"CAPITAL BUDGETING" With Reference To MUMBAI WASTE MANAGEMENT LIMITED

MBA PROGRAMME
CAPITAL BUDGETING
INTRODUCTION:
Capital budgeting is the process of making investment decisions in capital
expenditures. A capital expenditure may be defined as an expenditure the benefits of
which are expected to be received over period of time exceeding one year. The main
characteristic of capital expenditure is that the expenditure is incurred at one point of
time whereas benefits of the expenditure are realized at different points of time in future.
In simple language we may say that a capital expenditure is an expenditure incurred for
acquiring or improving or improving the fixed assets the benefits of which are expected
to be received over a number of years in future.
This pro!ect presents two versions of heuristic algorithm to solve a model of
capital budgeting problem in a decentralized multidivisional firm involving no more than
two exchanges of information between headquarters and divisions. "ead quarters make
allocation of funds to each division based upon its cash demand and its potential growth
rate. #ach division determines which pro!ects to accept. Then an additional iteration is
performed to define the solution
To take up a new pro!ect involves a capital investment decision and it is the top
management$s duty to make a situation and feasibility analysis of that particular pro!ect
and means of financing and implementing it. %inancing is a rapidly expanding field
which focuses not on the credit status of a company but on cash flows that will be
generated by a specific pro!ect.

The capital budgeting decisions procedure basically involves the evaluation of
the desirability of an investment proposal. It is obvious that the firm must have a
systematic procedure for making capital budgeting decisions. The procedure for making
capital budgeting decisions must be consistent with ob!ective of wealth maximization. In
view of the significance of capital budgeting decisions the procedure must consist of
step by step analysis of the data to bridge the gap in the organization.
GUNTUR ENGINEER COLLEGE
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MBA PROGRAMME
characteristic of capital expenditure is that the expenditure is incurred at one point of
capital budgeting problem in a decentralized multidivisional firm involving no more than
two exchanges of information between headquarters and divisions. "ead quarters make
allocation of funds to each division based upon its cash demand and its potential growth
rate. #ach division determines which pro!ects to accept. Then an additional iteration is
performed to define the solution
and means of financing and implementing it. %inancing is a rapidly expanding field

step by step analysis of the data to bridge the gap in the organization.
The capital program is generally financed by borrowing money usually through
the sales of bonds. This differs from the company$s expenses budget which covers day'
to'day operating expenditures ( is financed by company$s taxes and other revenues
along with other companies in the industry.
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MBA PROGRAMME
The capital budgeting strategy presents the goals policy constraints assumptions
the organization$s capital needs over the next &* years. The document also provides the
anticipated sources of financing and the implications of the strategy including any
possible economic social and environmental effects. After a public hearing and a report
by the organization planning commission or board of directors the final version of the
strategy is released with the executive budget in every year.
The strategy presents capital pro!ects in broad categories that reflect
organization$s agency goals. There are various ways the organization records the
progress of capital pro!ects. In general they measure financial transaction spending and
obligation rather than what most department come about the status of work on a
particular pro!ect. Although information is publicly available on annual capital spending
by budget line no information is currently made publicly available that provides detailed
pro!ect level information on the status of capital pro!ects.
FACTORS FOR CAPITAL BUDGETING:-
Cost of acquisition of permanent asset as land and building plant and machinery
goodwill etc.
Cost of addition expansion Improvement or alteration in the fixed assets.
Cost of replacement of permanent assets.
+esearch and development pro!ect cost etc.
DEFINITIONS OF CAPITAL BUDGETING:-
,Capital budgeting is a long term planning for making and financing proposed capital
outlays-
: - T. Horngreen
A budget is an estimate of future needs arranged according at an orderly basis covering
some or all the activities of an enterprise for a definite period of time-
: - George R. Terry
.udget as a financial and/ or quantitative statement prepared to a definite period of
time of the policy to be pursued during that period for the purpose of attaining a given
ob!ective-
0 ' Icma, Lonon
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SIGNIFICANCE OF CAPITAL BUDGETING:-
Capital budgeting decisions deserve to be treated in a different manner as there are
conceptual problems involved which necessarily makes the decision process more
complex while this makes things more difficult for the decision process maker it also
makes the problem more challenging. There are several practical reasons for placing
greater emphasis on capital expenditure decisions.
!. LONG TER" PERIOD:-
The consequences of capital expenditure decisions extend far into future. The scope
of current manufacturing activities of an organization is governed largely by capital
expenditures in the past. 2ikewise current capital expenditures decision provides the
frame work for future activities. Capital investment decisions have an enormous bearing
on the basic character of an organization.
#. IRRE$ESIBILIT%:-
The markets are used for capital equipment in general is ill'organized. %urther some
types of capital equipment custom made to meet specific requirements the market may
virtually be non'existent.
&. SUBSTANCIAL OUTLA%:-
Capital expenditure usually involves substantial outlays. An integrated steel plant
for example involves an outlay of several thousand millions. Capital costs tend to
increase with advanced technology.
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MBA PROGRAMME
NEED OF CAPITAL BUDGETING:-
The importance of capital budgeting can be well understood from the fact that
unsound investment decision may prove to be fatal to the very existence of the concern.
The need significance or importance of capital budgeting arises mainly due to the
following
2arge investments
2ong'term commitment of funds
Irreversible nature
2ong'term effect on profitability
4ifficulties of investment decisions
5ational importance.
FEATURES OF CAPITAL BUDGSTING PROCESS:-
6otentially large anticipated benefits.
A relative high degree of risk.
A relative long time period between the initial outlay and anticipated returns.
OB'ECTI$ES FOR CAPITAL BUDGETING:-
It determines the capital pro!ects on which work can be started during the budget
period after taking into account their urgency and the expected rate of return on
each pro!ect.
It estimates the expenditure that would have to be incurred on capital pro!ects
approved by the management together with the sources from which the required
funds would be obtained.
It restricts the capital expenditure on pro!ects within authorized limits.
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(INDS OF CAPITAL BUDGETING:-
Capital budgeting refers to the total process of generating evaluating selecting and
following up a capital expenditure alternatives. The firm allocates or budgets financial
recourses to new investment proposals. .asically the firm may be confronted with three
types of capital budgeting decisions0'
To accept or re!ect decision
The mutually exclusive choice decisions and
The capital rationing decision
T%PES OF CAPITAL BUDETING DECISIONS:-
Capital budgeting decisions are of paramount importance in financial decision making.
In first place they affect the profitability of the firm. They also have a bearing on the
competitive position of the firm because they relate to fixed assets. The fixed assets are
true goods that can ultimately be sold for'profit. 8enerally the capital budgeting of
investment decision includes addition disposition modification and replacement of
fixed assets.
E)PANSION OF E)ISTING BUSINESS:-
A company may add capacity to its existing product lines to expand existing
operations. %or example 9:9.AI ;A<T# 9A5A8#9#5T 2T4 may increase its
plant capacity to manufacture more detergents soaps ( powder. It is an example of
related expansion.
E)PANSION OF NE* BUSINESS:-
A %irm may expand its activities in a new business expansion of a new business
requires investment 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 the firm has not manufactured before this represents expansion of new business
or unrelated diversification. <ometimes accompany acquires existing firms to expand its
business.
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REPLACE"ENT AND "ODERNI+ATION:-
The main ob!ective of modernization and replacement is to improve
operating efficiency to reduce costs. Cost savings will reflect in the increased profits but
the firm$s revenue may remain unchanged. Assets become outdated and absolute with
technological changes. The firm must decide to replace those with new assets that
operate more economically. +eplacement decisions help to introduce more efficient and
economical assets and therefore are also called cost'reduction investments.
"owever replacement decisions that involve substantial modernization and
technological improvements expand revenues as well as reduce costs. >et another useful
way to classify investments is as follows0
9utually exclusive investments
Independent investments
Contingent investments
CAPITAL BUDGETING PROCESS:-
The preparation of the capital budget is a process that lasts many months and is
intended to take into account neighborhood and bough needs as well as organization
wide. The process begin in the fall when each of the segment holds public hearings each
community board submits a statements of its capital priorities for the next fiscal year to
the managing director and appropriate board chairman. The capital budgeting process
involves ? steps explained in diagrammatic ( theoretic as follows0

