Working Capital

Funds required for short term purposes or day to day expenses are working capital. Working Capital refers to part of firms capital required for financing short term orrcurrent assets such a cash marketable securities, debtors and inventories. Funds thus, invested in current assets keep revolving fast and are constantly converted into cash and this cash flow out again in exchange for other current assets. Working Capital is also known as revolving or circulating capital or short-term capital. Concepts of Working Capital Gross working capital (GWC) GWC refers to the firms total investment in current assets. Current assets are the assets which can be converted into cash within an accounting year (or operating cycle) and include cash, short-term securities, debtors, (accounts receivable or book debts) bills receivable and stock (inventory). Net working capital (NWC) NWC refers to the difference between current assets and current liabilities. Current liabilities (CL) are those claims of outsiders which are expected to mature for payment within an accounting year and include creditors (accounts payable), bills payable, and outstanding expenses. NWC can be positive or negative. Positive NWC = CA > CL Negative NWC = CA < CL

Operating cycle or circular cash flow concept Operating cycle is the time duration required to convert sales, after the conversion of resources into inventories, into cash. The operating cycle of a manufacturing company involves three phases: Acquisition of resources such as raw material, labour, power and fuel etc. Manufacture of the product which includes conversion of raw material into work-in-progress into finished goods. Sale of the product either for cash or on credit. Credit sales create account receivable for collection. Start with Raw material -> work in progress ->finished goods -> finished goods -> Sales -> debtors -> Cash -> raw Sales -> debtors -> Cash -> raw material. Ends with raw material
CASH RAW MATERIALS

Expenses
CREDITORS PROFIT DISTRIBUTION CASH FROM SALES FINISHED GOODS WORK IN PROGRESS

DEBTORS

Importance of working capital Risk and uncertainty involved in managing the cash flows Uncertainty in demand and supply of goods, escalation in cost both operating and financing costs It measures how much in liquid assets a company has available to build its business. An increase in working capital indicates that the business has either increased current assets (that is received cash, or other current assets) or has decreased current liabilities, for example has paid off some short-term creditors. Current assets Current liabilities Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable and cash. Decisions relating to working capital and short term financing are referred to as working capital management. Disadvantages of Redundant or Excess Working Capital Idle funds, non- profitable for business, poor ROI Unnecessary purchasing & accumulation of inventories over required level Excessive debtors and defective credit policy, higher incidence of bad debts Overall inefficiency in the organization. When there is excessive working capital, Credit-worthiness suffers Due to low rate of return on investments, the market value of shares may fall

Question 1 :- Overview of Financial Management Financial Management

Financial Management can be defined as the management of the finances of a business / organization in order to achieve financial objectives. Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise. Key objectives of financial management are to Create wealth for the business, generate cash, and to provide an adequate return on investment bearing in mind the risks that the business is taking and the resources invested. Three key elements to the process of financial management: (1) Financial Planning :- Management need to ensure that enough funding is available at the right time to meet the needs of the business. In the short term, funding may be needed to invest in equipment and stocks, pay employees and fund sales made on credit. In the medium and long term, funding may be required for significant additions to the productive capacity of the business or to make acquisitions. (2) Financial Control :- Financial control is a critically important activity to help the business ensure that the business is meeting its objectives. Financial control addresses questions such as: Are assets being used efficiently? Are the businesses assets secure? Do management act in the best interest of shareholders and in accordance with business rules?

(3) Financial Decision-making :- The key aspects of financial decision-making relate to investment, financing and dividends. A key financing decision is whether profits earned by the business should be retained rather than distributed to shareholders via dividends. If dividends are too high, the business may be starved of funding to reinvest in growing revenues and profits further. Nature of Financial Management The finance functions can be divided into three broad categories (i) investment decision, (ii) financing decision, and (iii) dividend decision. In other words, the firm decides how much to invest in short term and long-term assets and how to raise the required funds

In making financial decisions, the financial manager should aim at increasing the value of the shareholders stake in the firm. This is referred to as the principle of Shareholders Wealth Maximization. Wealth is precisely defined as net present value and it accounts for time value of money and risk. Shareholders and managers have the principal-agent relationship. In practice, there may arise a conflict between them. The finance manager raises capital from the capital markets. He or she should know how the capital markets function to allocate capital to the competing firms and how security prices are determined in the capital markets

