corporate Policy ,

Addisionweseley, 1983,p.32.

 See Porterfield, J,T,S., Investment Decisions and capital costs, Prentice – hall,1965

 Bierman, H. and Smidit, S., The capital Budgeting Decision ,macmillan,1975,p.73

 Brely, and Myers ,S., Principles of corporate finance ,McGraw Hill,1991,p.8.

 Gordon, Myron, Pay off period and rate of profit, Journal of business, XXVIII,No.
4, pp.253-60

59
Web Sites:

www.investopedia.com
www.enterpenure.com
www.moneycontrol.com
www.principalsofaccounting.com
 60

Chapter No 10
ANNEXURE
 ANNEXURE
61
Balance sheet – 5 years comparison

year 2018 2017 2016 2015 2014

EQUITIES AND
LIABILITIES

SHAREHOLDER'S
FUNDS

Equity Share Capital 47.51 47.51 47.51 47.51 47.51

Total Share Capital 47.51 47.51 47.51 47.51 47.51

Reserves and Surplus 2,360.82 1,889.29 1,597.85 1,367.77 1,177.16

Total Reserves and 2,360.82 1,889.29 1,597.85 1,367.77 1,177.16
Surplus
Total Shareholders’ 2,408.33 1,936.80 1,645.36 1,415.28 1,224.67
Funds

NON-CURRENT
LIABILITIES
Long Term Borrowings 468.76 494.23 518.98 442.41 494.14

Deferred Tax Liabilities 125.70 175.67 152.75 124.68 93.12

[Net]
Long Term Provisions 50.80 39.99 43.73 53.17 53.17

Total Non-Current 645.26 709.89 715.46 620.26 640.43

Liabilities

62

CURRENT LIABILITIES
Short Term 616.38 264.23 399.76 33.47 51.72
Borrowings
Trade Payables 1,859.36 1,543.71 1,263.82 998.91 822.80
Other Current 312.47 449.47 474.77 428.82 326.23
Liabilities
Short Term 62.87 58.47 105.03 67.96 53.42
Provisions
Total Current 2,851.08 2,315.88 2,243.38 1,529.16 1,254.17
Liabilities
total Capital And 5,904.67 4,962.57 4,604.20 3,564.70 3,119.27
 Liabilities
ASSETS
NON-CURRENT
ASSETS
Tangible Assets 1,930.64 1,545.93 1,294.93 1,105.94 1,006.85

Intangible Assets 53.23 46.92 34.70 19.77 4.63

Capital Work-In- 62.28 30.96 89.36 48.08 36.09
Progress
Fixed Assets 2,046.15 1,623.81 1,418.99 1,173.79 1,047.57
Non-Current 1,587.90 1,184.57 1,012.46 895.92 868.84
Investments
Long Term Loans 0.12 136.65 143.73 86.27 73.35
And Advances
Other Non-Current 83.61 0.00 0.00 0.00 0.00
Assets
Total Non-Current 3,717.78 2,945.03 2,575.18 2,155.98 1,989.76
Assets

63

CURRENT
ASSETS

Inventories 966.95 825.97 819.68 548.15 509.66

Trade 723.77 578.69 503.86 334.12 300.52

Receivables
Cash And Cash 8.51 32.84 5.39 82.57 17.45
Equivalents
 Short Term 0.00 521.91 632.78 364.31 178.44
Loans And
Advances
Other Current 487.66 58.13 67.31 79.57 123.44
Assets
Total Current 2,186.89 2,017.54 2,029.02 1,408.72 1,129.51
Assets
Total Assets 5,904.67 4,962.57 4,604.20 3,564.70 3,119.27

64
Profit and Loss A/c – 5 years comparison

year 2018 2017 2016 2015 2014

INCOME
Revenue From 13,063.82 12,094.50 10,632.21 8,544.69 7,633.28
Operations
[Gross]
Less: 1,054.75 988.25 715.64 690.24 667.88
Excise/Service
Tax/Other Levies
Other Operating 12,009.07 11,106.25 9,916.57 7,854.45 6,965.40
Revenues
Total Operating 126.24 137.62 181.65 107.40 99.60
Revenues
Other Income 173.37 51.31 32.61 30.21 23.84
Total Revenue 12,308.68 11,295.18 10,130.83 7,992.06 7,088.84
EXPENSES
Cost Of Materials 8,620.88 7,703.54 7,162.32 5,418.82 4,912.32
Consumed
Purchase Of Stock- 291.22 251.41 226.88 244.35 151.49
In Trade
Changes In -58.73 70.53 -92.07 9.65 32.70
Inventories Of
FG,WIP And
Stock-In Trade
Employee Benefit 745.64 664.23 585.42 476.11 407.13
Expenses
Finance Costs 43.95 46.24 27.42 25.40 48.04
Depreciation And 287.81 189.84 153.33 131.65 130.41
Amortization
Expenses
Other Expenses 1,679.23 1,803.42 1,611.37 1,334.82 1,152.33
Total Expenses 11,610.00 10,729.21 9,674.67 7,640.80 6,834.42