!, IDENTIFICATION OF IN$EST"ENT PROPOSALS:-
The capital budgeting process begins with the identification of investment proposals.
The investment proposals may originate from the top management or from any officer of
the organization. The department head analyses the various proposals in the light of the
corporte strategies and submit the suitable proposal to the capital budgeting committee in
case of large organizations concerned with process of long'term investment proposals.
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#, SCREEN PROPOSALS:-
The expenditure planning committee screens the various proposals received from
different departments in different angles to ensure that these are in selection criteria of
the organization and also do not lead to department imbalances.
&, E$ALUTION OF $ARIOUS PROPOSALS:-
The next steps in capital budgeting process is to evaluate the probability of
various independent proposals those which do not compete with one another and the
same way be either accepted or re!ected on the basis of a minimum return on investment
required.
-, FI)ING PRIORITIES:-
After evaluating various proposals the unprofitable or uneconomic proposals
may be re!ected straight away. .ut it may not be possible for the organization to invest
immediately in all the acceptable proposals due to limitations of funds. "ence it is very
essential to rank the various proposals and to establish priorities after considering
urgency risk ( profitability involved is the criteria.
., FINAL APPRO$AL:-
6roposals meeting the evaluation and other criteria are finally approved to be
included in the capital expenditure budget. "owever proposals involving smaller
investment may be decided at the lower levels for expeditious action. The capital
expenditure budget lay down the amount of estimated expenditure to be incurred on
fixed assets during the budget period.
/, I"PLE"ENTING PROPOSALS:-
6reparation of a capital expenditure budget ( incorporation of particular
proposals in the budget does not itself authorize to go ahead with implementation of the
pro!ect. A request for authority to spend the amount should be made to be the capital
expenditure committee which may like to review the profitability of the pro!ect in
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changed circumstances. In the implementation of the pro!ects networks techniques such
as 6#+T ( C69 are applied for pro!ect management.
0, PERFOR"ANCE RE$IE*:-
In this stage the process of capital budgeting is the evaluation of he performance of the
pro!ect. The evaluation is made through post completion audit by way of comparison of
actual expenditure on the pro!ect with the budgeted one and also by comparing the
actual return from the investment with the anticipated return. The unfavorable variances
if any should be looked into and the causes the same be identified so that corrective
action may be taken in future.
1, FEEDBAC(:-
The last step in the capital budgeting process is feedback from employees
involved in the organization. If any consequences are there the process may come to &
st
step of the process.
GUIDELINE FOR CAPITAL BUDGETING:-
There are many guidelines for capital budgeting process either it is long'term or
short' term plan. The ma!or points are0
5eed and ob!ectives of the owner
<ize of market in terms of existing ( proposed product lines and anticipated
growth of the market share
<ize of existing plants ( plans for new plant sites and plant
#conomic conditions which may affect the firm$s operations and
.usiness and financial risk associated with the replacement ( existing assets of
the purchases of new assets.
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CO""ITTEE IN CAPITAL BUDGETING:-
C#B
6+B4:CTIB5
9A5A8#+
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9A5A8#+
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9A5A8#+
BUDGET
OFFICER
BUDGET
COMMITTEE
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9A5A8#+
6#+<B55#2
9A5A8#+
+#<#A+C" (
4#C#2B69#5
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CAPITAL CO""IT"ENT PLAN:-
The progress of pro!ects included in the capital budget a capital commitment
plan is issued three times a year. The commitment plan lays out the anticipated
implementation schedule for the current fiscal and the next three years. The first
commitment plan is published within A*days of the adoption of the capital budget.
:pdated commitment plans are issued in Danuary ( April along with the company$s
budget proposals.
The commitment plan translates the appropriations approved under the adopted
capital budget into schedule for implementing individual pro!ects. The fact that funds are
appropriated for a pro!ect in the capital budget does not necessarily mean that work will
start or be completed that fiscal year. The choice of priorities and timing of pro!ects is
decided by office management ( budget in consultation with the agencies along with
considerations of how much the managing director thinks the organization can afford to
append on capital pro!ects overall.
The capital commitment plan lays out the anticipated implemented schedule for
capital pro!ects and is one source of information on how far along pro!ects are although
not consistent or always useful one. The adopted commitment plan is usually published
in <eptember ( then updated in Danuary ( April.
In the capital budgeting for every two ad!acent years there will be gap. The gap
between authorized commitments and the target is presented in capital commitment plan
as diminishing over the course of the year plan in practice many of the ,unattained
commitments- will be rolled over into the next year$s plan so that the current year gap
will remain large. The gap has grown in recent year exceeding in last two executive
capital plans.
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SI"ILARITIES BET*EEN CAPITAL BUDGETING 2 SECURIT%
$ALUTION:-
Bnce a potential capital budgeting pro!ect has been identified its evaluation
involves the same steps that are used in security analysis0
%irst the cost of the pro!ect must be determined. This is similar to finding the
price that must be paid for stock or bond.
5ext management estimates the expected cash flows from the pro!ect including
the salvage value of the asset at the end of its expected life. This is similar to
estimating the future dividend or interest payment stream on a stock or bond
along with the stocks expected sales price or the bond$s maturity value.
Third the riskiness of the pro!ected cash flows must be estimated. This requires
information about the probability distribution of the cash flows.
8iven the pro!ect$s riskiness management determines the cost of capital at which
the cash flows should be discounted.
5ext the expected cash flows or inflows are put on a present value basis to
obtain an estimate of the asset$s value. This is equivalent to finding the process
value of stock$s expected future dividends.
%inally the present value of expected cash inflows is compared with the required
outlay. If the 6C of the cash flows exceeds the cost the pro!ect should be
accepted. Btherwise it should be re!ected.
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DIFFICULTIES OF CAPITAL BUDGETING:-
;hile capital expenditure decisions are extremely important they also pose
difficulties which stem from three principal sources0
Identifying ( measuring the costs ( benefits of a capital expenditure proposal
tends to be difficult
There is great deal of uncertainty for capital expenditure decision which involves
cost ( benefits that extend far into the future
It is impossible to pro!ect exactly what will happen in the future
The time period creates some problems in estimating discount rates (
establishing equivalences.
LI"ITATIONS OF CAPITAL BUDGETING:-
Capital budgeting techniques suffer from the following limitations0
&E All the techniques of capital budgeting presume that various investment
proposals under consideration are mutually exclusive which may not practically
be true in some particular circumstances.
)E The techniques of capital budgeting require estimation of future cash inflows and
outflows. The future is always uncertain and the data collected for future may not
be exact. Bbliviously the results based upon wrong data may not be good.
1E There are certain factors like morale of the employees goodwill of the firm etc.
which cannot be correctly quantified but which otherwise substantially influence
the capital decision.
3E :rgency is another limitation in the evaluation of capital investment decisions.
7E :ncertainty and risk pose the biggest limitation to the techniques of capital
budgeting.
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COST EFFECTI$E ANAL%SIS:-
In the cost effectiveness analysis the pro!ect selection or technological choice
only costs of two or more alternatives choices are considering treating the benefits as
identical. This approach is used when the acquisition of how to minimize the costs for
undertaking an activity at a given discount rates in case the benefits and operating costs
are given one can minimize the capital cost to obtain given discount.
PRO'ECT PLANNING:-
The planning of a pro!ect is a technically pre'determined set of inter related
activities involving the effective use of given material human technological and
financial resources over a given period of time. ;hich in association with other
development pro!ects result in the achievement of certain predetermined ob!ectives such
as the production of specified goods and servicesF
6ro!ect planning is spread over a period of time and is not a one shot activity. The
important stages in the life of a pro!ect are0
It$s identification
It$s initial formulation
It$s evaluation
It$s final formulation
It$s implementation
It$s completion and operation
The time taken for the entire process is the gestation period of the pro!ect.
The process of identification of a pro!ect begins when we are seriously trying to
overcome certain problems. They may be non'utilization to overcome available
funds 6lant capacity expansion etc.
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CONTENTS OF THE PRO'ECT REPORT:-
+aw material
9arket and marketing
<ite of pro!ect
6ro!ect engineering dealing with technical aspects of the pro!ect
2ocation and layout of the pro!ect building
.uilding
6roduction capacity
;ork schedule
CRITERIA FOR CAPITAL BUDGETING:-
6otentially there is a wide array of criteria for selecting pro!ects. <ome
shareholders may want the firm to select pro!ects that will show immediate surges in
cash flow others may want to emphasize long'term growth with little importance on
short'term performance viewed in this wayG it would be quite difficult to satisfy the
differing interests of all the shareholders. %ortunately there is a solution.
"ETHODS FOR E$ALUTION:-
Capital
budgeting
techniques
5on'4C%
criteria