Functions of Financial Management

1.Estimation of capital requirements: A finance manager has to make estimation with regards to capital requirements of the company. This will depend upon expected costs and profits and future programmes and policies of a concern. Estimations have to be made in an adequate manner which increases earning capacity of enterprise. 2.Determination of capital composition: Once the estimation have been made, the capital structure have to be decided. This involves short- term and long- term debt equity analysis. This will depend upon the proportion of equity capital a company is possessing and additional funds which have to be raised from outside parties. 3.Choice of sources of funds: For additional funds to be procured, a company has many choices likea. Issue of shares and debentures b. Loans to be taken from banks and financial institutions c. Public deposits to be drawn like in form of bonds. 4.Investment of funds: The finance manager has to decide to allocate funds into profitable ventures so that there is safety on investment and regular returns is possible. 5.Disposal of surplus: The net profits decision have to be made by the finance manager. This can be done in two ways: a. Dividend declaration - It includes identifying the rate of dividends and other benefits like bonus. b. Retained profits - The volume has to be decided which will depend upon expansion, innovational, diversification plans of the company. 6.Management of cash: Finance manager has to make decisions with regards to cash management. Cash is required for many purposes like payment of wages and salaries, payment of electricity and water bills, payment to creditors, meeting current liabilities, maintenance of enough stock, purchase of raw materials, etc. 7.Financial controls: The finance manager has not only to plan, procure and utilize the funds but he also has to exercise control over finances. This can be done through many techniques like ratio analysis, financial forecasting, cost and profit control, etc.

Question 2:- Discuss Risk and Return. Briefly describe difference between Systematic and Un-Systematic Risk Risk :It is defined as the variability in return from the expected value. The risk varies from individual to individual depending on his risk appetite. There are three types of individuals :- (i) Risk Averse (ii) Risk indifferent (iii) Risk preferred. Normally the individuals are risk averse. Total Risk can be of two types i.e. Systematic Risk & Unsystematic Risk Systematic Risk :- It is the market risk and is not controllable. It depicts the variability and return because of the changes in the market return. Systematic Risk is the variability of return on stocks or portfolios associated with changes in return on the market as a whole. For example, if you have invested in 5 shares of 5 different sectors (Shares listed on NSE). You can face two situations :- (a) your return from these five shares may be plus or minus because of the individual performance of the shares; or (b) your return from these shares may be plus or minus because of the change in the NSE Index. This change in NSE index is due to external factors or market forces. Unsystematic Risk :- It is the risk associated with variability of return on stocks/portfolio that is not explained by the market movement. This kind of risk is controllable or avoidable if you diversify. Larger number of shares in your portfolio specially from different sectors will reduce the unsystematic risk. Unsystematic Risk is the variability of return on stocks or portfolios not explained by general market movements. It is avoidable through diversification. Return :- Income received on an investment plus any change in market price, usually expressed as a percentage of the beginning market price of the investment. Expected Risk and Preference A risk-averse investor will choose among investments with the equal rates of return, the investment with lowest standard deviation and among investments with equal risk she would prefer the one with higher return.

 A risk-neutral or risk indifferent investor does not consider risk and would always prefer investments with higher returns. A risk-seeking investor likes investments with higher risk irrespective of the rates of return. In reality, most (if not all) investors are risk-averse.

Total Risk = Systematic Risk + Unsystematic Risk Total Risk = Systematic Risk + Unsystematic Risk

STD DEV OF PORTFOLIO RETURN

Factors such as changes in nations economy, tax reforms by the Govt. or a change in the world situation. Total Risk Unsystematic risk

Systematic risk

NUMBER OF SECURITIES IN THE PORTFOLIO

Characteristic line compares the return on a stock with the return on market portfolio.

Beta

It is an index of systematic risk. A measure of a portfolio's volatility. It measures the sensitivity of a stocks returns to changes in returns on the market portfolio. The beta for a

portfolio is simply a weighted average of the individual stock betas in the portfolio. A beta of 1 means that the security or portfolio is neither more nor less volatile or risky than the wider market. A beta of more than 1 indicates greater volatility and a beta of less than 1 indicates less. Beta is an important component of the Capital Asset Pricing Model, which attempts to use volatility and risk to estimate expected returns.

Covariance Covariance igma Sigma S

Rj = Rf + j(RM - Rf)
Rj is the required rate of return for stock j, (+) Premium Rf is the risk-free rate of return, bj is the beta of stock j (measures systematic risk of stock j), RM is the expected return for the market portfolio.

Required Return

Rj = Rf + j(RM - Rf)
Risk Premium Risk-free Return
M = 1.0

RM Rf

Systematic Risk (Beta)

Characteristic Lines and Different Betas

EXCESS RETURN ON STOCK

Beta > 1 (aggressive) Beta = 1

Each characteristic line has a different slope.