4C% criteria
5et present
value H56CE
Internal rate
of return
HI++E
6rofitability
index H6.IE
6ay back
period H6.6E
Accounting
rate of return
HA.+.+E
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Non DCF cr34er3a
5a, Pay6ac7 8er3o
The payback period one of the most popular and widely recognized traditional
methods of evaluating investment proposals. 6ayback period is the number of years
required to recover the original cash outlay invested in a pro!ect.
If the pro!ect generates constant annual cash flows the payback period can be
computed by dividing cash outlay by the annual cash inflows.
6ayback period I
C
C
o
inflows cash Annual
investment Initial
o
C
I Initial investment
C I Annual cash inflows
In the case of :5 equal cash inflows the payback period can be found out by
adding up the cash inflow until the total is equal to the initial cash outlay.
56, Acco9n43ng Ra4e o: Re49rn 5ARR,
The accounting rate of return HA++E also known as the return on investment
H+BIE 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 tax profit divided by the average investment. The average investment would be
equal to half of the original investment if it were depreciated constantly.
A + + I
&**
investment Average
Income Average
DCF Cr34er3a
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5a, Ne4 Pre;en4 <a=9e 5NP$,
The 56C present value H56CE method is the classic method of evaluating the
investment proposals. If 4C% technique explicitly recognizes the time value at different
time periods differ in value and comparable only when their equipment present values J
are found out.
5.6.C I
*
n
n
1
1
)
) &
kE H&
C
.........
kE H&
C
kE H&
C
kE H&
C
C
+
+
+
+
+
+
+
+
56C I
=
+
n
i
o
C
k
C
*
&
&
E & H
;here
56C I 5et present value
fi
C
I Cash flows occurring at time
k I the discount rate
n I life of the pro!ect in years
*
C
I Cash outlay
56, In4erna= Ra4e o: Re49rn 5IRR,
The internal rate of return HI++E method is another discounted cash flow
technique which takes account of the magnitude and thing of cash flows other terms
used to describe the I++ method are yield on an investment marginal efficiency of
capital rate of return over cost time J ad!usted rate of internal return and soon.
56C I
= +
+
+
+
n
* i
n &
fi
E k & H
;C <C
E k & H
C
;here
fi
C
I Cash flows occurring at different point of time
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n I life of the pro!ect in year
*
C
I Cash out lay
<C ( ;C I <alvage value and working capital at the end of the n years.
I++ I 2 K
E 2 " H
E b a H
A
;here
2 I 2ower discount rate at which 56C is positive
" I "igher discount rate at which 56C is negative
A I 56C at lower discount rate 2
. I 56C at higher discount rate "
5C, Pro:34a63=34y 3ne> 5PI,
>et another time J ad!usted method of evaluating the investment proposals is the
benefit J cost H./C.E ratio or profitability index H6IE 6rofitability index is the ratio of the
present value of cash inflows at the required rate of return to the initial cash out of the
investment.
6I I
outlay Cash Intial
inflow Cash of 6C
;here 6C I 6resent Calue
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CRITERIAN TABLE0'
In the evaluation process or capital budgeting techniques there will be a criteria to
accept or re!ect the pro!ect. The criteria will be expressed as0
Criteria/9ethod Accept +e!ect Indifferent
6ay .ack 6eriod H6.6E LTarget 6eriod MTarget 6eriod ITarget period
Accounting +ate of
+eturn HA++E
M Target +ate L Target +ate ITarget rate
5et 6resent Calue H56CE M * L * I *
Internal +ate of +eturn
HI++E
MCost Bf Capital LCost Bf Capital Icost of capital
6rofitability index H6IE M & L & I &
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OBJECTIVES OF THE STUDY
To present theoretical framework relating to capital budgeting.
To study the financial aspects for future expansion of ,9:9.AI ;A<T#
9A5A8#9#5T 2T4-.
To discuss the process of pro!ect evolution followed by ,9:9.AI ;A<T#
9A5A8#9#5T 2T4-.
To evaluate the elements consider by ,9:9.AI ;A<T# 9A5A8#9#5T
2T4- for expansion pro!ect.
To summarize and offer suggestions for the better investment proposals in
,9:9.AI ;A<T# 9A5A8#9#5T 2T4.
RESEARCH METHODOLOGY
9ethodology is a systematic process of collecting information in order to analyzes
and verify a phenomenon. The collection of data is two principle sources. They are
discussed as
I. 6rimary data
II. <econdary data
PRI"AR% DATA:-
The primary data needed for the study is gathered through interview with
concerned officers and staff either individually or collectively some information has
been verified or supplemented with personal observation conducting personal interviews
with concerned officers of finance department of ,9:9.AI ;A<T# 9A5A8#9#5T
2T4-.
6rimary data is obtained through the interaction with various departmental heads
and personnel.
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SECONDAR% DATA:-
The secondary data needed for the study was collected from published sources
such as pamphlets of annual reports returns and internal records reference from text
books and !ournal management.
%urther data needed for the study was collected from0'
Collection of required data from annual records of ,9:9.AI ;A<T#
9A5A8#9#5T 2T4-.
+eference from text books and !ournals relating to financial management.
Secondary data is collected from the annual reports and holders of Ramky enviro
engineers ltd and also from the journals and books.
DIAGRA"ITIC REPRESENTATION OF RESEARCH
"ETHODOLOG%:-
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NEED FOR THE STUDY
The capital budgeting decisions may be defined as the firm$s decision to invest in
current funds most effectively ( efficiently in the long J term assets in anticipation of an
expected flow of benefits over a series of years. The long'term assets are those that affect
the firm$s operations beyond the one year period. The firm$s investment decisions would
generally includes expansion acquisition modernization and replacement of long term
assets. <ale of a division or business is also an investment decision. 4ecision like the
change in the methods of sales distribution or an advertisement campaign or research
and development program have long Jterm implications for the firm$s expenditure and
benefits and therefore they should also be evaluated as investment decisions.
The rationale underlying the capital budgeting decisions efficiency is a firm must
replace worn and obsolete plant and machinery acquire fixed assets for current and new
products and make strategic investment decisions. This will enable the firm to achieve its
ob!ective of maximizing profits either by way of increased revenues or cost reductions.
The quality of these decisions is improved by capital budgeting. Capital budgeting
decision can be of two types0
&E To those which expand revenues and
)E To those which reduce costs.
IMPORTANCE OF THE STUDY
Capital investments representing the growing edge of a business are deemed to be
very important. They are three invested factors
&E The influence firm growth in the long term consequences capital investment
decisions have considerable impact on what the firm can do in future.
)E They affect the risk of the firmG it is difficult to reverse capital investment
decisions because the market for used capital investment is ill organized or most
of the capital equipments bought by a firm to meet its specific requirements.
1E Capital investment decisions involve substantial outlays.
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,9:9.AI ;A<T# 9A5A8#9#5T 2T4- is a growing concern
capital budgeting is more or less a continuous process and it is carried out by
different functional areas of management such as production marketing chemical
engineering financial management etc. all the relevant functional departments play a
crucial role in the capital budgeting decision process.
LIMITATIONS OF THE STUDY
The following are the limitations of the study0
<ince the procedure and policies of the company will not allow to disclose
confidential financial information the pro!ect has to be completed with the
available data given to us.
The period of study that is ? weeks is not enough to conduct study of the pro!ect.
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 time of pro!ect work.
The study is conducted in a short periodG the study may not be detailed in all
aspects.
The study is conducted by the available data gathered from the annual reports of
9:9.AI ;A<T# 9A5A8#9#5T 2T4. and the analysis was made
accordingly.
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INDUSTRY PROFILE
As indicated earlier the ;aste 9anagement 4ivision of +amky has various arms
and the plans of each of these business arms are presented hereunder0
HAZARDOUS WASTE MANAGEMENT
"azardous ;aste 9anagement is technically challenging and complex in
operation however +amky with its extensive involvement in the area since &AA3 and
focus has been able to attain significant knowledge and experience in the field. +amky
has had the advantage of technical know'how support from Australian Aided
International 4evelopment HAusAI4E and other international agencies. In addition to the
above +amky has some of the best professionals in the country in the field working in
the sub!ect for over &) years. As a result of the above extensive involvement and
manpower +amky has been able to create an entry barrier and is today the leader and
pioneer in the field of Industrial "azardous ;aste 9anagement. %urther +amky has
adopted best of the norms for <ecured 2andfill and Incinerator within the world and as a
result all the facilities established by +amky are at par with some of the best in the ;orld
and have received acclaims and applauds accordingly.
Currently +amky is operating hazardous waste services in "yderabad
Cisakhapatnam 9umbai Thane "aldia Indore and :daipur. %urther +amky is
developing such facilities at Chennai Tirupur ( Narur HTamil5aduE 8haziabad (
Nanpur H:ttar 6radeshE and 4erabassi H6un!abE. These facilities cater to over &7***
industrial establishments and over one million tons of industrial hazardous wastes.
These integrated waste management facilities comprise of a secured landfill facility
Hequivalent to :<'#6A +C+A <ubtitle OC$ requirementsE a waste stabilization facility
incinerator intractable and temporary stores leachate treatment facility Administrative
and laboratory equipment transport equipment and other supporting Infrastructure. The
facilities have been highly rated by 9inistry of #nvironment ( %orest 8oI and Central
6ollution Control .oard. Today +amky is having invitations from the international
market and has expanded its knowledge based services through its 4ubai office.
+amky$s current share in the field is over @*P both by !urisdiction and by quantities of
)3

MBA PROGRAMME
wastes and intends to maintain the position in the country. +amky is contemplating to
bring in strategic partnership for the hazardous waste management division to boost the
growth prospects both for this sector and to augment its growth requirements in other
segments of environmental business.
BIO-MEDICAL (HOSPITAL) WASTE MANAGEMENT
9anagement of highly contaminated clinical and pathological wastes is one of
the ma!or problems encountered in the drive for environment protection. In the service
of a huge population the hospitals generate ,.io'9edical ;astes- that are incompatible
with the environment. These wastes need professional attention for effective
management as the infectious nature of the waste can cause irreparable damage to the
human health and the environment. It has become imperative to monitor and control the
management and handling of these wastes. To redress this problem and provide the
health care establishments with a solution to their waste disposal dilemma a program of
investigation of appropriate methods for implementing a coordinated management
scheme has been performed by +amky leading to the establishment of common bio'
medical waste management facility at "yderabad which has the credit and distinction of
being India$s first. Today this has become a role model for the country and the country
today has over 3* similar facilities across the country. +amky owns and operates &1 of
these facilities and has its presence in all the 9etro Cities of India and controls over 17P
of India$s 9edical ;aste 9anagement by Durisdiction and by catering its services to over
A*** "ealth Care #stablishments and over &7**** beds of inpatient medical services.
+amky has a <trategic 6artnership with <embCorp Industries of <ingapore and
!ointly J <emb+amky operate ? 9edical ;aste facilities while the balance 7 are operated
by affiliates of +amky and over time all the facilities would be covered under one
umbrella. +amky intends to maintain its leadership in the field of medical waste and
over the next 1 years reaches out at 3* locations across the country.
MUNICIPAL SOLID WASTE MANAGEMENT
9unicipal <olid ;aste is the most evident form of environmental pollution
however in India legislation for effective management and handling of 9<; has been
the most recent with enactment happening in the >ear )*** and with effective
)7

MBA PROGRAMME
implementation from )**1. 4espite having a legislation and effective date having been
lapsed 9<; management in India can be stated to be very ineffective and probably less
than &P of Indian municipalities may be in compliance with the law. The violation has
been owing to various factors including HaE availability of land which is acceptable
owing to high incidences of protests based on 5I9.> HbE availability of adequate funds
and most importantly HcE political willingness. "owever !udicial activism and
environmentalists pressure is mounting and more and more municipalities are turning
towards compliance. This can be evidenced from the fact that on an average there are
about &* J &7 tenders opening up every month for one or more of the 9<; services
including but not limited to HaE 6rimary Collection ( <treet <weeping HbE <econdary
Collection and Transportation HcE Transfer <tation 9anagement HdE Transportation and
HeE Treatment <torage and 4isposal of ;astes.
It is pertinent to realize that ;hile India has a very low per'capita generation of
9<; the total quantity of 9<; is so high that the total business potential resulting out
of the business is very high. An estimate of the 9<; business potential based on
current day legislations is over :<Q ? .illion and as on date negligible fraction of this
business potential is tapped into. The business is completely in areas where +amky has
its experience and expertise and is aiming to maintain its leadership in the areas.
+amky is currently maintaining its leadership in the areas of integrated 9<;
management with facilities established and operating at .angalore ( Coimbatore being
operational catering to over =** T64 and facilities under establishment at Nottayam and
"aldia. +amky is also having deep roots into collection and transportation of 9<; and
is currently operating the Collection and Transportation for Ahmedabad 9unicipal
Corporation and is currently establishing infrastructure to provide services to 5ew 4elhi
9unicipal Corporation. +amky has also been a preferred in numerous pro!ects where
decision is awaited. 9<; also poses a great potential for generation of Carbon Credits
and revenue generated from C#+$s which over time is expected to reach high prices as
high as :<Q 3*/ C#+.
+amky intends to maintain its leadership in the field and grow in the sector.
+amky would only look at pro!ect to pro!ect partnerships in this sector as the potential is
very high and would observe the market over time before taking concrete steps towards
long term goals and plans.
)=

MBA PROGRAMME
OTHER ENVIRONMENTAL BUSINESS AREAS
As indicated earlier +amky would be exploring into various other areas of
environmental business which have a vast potential and have already seen great potential
in the developed markets including0
E-Was! Ma"a#!$!": Indian is emerging as a preferred destination for
manufacture and use of electronic materials and over time has come to a stage where
electronic waste management is required. 4ay by day quantities of these wastes
including defect manufacturing units used and reused items and other waste materials
of electronic items including mobile phones transistors radios computers and others
are becoming more and more common to waste management facilities. ;hile these
are wastes they also have high reuse/ recycle value within them. These wastes are
first shredded and then stages of recovery including in induction furnaces leads to
recovery of various expensive materials and thus making the pro!ect viable. In India
there is great potential for these materials in .angalore Chennai "yderabad and
9umbai and +amky proposes to enter into this sector at these four cities parallely
and expand its collection network throughout the country from its existing network
of offices reducing the costs and increasing the profitability.
E$!%#&"# T!'(")*)#&!s: #nvironmental business is a very nascent sub!ect
with comprehensive environmental legislations getting formed up from early @*$s
and improving year after year. Bver time various technologies are emerging
providing alternate use for various waste materials these technologies are together
called as #merging Technologies. <ome of the most prominent among these include
oil recycling battery recycling plastic to Bil +ubber to Bil waste fuel blending
operations among others.
These technologies have a two pronged strategy there could potentially be revenue
from waste collection and a potentially higher revenue stream from sale of recycled
product and thus makes the sector a very viable option. +amky has made inroads
into this sector by investing its last over &* years in identifying the potential
technologies and currently have reached a stage of converting these into pro!ects.
+amky would be establishing various of these pro!ects at various locations in India
and with its existing network embark and market the services leading to a very little
lead time requirement and quick response.
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MBA PROGRAMME
O"!-U+ S!%,&'!s: Is a very unique service which +amky has already started.
The service envisages an end to end solution to the environmental and waste
management requirements of the industry. The services include ;ater Treatment and
<upply <torm water management wastewater collection and treatment solid waste
collection and transportation treatment and disposal. +amky has already
commenced several of its similar operations to two ma!or clients the <terilite 8roup
and Trans Thane Creek ;aste 9anagement Association. <uch services across the
world are very common and in the international arena and are !ust commencing in
India with their operations being extended to institutions like Industrial #states and
"ouses Airports +ailway <tations .us Terminals :niversities among others. The
demand for these services from industries is very large and has already resulted in
various enquiries which would result in them getting converted into orders and
evidences and very high business potential.
R-D a". La/)%a)%0 S!%,&'!s: In the field of environment and waste
management there is very little +(4 and 2aboratory services being provided
across India. +amky with its existing network plans to expand its service base
thereby improving the client satisfaction by providing +(4 and 2aboratory
services on a Commercial <cale. ;hile commercial operations are part of the
overall plan there is a fundamental in'house requirement for +(4 and thus the
indirect need to provide these services.
R!"!1a/*!: +enewable with renewable energy in con!unction with 9<; and
other wastes is a great potential for power generation with high potential for
C#+$s. +amky is exploring its business expansion into renewables including
bio'mass wind power solar +4% among others.
I"!%"a&)"a* O+!%a&)"s: As indicated earlier +amky is among the
leading players in the field of waste management in Asia by virtue of its
5umber of facilities and the quantities of wastes being handled. There is growing
demand from international market inviting us to participate in some of the environmental
and waste management pro!ects owing to our high quality and low cost approach we are
a very invited party in the field of international operations and are able to provide a
technically reliable and commercially viable solution to the 9iddle #ast and China$s
)?

MBA PROGRAMME
environmental requirements. ;ith the above view +amky has opened its international
office at <har!ah and would commence its operations from this office to begin with in
9iddle #ast and to be further expanded to China <outh #ast Asia and later into Africa
and we are confident of having great advantage in the same.
COMPETITIVE ADVANTAGE
+amky has a very unique and distinction advantage in the business. %irstly it is a
large corporate entity with its gross roots from environmental business. As indicated
earlier +amky started as an environmental consultancy organization and subsequently
grew into turnkey contracts. %urther +amky has entered into niche areas and worked for
over &) years with = years of pure applied research in the field of waste management and
thereby created large entry barriers vis'R'vis technology qualification criteria
availability of man'power among various other factors. It can be clearly evidenced from
the fact that leaving out one state in India all the operating Common "azardous ;aste
Treatment <torage 4isposal %acilities HC";T<4%E for hazardous waste facilities are all
established by +amky.
+amky has its presence in all the metro cities in India and +amky has all the
pro!ects being operated on a tipping fee basis for 9<;. In a lot of these pro!ects now
and for the future +amky sees potential international competition coming in and to
counter this +amky as can be seen already has technical qualifications for all the
pro!ects and local knowledge accompanied with low cost technically qualified manpower
+amky has been and will continue to maintain its lead in the <ector. +amky$s presence
in these waste management sectors provides high opportunities and recognition to grow
the other opening environmental business avenues. As of date +amky has already been
invited and is currently planning to establish various facilities for e';aste +ecycling
technologies and laboratory and research services among others.
+amky has in'house team of experts in the areas of environment and waste
management sectors. These are the sectors in India today which are aiming at turnkey
solutions to the problem. +amky with in'house capabilities in design engineering
construction and operations is able to provide comprehensive solution in the area
resulting in competitive advantage in the market. In the field of environment and waste
management +amky is today recognized with highest regard leading to a significant
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MBA PROGRAMME
advantage. 6resently in India this sector is still in its nascent stage and has potential for
massive expansions and growth. As can be seen physically very insignificant portion of
the country is provided with efficient waste management services leave alone emerging
technologies and electronic waste facilities.
+amky also takes its advantage and strength from its existing resource base of
man'power equipment location advantage and in'house expertise in various
infrastructure areas. %urther +amky with its full'fledged offices across India is able to
provide close contact to the client and provide quick response resulting in client
satisfaction. +amky$s thinking in terms of early bird concept and a sci'tech approach to
infrastructure development has in the past and in the future yield rich and paying
dividends +amky )1"s a 23** %a"#! )2 P*a" a". Ma'(&"!%0 to support its
infrastructure development including various incinerators Hincluding its exclusive
arrangement with Alstom Air 6reheater CompanyE secured landfills direct relationship
and dealership with liner material suppliers heavy earth machinery among others. The
owning of these plant and machinery provides high quality out put and speed of
execution resulting in client satisfaction.
At +##2 #nvironment "ealth and <afety H#"<E is given highest propriety. A
separate policy encompassing the safety health and environment conservation solutions
and methods are laid down and followed strictly and monitored regularly. Adequate
systems and procedures have been established for implementing the requisite of security
health at all stages of pro!ect execution. It is prudent to mention here that +amky has
been awarded with .est 6erformance A1a%. 2)% &s Sa2!0 H!a*( a". E",&%)"$!"
P%)#%a$ by the CII.
+amky has various other in'house supports including finance corporate
purchasing legal secretarial "+ among other functions to support the infrastructure
development and implements some of the best systems and industry practices for smooth
and effective functioning and to gain advantage from the same.
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MBA PROGRAMME
FUTURE OUTLOO4
As on date +amky has &7 medical waste facilities &1 industrial hazardous waste
facilities &7 municipal waste facilities ) e';aste management facilities and numerous
recycling technology pro!ects and has opening areas in Bne':p <ervices and has
invitations from various companies in 9iddle #ast and China for rendering waste
management services. ;ith the above Hover 3* facilitiesE +amky by numbers and
quantities of waste is among one of the largest players in Asia in the field of environment
and waste management. ;ith its current positioning and ability to provide world class
environmental infrastructure and operational capabilities to manage these facilities has
the potential to become a ma!or player in the international area and create its dominance
in the international market with specific focus in 9iddle #ast China and <outh #ast
Asia.
+amky intends to maintain its leadership in India in all the areas/ sectors of
environmental business. ;ith India moving from a developing country to developed
country vast improvements in sanitation and waste management the opportunities are
vast. +amky with its early entry into the sector would be able to catch up with a
reasonable and largest share of the market. As the business has entry barriers and with
limited and potentially international competition the profitability of the business is not
likely to be affected and could potentially increase owing to volumes of business
increasing with increasing awareness.
A ma!or portion of Indian Infrastructure development is going to depend on the
666 H6ublic 6rivate 6artnershipE models. +amky is already in the fore front of this
movement and would provide high quality functional facilities and infrastructure to the
country. +##2 has already submitted its offers for various pro!ects across the country
and are bound to be a key player in the 666 sector of environmental infrastructure
development. .ased on current order book and the pro!ects in pipeline +amky is poised
to take a very important role in the development of waste management and
environmental infrastructure in India.
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MBA PROGRAMME
COMPANY PROFILE
VISION:
To .e a <trong and Suality Conscious 8lobal Corporation in the areas of
Infrastructure 4evelopment and #nvironmental 9anagement.
MISSION:
As part of Commitment to <ustainable 8rowth to balance economic progress
with environmental care and social responsibility and to bring increasing value to the
hands of all our associates and stakeholders0
RAM4Y GROUP 5 HISTORY:
+amky group is a professional organization focused in the areas of civil
environmental and waste management infrastructure. ;ith corporate office at "yderabad
and regional offices located at 4elhi 9umbai Ahmadabad .angalore Chennai .hopal
and Nolkata and over 7* pro!ect offices +amky today has a pan'India presence. To
expand its service base +amky has opened its office at <AI% Tone <har!ah. The group
has a rapid growth over the last &1 years and is today handling works worth over +s.
3*** Crores. The group employs over )*** persons with a pan'India presence of which
about =** are technical. Carious divisions and companies within the group are
professionally managed with post'graduates and doctorates heading the companies. The
group has equity participation from reputed national and international institutions.
+amky 8roup has Infrastructure 4evelopment ;aste 9anagement +eal #state
and Consultancy as its ma!or arms. The Infrastructure 4evelopment has contracting and
developer roles. In the field of contracting the focus is in the areas of ;ater ;aste
;ater .uildings +oads and "ighways Irrigation 6ro!ects and miscellaneous civil
engineering pro!ects.
As a developer the company focuses in the areas of Industrial 6arks
4evelopment Transport related pro!ects like bus terminals roads and highways
6roperty 4evelopment through public private partnerships with 8overnment agencies
and other similar areas.
In the field of #nvironment and ;aste 9anagement the group companies have
the credit and distinction of having established the first'of'its'kind a bio'medical waste
and hazardous waste management facilities and is today leader and pioneer in all the
1)