Beta < 1 (defensive)

1) If the slope is 1 than Beta is equal to one that means that the return from the stock move in proportion to the return of market portfolio. 2) If the slope is greater than 1, then Beta is greater than 1 that means that the return from stock varies proportionally to the return of the market. (Aggressive ) 3) If the slope is less than 1, then Beta is less than 1 and that means that the return from stock is less in proportion to the return of the market (Defensive)

Required Return

Rj = Rf + j(RM - Rf)
Risk Premium Risk-free Return
M = 1.0

RM Rf

Systematic Risk (Beta)

CAPM (Capital Asset Pricing Model) by Sharpe & Linter in 1960 CAPM is a model that describes the relationship between risk and expected (required) return; in this model, a securitys expected (required) return is the risk-free rate plus a premium based on the systematic risk of the security. The CAPM is one of the most commonly used ways to determine the cost of common stock. This cost is the discount rate for valuing common stocks, and provides an estimate of the cost of issuing common stocks. As per the CAPM, the required rate of return on equity is given by the following relationship: Ks = Krf + (Km - Krf) Where: Krf is the risk free rate is the firms beta Km is the return on the market

CAPM model indicates the market efficiency under which the market price of a security represents market consensus, estimates of the value of that security. An efficient financial market is where when security prices reflect all available public information about the economy, financial markets and the specific company involved. It shows the relationship between expected return and unavoidable risk and the valuation of securities that follows in the CAPM Model. The CAPM Model has the following assumptions :1. 2. 3. 4. 5. 6. Capital markets are efficient Investors are well informed Transaction cost are zero No taxes No investor is big enough to affect the market price There are two types of investment opportunities :(a) Risk Free Security (Govt. Securities) where return is know with certainty over a particular holding period (b) Market portfolio of common stocks

Q. 3 : Elaborate the importance of Cash & Receivable Management

Cash Management :- Cash is most liquid form of current assets. It is the

basic input needed to keep the business running on continuous basis. It is also the ultimate output expected to be realized by selling the services or product manufactured by the firm. The firms need to hold cash for the following three motives: 1. Transaction motiveTo buy raw materials, to pay wages and salaries and other operating expenses, to pay taxes and dividend etc. 2. Precautionary Motive- To meet contingencies that may arise in future due to unforeseen reasons. 3. Speculative motive- For investing in profit making opportunities as and when arise suddenly. But to meet the above needs of the firm, cash can not be hold in excess because it will remain idle without contributing any profit to the firm. So, cash may be maintained in such a way that shortage of cash cant hamper the operations of the firm and excess of cash available may not cause the loss due to idleness of cash. Cash management is concerned with the managing of : cash flows into and out of the firm, cash flows within the firm, and cash balances held by the firm at a point of time by financing deficit or investing surplus cash In order to resolve the uncertainty about cash flow prediction and lack of synchronization between cash receipts and payments Management plays an important role by: Cash Planning- It anticipates the future cash cash flows(Inflow & Outflow) and needs of the firm by developing a projected cash statement called Cash Budget. It reduces the possibility of idle cash balances and cash deficits.
(i)

Managing cash collections or disbursements- After preparing cash budget , Manager makes his best effort to accelerate cash collection and to decelerate cash disbursement as much as possible.
(ii)

Determining the optimum cash balance-The manager decide the appropriate level of cash balance by matching the cost of excess cash and danger of cash deficiency.
(iii)

Investing surplus cash- The surplus cash balance is invested to earn profit in short term investment opportunities such as bank deposits, marketable securities or inter-corporate lending.
(iv)

Thus, the cash management is a complex task and decision taken can affect important areas of the firm. Short-term Forecasting Methods

The receipt and disbursements method :- Under this method, Cash budget is a statement projecting the cash inflows and outflows (receipts and disbursements) of the firm over various interim periods of the budget period. It may be prepared on monthly basis, quarterly or half yearly basis. The adjusted net income method :- This method requires that a pro-forma income statement should be prepared for each desired inter period of the budget period. The net income figures for each period are then adjusted to a cash basis by deleting the transactions that are affection the income statements but not the cash balance. The Proforma balance sheet method :- This method requires the preparation of as many pro-forma balane sheets as there are interim periods in the cash budget. Each item of the balance sheet except cash is projected for each period. Total assets = Total Liabilities + Capital. Importance and significance of Cash Budget Cash budget is an effective tool of cash management and it may help the management in the following ways :a) Identification of the period of cash shortage so that the financial manager may plan well in advance about arranging the funds at an appropriate time. b) Identification of cash surplus position and duration for which surplus would be available so that alternative investment of this excess liquidity may be considered in advance c) Better coordination of the timing of cash inflows and outflows in order to avoid chances of shortages or surplus of cash etc.