MBA PROGRAMME
fields of solid waste management including medical waste management hazardous waste
management and municipal waste management with over 17 pro!ects. Today +amky is
handling more than 3* 6ublic 6rivate 6artnership 6ro!ects in the country ' the largest
being handled by any group and providing a stepping stone for infrastructure
development in the country.
RAM4Y founded in the year &AA3 by its founder and present Chairman and
9anaging 4irector 9r. Alla Ayodhya +ami +eddy a post graduate in civil engineering
with vast experience and exposure into civil and environmental infrastructure has grown
in a short span into a specialist multi'disciplinary organization focused in the areas of
Civil #nvironmental and ;aste 9anagement Infrastructure with specific emphasis on
the 6ublic 6rivate 6artnership 6ro!ects.
4uring the early years &AA3 J &AA7 the group focused in the areas of
environmental consultancy and construction of water and wastewater treatment plants/
effluent treatment plants for private industrial houses along with supply of this
equipment to various locations in the country. <ubsequently H&AA7 J &AA=E the company
focused in the areas of real estate both residential and industrial houses both at
"yderabad and .angalore. %rom &AA= the focus was shifter to core civil contracting
with emphasis on 8overnment contracts and is till date the flagship focus area of the
company with more than @*P of the group turnover from this sector. 4uring the year
&AA? the company was awarded construction of the first industrial hazardous waste
management and the first bio'medical waste management facility and this area has
brought in laurels to the company as a pioneer and leader in the country in the field of
waste management infrastructure.
OVERVIEW AND BAC4GROUND
MUMBAI WASTE MANAGEMENT LIMITED :
It is located at TAJOLA near 9umbai. It is one of the key companies in the
8roup and handles environmental and waste management business of the 8roup. The
company brings in far fetched recognition and great laurels to the group. India is at cross
roads in relation to environmental improvement while this is on the highest in the social
agenda the same are not linked with economic policies resulting in slow growth
11

MBA PROGRAMME
progress. ;hile environmental legislations in India are at par with the developed
countries their implementation is far from being acceptable. As of date a large portion of
environmental infrastructure is coming up owing to !udicial intervention and pressure
created from environmentalists. "owever today the growth rates of the sector are much
faster than a few years back.
4espite the slow growth rates in the sector +amky has been able to create a
leadership in the areas of ;aste 9anagement and is currently expanding into other areas
of environmental infrastructure as detailed in subsequent sections. As on date ;aste
9anagement forms a significant portion of the Company.
RAM4Y WASTE MANAGEMENT SERVICES :
+amky is a leader and pioneer in all the forms of waste management including
medical waste hazardous waste and municipal solid wastes. +amky has the credit and
distinction of having established the first'of'its'kind a bio'medical waste and hazardous
waste management facilities operating on a common platform in the country at
"yderabad. The group today is the leader in waste management in India with &7 bio'
medical waste management facilities &1 industrial hazardous waste management
facilities and &7 municipal solid waste management facilities located across the country.
The bio'medical waste management facilities operated are integrated facilities
catering to over A*** health care establishments and over &7**** beds of inpatient
medical services. The facilities comprise of an incinerator autoclave shredder landfill
transport equipment and supporting infrastructure for effective management of bio'
medical wastes without any impact to the human health and environment. The company
offers high quality un'interrupted services at competitive prices. Bur medical waste
management facilities operate under the banner of <emb+amky #nvironmental
9anagement 6vt. 2td. a Doint Centure company between India$s largest ;aste
9anagement 6rovider J +amky and <ingapore$s largest waste management service
provider J <embCorp. Today the group has operating facilities at "yderabad .angalore
2udhiana Ahmedabad 9umbai Chennai "owrah 8haziabad Nalyani "aldia
9angalore <alem 9adhurai and 4urgapur. +amky is proud to be a pioneer of this field
which has today resulted in all ma!or cities having solution to the waste disposal
dilemma.
13

MBA PROGRAMME
The hazardous waste management facilities operated are also integrated facilities
being established to cater to over &7*** industrial establishments and over &.7 9illion
Tones of industrial hazardous wastes. The facilities comprise of a secured landfill
facility Hequivalent to :<'#6A +C+A <ubtitle OC$ requirementsE a waste stabilization
facility incinerator intractable and temporary stores leachate treatment facility
administrative and laboratory equipment transport equipment and other supporting
infrastructure. The facilities have been rated very high by 9o#% C6C. and the state
6ollution Control .oards as also by many other visitors.
Bur facilities are serving as role models for waste management facilities in the
country today. Today +amky is having various invitations from the international market
and is considering expansion to begin with from <ingapore and 9iddle #ast. Currently
+amky is providing hazardous waste services in "yderabad and Cisakhapatnam HAndhra
6radeshE 9umbai and Thane H9aharashtraE "aldia H;est .engalE Indore H9adhya
6radeshE and :daipur H+a!asthanE which are operational and with facilities being located
at Chennai Tirupur and Narur HTamil5aduE 8haziabad and Nanpur H:ttar 6radeshE and
4erabassi H6un!abE under various stages of establishment.
+amky is a also pioneer in the field of 9<; with the first integrated 9<;
pro!ect with a tipping fee concept being established by +amky for .angalore
9ahanagara 6alike at .angalore. %urther to this +amky has taken a repeat order from
.96 on the same concept with a total capacity of over &)** T64 of 9<;. Currently
+amky has its pro!ects for management and handling of waste through treatment and
disposal services at .angalore Coimbatore Nottayam and "aldia and has been short
listed with various other municipalities and corporations which are under finalization. In
addition +amky is currently providing services in collection and transportation of wastes
for Ahmedabad 9unicipal Corporation and for 5ew 4elhi 9unicipal Corporation.
%urther +amky also extends its knowledge based services in the area to various
municipalities and corporations.
+amky intends to provide complete range of municipal waste management
services on a Ocradle'to'grave$ approach with all services from street sweeping
collection and transportation treatment and disposal by adopting sorting recycling
composting vermin'composting waste'to'energy and the residue being land filled.
The solution we propose is to have a complete solution to the problem and not on
a piece meal approach. India today is having a serious problem of 9<; management
with about )***** T64 of 9<; being generated at various municipalities and
17

MBA PROGRAMME
corporations needing techno'commercial solution to the problem. +amky intends to take
a lead in solving the waste disposal dilemma by providing competitive and technically
reliable solutions to the problem. ;ith our proven track record in "azardous and
9edical wastes we are confident of achieving the same.
As on date the team at +amky J ;aste 9anagement comprises of over 7**
persons of which about )** are technical. The division has achieved a turnover of over
+s ?** 9illion during %> )**='*@ and +s. & .illion during the year )**@'*?. The
growth in the sectors is expected to be quite extensive as most of the pro!ects have been
commissioned in %> *='*@ and early parts of the current financial year. +amky has
plans to commission all the plants indicated above during the currently financial year.
;ith aggressive plans in place +amky intends to mobilize its financial resources to meet
the business plans and hence this brief business plan.
In addition to the above existing services +amky is currently expanding its
environmental and waste management services into electronic waste management He'
;asteE #merging Technologies H2ike +ubber to Bil 6lastic to Bil Bil +ecycling
battery recycling among othersE Bne':p <ervices H#nd to #nd solutions to
environmental problems of the industryE 2aboratory <ervices and +esearch and
4evelopment <ervices. To meet the client requirements and pressing demands from
international markets +amky has also started its international operations in the 9iddle
#ast with plans to expand into China and other parts of Asia within the near future.
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MBA PROGRAMME
CAPITAL BUDGETING
characteristic of a capital expenditure is that the expenditure is incurred at one point of
capital budgeting problems in a decentralized multidivisional firm involving no more
than two exchanges of information between headquarters and divisions. "ead quarters
make an allocation of funds to each division based upon its cash demand and its potential
growth rate. #ach division determines which pro!ects to accept. Then an additional
iteration is performed to define the solution
and means of financing and implementing it financing is a rapidly expanding field

step by step analysis of the data to bridging the gap in the organization.
The capital program is generally financed by borrowing money usually through
the sales of bonds. This differs from the company$s expenses budget which covers day'
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MBA PROGRAMME
to'day operating expenditures ( is financed by company$s taxes and other revenues
along with other companies in the industry.
The capital budgeting strategy presents the goals policy constraints assumptions
the organization$s capital needs over the next &* years. The document also provides the
anticipated sources of financing and the implications of the strategy including any
possible economic social and environmental effects. After a public hearing and a report
by the organization planning commission or board of directors the final version of the
strategy is released with the executive budget in every year.
The strategy presents capital pro!ects in broad categories that reflect
organization$s agency goals. There are various ways the organization records the
progress of capital pro!ects. In general they measure financial transaction spending and
obligation rather than what most department come about the status of work on a
particular pro!ect. Although information is publicly available on annual capital spending
by budget line no information is currently made publicly available that provides detailed
pro!ect level information on the status of capital pro!ects.
FACTORS FOR CAPITAL BUDGETING:-
Cost of acquisition of permanent asset as land and building plant and machinery
goodwill etc.
Cost of addition expansion Improvement or alteration in the fixed assets.
Cost of replacement of permanent assets.
+esearch and development pro!ect cost etc.
DEFINITIONS OF CAPITAL BUDGETING:-
,Capital budgeting is a long term planning for making and financing proposed
capital outlays-
T6 H)%"#%!!"
A budget is an estimate of future needs arranged according to at an orderly basis
covering some or all the activities of an enterprise for a definite period of time-
G!)%#! R6 T!%%0
1?

MBA PROGRAMME
.udget as a financial and/ or quantitative statement prepared to a definite period
of time of the policy to be pursued during that period for the purpose of attaining a given
ob!ective-
I'$a7 L)".)"
SIGNIFICANCE OF CAPITAL BUDGETING:-
Capital budgeting decisions deserve to be treated in a different manner as there
are conceptual problems involved which necessarily makes the decision process more
complex while this makes things more difficult for the decision process maker it also
makes the problem more challenging. There are several practical reasons for placing
greater emphasis on capital expenditure decisions. These are
86 LONG TERM PERIOD:-
The consequences of capital expenditure decisions extended far into future. The
scope of current manufacturing activities of a organization is governed largely by capital
expenditures in the past. 2ikewise current capital expenditures decision provides the
frame work for future activities. Capital investment decisions have an enormous bearing
on the basic character of a organization.
96 IRREVESIBILITY:-
The markets are used for capital equipment in general is ill'organized. %urther
for some types of capital equipment custom made to meet specific requirements the
market may virtually be non'existent.
:6 SUBSTANCIAL OUTLAY:-
Capital expenditure usually involves substantial outlays. An integrated steel plant
for example involves an outlay of several thousand millions. Capital costs tend to
increase with advanced technology.
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MBA PROGRAMME
NEED OF CAPITAL BUDGETING:-
The importance of capital budgeting can be well understood from the fact that
unsound investment decision may prove to be fatal to the very existence of the concern.
The need significance or importance of capital budgeting arises mainly due to the
following
2arge investments
2ong'term commitment of funds
Irreversible nature
2ong'term effect on profitability
4ifficulties of investment decisions
5ational importance.
FEATURES OF CAPITAL BUDGSTING PROCESS:-
6otentiality large anticipated benefits.
A relative high degree of risk.
A relative long time period between the initial outlay and anticipated returns.
OBJECTIVES FOR CAPITAL BUDGETING:-
It determines the capital pro!ects on which work can be started during the budget
period after taking into account their urgency and the expected rate of return on
each pro!ect.
It estimates the expenditure that would have to be incurred on capital pro!ects
approved by the management together with the sources from which the required
funds would be obtained.
It restricts the capital expenditure on pro!ects with in authorized limits.
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MBA PROGRAMME
4INDS OF CAPITAL BUDGETING:-
Capital budgeting refers to the total process of generating evaluating selecting
and following up an capital expenditure alternatives. The firm allocates or budgets
financial recourses to new investment proposals. .asically the firm may be confronted
with three types of capital budgeting decisions0'
The accept or re!ect decision
The mutually exclusive choice decisions and
The capital rationing decision
TYPES OF CAPITAL BUDETING DECISIONS:-
Capital budgeting decisions are of paramount importance in financial decision
making. In first place they affect the profitability of the firm. They also have a bearing on
the competitive position of the firm because they relate to fixed assets. The fixed assets
are true goods than can ultimately be sold for'profit. 8enerally the capital budgeting of
investment decision includes addition disposition modification and replacement of
fixed assets.
E;PANSION OF E;ISTING BUSINESS:-
A company may add capacity to its existing product lines to expand existing
operations. %or example .harathi soap works H.<;E may increase its plant capacity to
manufacture more detergents soaps ( powder. It is an example of related expansion.
T>6#< B% CA6ITA2
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3&

MBA PROGRAMME
E;PANSION OF NEW BUSINESS:-
A %irm may expand its activities in a new business expansion of a new business
requires investment and new kind of production activating with in the firm. If packing
manufacturing company invests in a new plant and machinery to produce ball bearings
which the firm has not manufactured before this represents expansion of new business
or unrelated diversification. <ometimes accompany acquires existing firms to expand its
business.
REPLACEMENT AND MODERANIZATION:-
The main ob!ective of modernization and replacement is to improve operating
efficiency reduce costs. Cost savings will reflect in the increased profits but the firm$s
revenue may remain unchanged. Assets become outdated and absolute with technological
changes. The firm must decide to replace those with new assets that operate more
economically. +eplacement decisions help to introduce more efficient and economical
assets and therefore are also called cost'reduction investments.
"owever replacement decisions that involve substantial modernization and
technological improvements expand revenues as well as reduce costs. >et another useful
way to classify investments is as follows0
9utually exclusive investments
Independent investments
Contingent investments

CAPITAL BUDGETING PROCESS:-
The preparation of the capital budget is a process that lasts many months and is
intended to take into account neighborhood and bough needs as well as organization
wide. The process begin in the fall when each of the segment holds public hearings each
community board submits a statements of its capital priorities for the next fiscal year to
the managing director and appropriate borough chairmen. The capital budgeting process
involves ? steps explained in diagrammatic ( theoretic as follows0
3)

MBA PROGRAMME
31

MBA PROGRAMME
DIAGRAMATIC REPRESENTATION OF CAPITAL BUDGETING:-

<) IDENTIFICATION OF INVESTMENT PROPOSALS:-
The capital budgeting process begins with the identification of investment
proposals. The investment proposals may originated from the top management or from
any officer of the organization. The department head analyses the various proposals in
the light of the corporate strategies and submit the suitable proposal to the capital
budgeting committee in case of large organizations concerned with process of long'term
investment proposals.
8=) SCREEN PROPOSALS:-
The expenditure planning committee screens the various proposals received from
different departments in different angles to ensure that these are in selection criteria of
the organization and also do not lead to department imbalances.
?
@
=
7
3
1
)
&
Capital
budgeting
33

MBA PROGRAMME
88)EVALUTION OF VARIOUS PROPOSALS:-
The next steps in capital budgeting process in to evaluate the probability of
various probability the independent proposals are those which do not complete with one
another and the same way be either accepted or re!ected on the basic of a minimum
return on investment required.
89) FI;ING PRIORITIES:-
After evaluating various proposals the unprofitable or uneconomic proposals
may be re!ected straight away. .ut it may not be possible for the organization to invest
immediately in all the acceptable proposals due to limitations of funds. "ence it is very
essential to rank the various proposals and to establish priorities after considering
urgency risk ( profitability involved the criteria.
8:) FINAL APPROVAL:-
6roposals meeting the evaluation and other criteria are finally approved to be
included in the capital expenditure budget. "owever proposals involving smaller
investment may be decided at the lower levels for expeditious action. The capital
expenditure budget lay down the amount of estimated expenditure to be incurred on
fixed assets during the budget period.
8>) IMPLEMENTING PROPOSALS:-
6reparation of a capital expenditure budgeting ( incorporation of a particular
proposals in the budget does not itself authorize to go ahead with implementation of the
pro!ect. A request for authority to spend the amount should be made to be the capital
expenditure committee which may like to review the profitability of the pro!ect in
changed circumstances. In the implementation of the pro!ects networks techniques such
as 6#+T ( C69 are applied for pro!ect management.
37

MBA PROGRAMME
8?) PERFORMANCE REVIEW:-
In this stage the process of capital budgeting is the evaluation of he performance of
the pro!ect. The evaluation is made through post completion audit by way of comparison
of actual expenditure on the pro!ect with the budgeted one and also by comparing the
actual return from the investment with the anticipated return. The unfavorable variances
if any should be looked into and the causes the same be identified so that identified so
that corrective action may be taken in future.
8@) FEEDBAC4:-
The last step in the capital budgeting process is feedback from employee
involved in the organization. If any consequences are there the process come to &
st
step of
the process.
GUIDELINE FOR CAPITAL BUDGETING:-
There are many guidelines for capital budgeting process either it is long'term or
short' term plan. The ma!or points are0
5eed and ob!ectives of owner
<ize of market in terms of existing ( proposed product lines and anticipated
growth of the market share
<ize of existing plants ( plans for new plant sites and plant
#conomic conditions which may affect the firm$s operations and
.usiness and financial risk associated with the replacement ( existing assets of
the purchases of new assets.
3=

MBA PROGRAMME
COMMITTEE IN CAPITAL BUDGETING:-
CAPITAL COMMITMENT PLAN:-
The progress of pro!ects included in the capital budget a capital commitment
plan is issued three times a year. The commitment plan lays out the anticipated
implementation schedule for there current fiscal and the next three years. The first
commitment plan is published within A*days of the adoption of the capital budget.
:pdated commitment plans are issued in Danuary ( April along with the company$s
budget proposals.
The commitment plan translates the appropriations approved under the adopted
capital budget into schedule for implementing individual pro!ects. The fact that funds are
appropriated for a pro!ect in the capital budget does not necessarily mean that work will
start or be completed that fiscal year. "e choice of priorities and timing of pro!ects is
decided by office management ( budget in consultation with the agencies along with
considerations of how much the managing director thinks the organization can afford to
append on capital pro!ects overall.
The capital commitment plan lays out the anticipated implemented schedule for
capital pro!ects and is one source of information on how far along pro!ects are although
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6#+<B55#2
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3@

MBA PROGRAMME
not a consistent or always useful one. The adopted commitment plan is usually published
in <eptember ( then updated in Danuary ( April.
In the capital budgeting for every two ad!acent years there will be gap. The gap
between authorized commitments and the target is presented in capital commitment plan
as diminishing over the course of the year plan in practice many of the ,unattained
commitments- will be rolled over into the next year$s plan so that the current year gap
will remain large. The gap has grown in recent year exceeding in last two executive
capital plans.
SIMILARITIES BETWEEN CAPITAL BUDGETING - SECURITY
VALUTION:-
Bnce a potential capital budgeting pro!ect has been identified its evaluation
involves the same steps that are used in security analysis0
%irst the cost of the pro!ect must be determined. This is similar to finding the
price that must be paid for stock or bond.
5ext management estimates the expected cash flows from the pro!ect including
the salvage value of the asset at the end of its expected life. This is similar to
estimating the future dividend or interest payment stream on a stock or bond
along with the stock$s expected sales price or the bond$s maturity value.
Third the riskiness of the pro!ected cash flows must be estimated. This requires
information about the probability distribution of the cash flows.
8iven the pro!ect$s riskiness management determines the cost of capital at which
the cash flows should be discounted.
5ext the expected cash flows are inflows are put on a present value basis to
obtain an estimate of the asset$s value. This is equivalent to finding the process
value of stock$s expected future dividends.
%inally the present value of expected cash inflows is compared with the required
outlay. If the 6C of the cash flows exceeds the cost the pro!ect should be
accepted. Btherwise it should be re!ected.
3?

MBA PROGRAMME
DIFFICULTIES OF CAPITAL BUDGETING:-
;hile capital expenditure decisions are extremely important they also pose
difficulties which stem from three principal sources0
Identifying ( measuring the costs ( benefits of a capital expenditure proposal
tends to be difficult
There is great deal of uncertainty for capital expenditure decision which involves
cost ( benefits that extend far into the future
It is impossible to product exactly what will happen in the future
The time period creates some problems in estimating discount rates (
establishing equivalences.
LIMITATIONS OF CAPITAL BUDGETING:-
Capital budgeting techniques suffer from the following limitations0
=E All the techniques of capital budgeting presume that various investment
proposals under consideration are mutually exclusive which may not practically
be true in some particular circumstances.
@E The techniques of capital budgeting require estimation of future cash inflows and
outflows. The future is always uncertain and the data collected for future may not
be exact. Bbliviously the results based upon wrong data may not be good.
?E There are certain factors like morale of the employees goodwill of the firm etc.
which cannot be correctly quantified but which other wise substantially influence
the capital decision.
AE :rgency is another limitation in the evaluation of capital investment decisions.
&*E :ncertainty and risk pose the biggest limitation to the techniques of capital
budgeting.
COST EFFECTIVE ANALYSIS:-
In the cost effectiveness analysis the pro!ect selection or technological choice
only costs of two or more alternatives choices are considering treating the benefits as
identical. This approach is used when the acquisition of how to minimize the costs for
3A

MBA PROGRAMME
undertaking an activity at a given discount rates in case the benefits and operating costs
are given one can minimize the capital cost to obtain given discount.
PROJECT PLANNING: -
The planning of a pro!ect is a technically pre'determined set of inter related
activities involving the effective use of given material human technological and
financial resources over a given period of time. ;hich in association with other
development pro!ects result in the achievement of certain predetermined ob!ectives such
as the production of specified goods and servicesF
6ro!ect planning is spread over a period of time and is not a one shot activity. The
important stages in the life of a pro!ect are0
It$s identification
It$s initial formulation
It$s evaluation
It$s final formulation
It$s implementation
It$s completion and operation
The time taken for the entire process is the gestation period of the pro!ect. The
process of identification of a pro!ect begins when we are seriously trying to overcome
certain problems. They may be non'utilization to overcome available funds plant
capacity expansion etc.
CONTENTS OF THE PROJECT REPORT:-
+aw material
9arket and marketing
<ite of pro!ect
6ro!ect engineering dealing with technical aspects of the pro!ect
2ocation and layout of the pro!ect building
.uilding
6roduction capacity
7*

MBA PROGRAMME
;ork schedule
CRITERIA FOR CAPITAL BUDGETING:-
6otentially there is a wide array of criteria for selecting pro!ects. <ome
shareholders may want the firm to select pro!ects that will show immediate surges in
cash flow others may want to emphasize long'term growth with little importance on
short'term performance viewed in this way it would be quite difficult to satisfy the
differing interests of all the shareholders. %ortunately there is a solution.
METHODS FOR EVALUTION:-
N)" D&s')3"&"# Cas( F*)1 C%&!%&a
(a) Pa0 /a'A +!%&).
The pay back period one of the most popular and widely recognized traditional
methods of evaluation investment proposals. 6ay back period is the number of years
required to recover the original cash outlay invested in a pro!ect.
If the pro!ect generates constant annual cash flows the pay back period can be
computed by dividing cash outlay by the annual cash inflows.
Capital
budgeting
techniques
5on'4C%
criteria

4C% criteria
5et present
value H56CE
Internal rate
of return
HI++E
6rofitability
index H6.IE
6ay back
period H6.6E
Accounting
rate of return
HA.+.+E
7&

MBA PROGRAMME
6ay back period I
C
C
o
inflows cash Annual
investment Initial
o
C
I Initial investment
C I Annual cash inflows
In the case of unequal cash inflows the pay back period can be found out by
adding up the cash inflow until the total is equal to the initial cash outlay.
(/) A'')3"&"# Ra! )2 R!3%" (ARR)
The accounting rate of return HA++E also known as the return on investment
H+BIE uses accounting information as revealed by financial statements to measure to
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.
A + + I
&**
investment Average
Income Average
D&s')3"&"# Cas( F*)1 C%&!%&a

(a) N! P%!s!" ,a*3! (NPV)
The 56C present value H56CE method is the classic method of evaluating the
investment proposals. If is a 4C% technique that explicitly recognizes the time value at
different time periods differ in value and comparable only when their equipment present
values J are found out.
5.6.C I
*
n
n
1
1
)
) &
kE H&
C
.........
kE H&
C
kE H&
C
kE H&
C
C
+
+
+
+
+
+
+
+
56C I
=
+
n
i
o
C
k
C
*
&
&
E & H
;here
56C I 5et present value
fi
C
I Cash flows occurring at time
7)

MBA PROGRAMME
n I life of the pro!ect in years
*
C
I Cash outlay
(/) I"!%"a* Ra! )2 R!3%" (IRR)
The internal rate of return HI++E method is another discounted cash flow
technique which takes account of the magnitude and thing of cash flows other terms
used to describe the I++ method are yield on an investment marginal efficiency of
capital rate of return over cost time J ad!usted rate of internal return and soon.
56C I
= +
+
+
+
n
* i
n &
fi
E k & H
;C <C
E k & H
C
;here
fi
C
I Cash flows occurring at different point of time
n I life of the pro!ect in year
*
C
I Cash out lay
<C ( ;C I <alvage value and working capital at the end of the n years.
I++ I 2 K
E 2 " H
E b a H
A
;here
2 I 2ower discount rate at which 56C is positive
" I "igher discount rate at which 56C is negative
A I 56C at lower discount rate 2
. I 56C at higher discount rate "
(C) P%)2&a/&*&0 &".!B (PI)
>et another time J ad!usted method of evaluating the investment proposals is the
benefit J cost H./C.E ratio or profitability index H6IE 6rofitability index is the ratio of the
present valued of cash inflows at the required rate of return to the initial cash out of the
investment.
6I I
outlay Cash Intial
inflow Cash of 6C
;here 6C I 6resent Calue
CRITERIAN TABLE 0'
71

MBA PROGRAMME
In the evaluation process or capital budgeting techniques there will be a criteria to
accept or re!ect the pro!ect. The criteria will be expressed as0
Criterian/9ethod Accept +e!ect Indifferent
6ay .ack 6eriod H6.6E LTarget 6eriod MTarget 6eriod ITarget period
Accounting +ate of
+eturn HA++E
M Target +ate L Target +ate ITarget rate
5et 6resent Calue H56CE M * L * I *
Internal +ate of +eturn
HI++E
MCost Bf Capital LCost Bf Capital Icost of capital
6rofitability index H6IE M & L & I &
73

MBA PROGRAMME
DATA ANALYSIS - INTERPRETATION
A pro!ect is an activity sufficiently self'contained to permit financial and
commercial analysis. In most cases pro!ects represent expenditure of capital funds by
pre'existing which they want to expand or improve their operation.
In general a pro!ect is an activity in which we will spend money in expansion of
returns which logically seems to lead self planning. %inancing and implementations as a
unit is a specific activity with a specific point and a specific ending point intended to
accomplish a specific ob!ective of the study
Capital budgeting has its going in the natural recourse and infrastructures sectors.
The current demand for infrastructures and capital investments is being fueled by
deregulation in the ,FMCG- H%ast 9oving Consumer 8oodsE telecommunication (
transportation sectors by the globalization of product markets and the needs from
manufacturing scale and by the privatization of government owned entities in developed
( developing countries
NON DCF CRITERIA:
5a, PA% BAC( PERIOD5PBP,:-
>#A+
4#6+#CIATIB5
H+<E
CA<" I5
%2B; H6ATE
H+<E
CA<" I5
%2B; H+<E
C:9:2ATIC#
CA<T I5 %2B;<
H+<E
& )7&*A@.** &A73A7.@@ 33=7A).@@ 33=7A).@@
) 3)7=1&.37 37)7@1.77 ?@?)*7.** &1)3@A@.@@
1 1A7@7A.** 3@A)31.AA ?@7**).AA )&AA?**.@=
77

MBA PROGRAMME
3 =1*37).** =A&33@.3A &1)&?AA.3A 17)&@**.)7
7 &&7A*&?.=7 &3A*=&*.&A )=3A=)?.?3 =&@&1)A.*A
= )=@?)1A.** 1=7&A@1.7@ =1**)&).7@ &)7*&73&.==
@ )))A&3=.@@ 373)171.@1 =@@&7**.7* &&A@1*3).&=
? 13=?*3?.?= 7@*7??*.1@ A&@11)A.)1 )?33=A@&.1A
Initial outlay I 3= *???=
6ayback period I
&A . =&* A* &3
@7 . &?7 ?@ &*
3 +
I 3K*.@)A
I 3.@1 9onths
Cr34er3a :or e<a=9a43on:-
If the payback period computed for a pro!ect is less than the payback period set
by management of the company it would be accepted. A pro!ect actual payback period is
more than the determined period by the management it will be re!ected.
Dec3;3on:-
The standard payback period is set by 9:9.AI ;A<T# 9A5A8#9#5T 2T4
for considering the expansion pro!ect is six years whereas actual payback period is 3.@1
months. "ence we can accept the pro!ect.
7=

MBA PROGRAMME
56, A$ERAGE RATE OF RETURN 5ARR,:-
>#A+ I5CB9# 4#6+#CIATIB5 CA<" I5 %2B;<
& &A73A7.@@ )7&*A@.** H'E 77=*&.)1
) 37)7@1.77 3)7=1&.37 )=A3).&
1 3@A)31.AA 1A7@7A.** ?13?3.AA
3 =A&33@.3A =1*37).** =*AA7.3A
7 &3A*=&*.&A &&7A*&?.=7 1 1&7A&.73
= 1=7&A@1.7@ )=@?)1A.** A@1@13.7@
@ 373)171.@1 )))A&3=.@@ )1&1)*=.A=
? 7@*7??*.1@ 13=?*3?.?= ))1@?1&.7&
A++ I
Investment Average
profit Average
V &**
7@

MBA PROGRAMME
Average profit I
?
A1 7A@7&?7.
I @ 3=?A?.)3
Average investment I
)
3=*???=
I )1 *3331
A++ I
&**
)1*3331
3 @3=?A?.)
I *.1)3& V &** I 1).3&

+BI I
&**
investment Initial
profit Average
I
3=*???=
3 @3=?A?.)
V &**
I *.&=)*7 V &** I &=.)&
According to this method if A++ is higher than minimum rate of return
established by the management it is accepted. It will be re!ected the pro!ect has less A++
than the minimum rate set by the management.
Dec3;3on:-
The standard A++ set by 9:9.AI ;A<T# management is )7P. The actual A++
is 1).)1P this is higher than the standard A++ set by the management hence the pro!ect
can be accepted.
7?

MBA PROGRAMME
DCF CRITERIA:
5a, Ne4 Pre;en4 $a=9e:-
>#A+ CA<" I5%2B;< 4C% H&7PE
6+#<#5T
CA2:#HC4C%E
& 33=7A).@@ *.?@* 1??717.@&
) ?@?)*7.** *.@7= ==1A)).A?
1 ?@7**).AA *.=7? 7@7@7&.A@
3 &1)&?AA.3A *.7@) @7=&)=.?7
7 )=3A=)?.?3 *.3A@ &1&=?=7.71
= =1**)&).7@ *.31) )@13=7&.?1
@ =@@&7**.7* *.1@= )73=*?3.&A
? A&@11)A.)1 *.1)@ )AAA?@3.?=
Total &&A?&?&1.A)
56C I & &A ?&?&1.A) J 3= *???=
I @1 @)A)@.A)
Cr34er3a :or e<a=9a43on: -
In case of calculated 56C is positive or zero the pro!ect should be accepted. If
the calculated 56C is negative the pro!ect should be re!ected.
Dec3;3on:-
The pro!ect is accepted as the calculated 56C is positive.
7A

MBA PROGRAMME
56, INTERNAL RATE OF RETURN:-
>#A+ CA<" I5%2B;< 4C% H&3PE 6+#<#5T CA2:#
& 33=7A).@@ *.?@@ 1A&==&.?=
) ?@?)*7.** *.@=A =@711A.=7
1 ?@7**).AA *.=@7 7A*=)@.*)
3 &1)&?AA.3A *.7A) @?)7=3.?7
7 )=3A=)?.?3 *.7&A &1@7&7@.1@
= =1**)&).7@ *.3)1 )=@@=@A.A)
@ =@@&7**.7* *.3** )@*?=**.)*
? A&@11)A.)1 *.17& 1))**3A.&=
Total &)3)&=?*.*1
=*

MBA PROGRAMME
>#A+ CA<" I5%2B;< 4C% H&=PE 6+#<#5T CA2:#
& 33=7A).@@ *.?=) 1?3A=).A=
) ?@?)*7.** *.@31 =7)7*=.1&
1 ?@7**).AA *.=3& 7=*?@=.A)
3 &1)&?AA.3A *.77) @)A=??.?7
7 )=3A=)?.?3 *.3@= &)=&))1.11
= =1**)&).7@ *.3&* )7A71?@.&7
@ =@@&7**.7* *.173 )1A@&&&.&?
? A&@11)A.)1 *.1*7 )@A?*3?.3&
Total &&1?=7*3.*&
I++ I &3 K
E &3 &= H
3.*& &&1?=7* ' *.*1 &)3)&=?
3=*???= ' *.*1 &)3)&=?

I
)
*) &*17&@=.
*1 @?&)@A3.
&3 +
I &3K&7.*A
I )A.*A
=&

MBA PROGRAMME
In this method the pro!ect is accepted when I++ is higher than its cost of capital
or cut out rate. The pro!ect is not accepted when the I++ is less than cost of capital.
Dec3;3on:-
The pro!ect is accepted because the I++ is higher than its cost of capital. The cost
of capital fixed by management is )*PG the actual is more than its standard. "ence the
pro!ect is accepted.
5c, PROFITABILIT% INDE):-
>#A+ CA<" I5 %2B; H+<E
& 33=7A).@@
) ?@?)*7.**
1 ?@7**).AA
3 &1)&?AA.3A
7 )=3A=)?.?3
= =1**)&).7@
@ =@@&7**.7*
? A&@11)A.)1
6I I
3=*???=
&.1A )?33=A@
I =.&@
Cr34er3a :or e<a=9a43on: -
A pro!ect can be accepted if its 6I index is greater than one. If the 6I is less than
one we should re!ect the pro!ect.
=)

MBA PROGRAMME
Dec3;3on: -
6rofitability index of proposed expansion pro!ect is found out to be =.7@G this is
more than the 6I.
=1

MBA PROGRAMME
FINDINGS
The calculated payback period is 3years and @months. .ut standard payback
period was six years by 9:9.AI ;A<T# 9A5A8#9#5T 2T4 management.
The A++ is fixed by 9:9.AI ;A<T# 9A5A8#9#5T 2T4 is )7P. The actual A++ is
1).)1P and its return on investment is &=.)&P.
The 56C is actually @1 @)A)@.A) which they are getting is positive.
The I++ worked for pro!ect is )A.*AP but the expected I++ is )*P less than the
actual I++.
The 6I is getting actual for the expansion pro!ect is six times more than the
investment.
=3

MBA PROGRAMME
SUGGESTIONS
It has been suggested that the 9:9.AI ;A<T# 9A5A8#9#5T 2T4 management that
the payback period is fixed for the expansion pro!ect is = years. .ut the actual is
less than the standard. It is advisable to fix payback period to less than standard
payback period.
It is suggested to 9:9.AI ;A<T# 9A5A8#9#5T 2T4 management that it is better to
fix +BI as more than the standard +BI. <o it is advisable to maintain same
consideration of pro!ect in the future also.
The 56C of the pro!ect is positiveG it is advisable to select the same type of the
pro!ects.
The expected cost of capital for the company is )*P where as the actual I++ is
worked for the proposal is )A.*AP which is below the accepted level.
It is safer to accept proposal it is = times more than its investment. <o it is
advisable to select the same type of pro!ect sin the future also.
=7

MBA PROGRAMME
CONCLUSION
.ased on the study in 9:9.AI ;A<T# 9A5A8#9#5T 2T4 I came to understand that
there are two sides of a pro!ect viz the investment side ( the financing side. The
separation principle says that the cash flows associated with these sides should be
separated. ;hile estimating the cash inflow on the investment side does not consider
the financing changes like interest or dividend.
%orecasting the pro!ect cash flows involves numerous estimates ( many
individuals ( departments participate in this exercise. The role of the finance manager is
to co'ordinate the efforts of various departments and obtains information from them
ensure that the exercise focused on relevant variables and minimize the biases inherent
in cash flow forecasting.
In the study I know that the company is following payback period. .ased on the
analysis of data shows that the company can adopt any criteria to get return on
investment in time
The pro!ect ,A <T:> B5 #U6A5<IB5 6+BD#CT T"+B:8" CA6ITA2
.:48#TI58 I5 9:9.AI ;A<T# 9A5A8#9#5T 2T4 ,<tates that the company
is in good position. It is suggested to hold the company in the same level. It also reveals
that cash flows having ups ( downs due to expansion of assets simultaneously in
depreciation.

==

MBA PROGRAMME
Capital Budget Applicants Questionnaire
&. Is your pro!ect in a county or city that is required to fully plan Haccording to +C;
1=.@*A.*3*E under the 8rowth 9anagement ActF If the answer to this question is
no you do not have complete any more questions.
C YES C NO
).
Is your pro!ect identified in the host county$s or city$s comprehensive planF C YES C NO
1.
Is your pro!ect identified in the host county$s or city$s capital facilities planF
C YES C NO
3.
Is your pro!ect located in an identified urban growth areaF H6lease attach map
showing pro!ect location and location of urban growth areaE
C YES C NO
7.
If your pro!ect is located in an adopted urban growth area does the pro!ect
facilitate accommodate or attract planned for growthF
C YES C NO
a. What entity has analyzed the impacts on planned for growth in the host citys or
countys urban growth area for e!ample" your agency" the host jurisdiction" etc.#$
b. Is there a document that contains this informationF If so indicate document and
attach the appropriate pages from that documentF If not attach an explanation.
=.
If this pro!ect is located outside an urban growth area will this pro!ect create
pressures for additional developmentF
C YES C NO
a. ;hat entity has analyzed the impacts on planned for growth outside the urban
growth area Hfor example your agency the host !urisdiction etc.EF
b. Is there a document that contains this informationF If so indicate document
and attach appropriate pages that contains this analysis. If not attach an
explanation.
@.
"as there been coordination among the governments in the region during the
development of this pro!ectF
C YES C NO
Is there a document that contains this informationF If so indicate document and
attach appropriate pages that contains this analysis. If not attach an explanation.
?. ;hat local and additional funds were leveraged if anyF
A. ;ere the environmental outcomes and the reduction of adverse impacts
examinedF
C YES C NO
BIBILOGRAPHY
=@

MBA PROGRAMME
%undamentals of %inancial
9anagement ' #ugene.%..righam
Doel.%."ouston
%inancial 9anagement ' I.9 6andey
%inancial 9anagement ' 6rasanna Chanrdra
%inancial 9anagement ' 9.>.Nhan ( Dain
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"CAPITAL BUDGETING" With Reference To MUMBAI WASTE MANAGEMENT LIMITED

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"CAPITAL BUDGETING" With Reference To MUMBAI WASTE MANAGEMENT LIMITED

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MBA PROGRAMME

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