IMPORTANCE OF RECEIVABLE MANAGEMENT Receivables represent amount owed to the firm as a result of sale of goods or services on the credit basis. These are the claims of the firm against its customer and form part of current assets. The purpose of maintaining or investing in receivables to meet competition and to increase sales and profit . A firms investment in accounts receivable depends on (a) the volume of credit and (b) the collection period. For ex. If a firms credit sales are Rs.20 lakhs per day and the customers take on an average 45 days to make payment, then the firms average investment in accounts receivable is 20 lakh x 45 days= 900 lakh Thus, in spite of benefits, it also involves Risk and loss of Interest or profit on investment involved and also some costs have to incur on maintaining receivables, such as: (i)Financing cost- Accounts receivable tie up a part of the firms financial resources invested for long term financing and through retained earnings. (ii) Administrative cost- Maintenance of receivable requires the employment of personnel, office space to keep the records, exp. on account of correspondence. (iii)Collection cost- The bills are not paid in time, the firm has to make efforts for their collection, first through correspondence and then through agents. (iv)Bad debt losses-The amount which the customer fails to pay are known as bad debts. Even after the serious collection efforts, bad debts occur. To minimize these costs, if co. adopt a tight credit policy, the sales cannot be expanded. Management helps to take a sound decision by forming a credit policy through which the benefits are maximized and costs are minimized. For this purpose management try to promote credit sales upto the point where marginal profits equals the marginal cost of additional credit sales. At this point, the profit will be maximized and the investment in the receivables will be optimum. Thus, following are the main objectives of trade off receivable management: (i) To obtain optimum value of sales. (ii) (iii) To minimize the cost of credit sales. To optimize investment in receivables.

Therefore, the main objective of Receivable management is to establish a balance between profitability and risk. Although level of receivable is affected by various external factors like standard of the Industry, economic conditions,

seasonal factors, role of competitors etc., Management can control its receivables through Credit Policies, Credit Terms, Credit Standard and Collection Procedure.

TIME VALUE OF MONEY

Types of Interest
Simple Interest :- (i) Interest paid (earned) on only the original amount, or principal borrowed (lent). (ii) Simple interest is the interest that is calculated only on the original amount (principal), and thus, no compounding of interest takes place. Compound Interest (i)) Interest paid (earned) on any previous interest earned, as well as on the principal borrowed (lent). (ii)Compound interest is the interest that is received on the original amount (principal) as well as on any interest earned but not withdrawn during earlier periods. Future Value is the value at some future time of a present amount of money, or a series of payments, evaluated at a given interest rate. The term (1 + i)n is the compound value factor (CVF) of a lump sum of Re 1, and it always has a value greater than 1 for positive i, indicating that CVF increases as i and n increase. n n,i

F = V P C F

Future Value of an Annuity :- Annuity is a fixed payment (or receipt) each year for a specified number of years. If you rent a flat and promise to make a series of payments over an agreed period, you have created an annuity. The term within brackets is the compound value factor for an annuity of Re 1, which we shall refer as CVFA.

FnA C Fni = , VA
Present Value is the current value of a future amount of money, or a series of payments, evaluated at a given interest rate. Present value of a future cash flow (inflow or outflow) is the amount of current cash that is of equivalent value to the decision-maker. The term in parentheses is the discount factor or present value factor (PVF), and it is always less than 1.0 for positive i, indicating that a future amount has a smaller present value.

PV =F n PVF i , n

Present Value of an Annuity : - The term within parentheses is the present value factor of an annuity of Re 1, which we would call PVFA, and it is a sum of single-payment present value factors.

P = P A A VF

ni ,

 Time preference for money is an individuals preference for possession of a given amount of money now, rather than the same amount at some future time. Three reasons may be attributed to the individuals time preference for money: risk preference for consumption investment opportunities Required Rate of Return The time preference for money is generally expressed by an interest rate. This rate will be positive even in the absence of any risk. It may be therefore called the risk-free rate. An investor requires compensation for assuming risk, which is called risk premium. The investors required rate of return is = Risk-free rate + Risk premium. Time Value Adjustment :- Two most common methods of adjusting cash flows for time value of money: Compoundingthe process of calculating future values of cash flows and Discountingthe process of calculating present values of cash flows. Present Value of Perpetuity :- Perpetuity is an annuity that occurs indefinitely. Perpetuities are not very common in financial decision-making:

P sen v lu o a p e ity re t a e f erp tu

P rp ity e etu In re ra te st te

COST OF CAPITAL
Cost of Capital :- The firm must earn a minimum of rate of return to cover the cost of generating funds to finance investments; otherwise, no one will be willing to buy the firms bonds, preferred stock, and common stock. This point of reference, the firms required rate of return, is called the COST OF CAPITAL It is the required rate of return that a firm must achieve in order to cover the cost of generating funds in the marketplace. It becomes a guideline for measuring the profitability of different investments. Another way to think of the cost of capital is as the opportunity cost of funds, since this represents the opportunity cost for investing in assets with the same risk as the firm. What impacts the cost of capital? Riskiness of Earnings The Debt to Equity Mix of the Firm Financial Soundness of the Firm Interest Rate Levels
Riskiness of Earnings The debt to equity mix of the firm

Financial soundness of the firm

Interest Rate levels

 Concept of the Opportunity Cost of Capital :_The opportunity cost is the rate of return
foregone on the next best alternative investment opportunity of comparable risk. The opportunity cost is the rate of return foregone on the next best alternative investment opportunity of comparable risk. OCC

. . . .

Equity shares

Preference shares Corporate bonds

Government bonds Risk-free security Risk

WEIGHTED AVERAGE COST OF CAPITAL (WACC) :- The firms WACC is the cost of Capital for the firms mixture of debt and stock in their capital structure. WACC = wd (cost of debt) + ws (cost of stock/RE) + wp (cost of preferred stock) The Firms Capital structure is the mix of debt & Equity used to finance the business.

COST OF DEBT (Kd) :- We use the after tax cost of debt because interest payments are tax deductible for the firm. Kd after taxes = Kd (1 tax rate)

Cost of Preferred Stock (Kp) Preferred Stock has a higher return than bonds, but is less costly than common stock. WHY?

In case of default, preferred stockholders get paid before common stock holders. However, in the case of bankruptcy, the holders of preferred stock get paid only after short and longterm debt holder claims are satisfied. Preferred stock holders receive a fixed dividend and usually cannot vote on the firms affairs. Kp = preferred stock dividend market price of preferred stock

Capital Budgeting Techniques Capital budgeting is the process most companies use to authorize capital spending on long-term projects and on other projects requiring significant investments of capital. Because capital is usually limited in its availability, capital projects are individually evaluated using both quantitative analysis and qualitative information. Most capital budgeting analysis uses cash inflows and cash outflows rather than net income calculated using the accrual basis. Some companies simplify the cash flow calculation to net income plus depreciation and amortization. Others look more specifically at estimated cash inflows from customers, reduced costs, proceeds from the sale of assets and salvage value, and cash outflows for the capital investment, operating costs, interest, and future repairs or overhauls of equipment. The Cottage Gang is considering the purchase of $150,000 of equipment for its boat rentals. The equipment is expected to last seven years and have a $5,000 salvage value at the end of its life. The annual cash inflows are expected to be $250,000 and the annual cash outflows are estimated to be $200,000. Payback technique The payback measures the length of time it takes a company to recover in cash its initial
investment. This concept can also be explained as the length of time it takes the project to generate cash equal to the investment and pay the company back. It is calculated by dividing the capital

investment by the net annual cash flow. If the net annual cash flow is not expected to be the same, the average of the net annual cash flows may be used.

For the Cottage Gang, the cash payback period is three years. It was calculated by dividing the $150,000 capital investment by the $50,000 net annual cash flow ($250,000 inflows - $200,000 outflows)

The shorter the payback period, the sooner the company recovers its cash investment. Whether a cash payback period is good or poor depends on the company's criteria for evaluating projects. Some companies have specific guidelines for number of years, such as two years, while others simply require the payback period to be less than the asset's useful life.

When net annual cash flows are different, the cumulative net annual cash flows are used to determine the payback period. If the Turtles Co. has a project with a cost of $150,000, and net annual cash inflows for the first seven years of the project are: $30,000 in year one, $50,000 in year two, $55,000 in year three, $60,000 in year four, $60,000 in year five, $60,000 in year six, and $40,000 in year seven, then its cash payback period would be 3.25 years. See the example that follows.

The cash payback period is easy to calculate but is actually not the only criteria for choosing capital projects. This method ignores differences in the timing of cash flows during the project and differences in the length of the project. The cash flows of two projects may be the same in total but the timing of the cash flows could be very different. For example, assume project LJM had cash flows of $3,000, $4,000, $7,000, $1,500, and $1,500 and project MEM had cash flows of $6,000, $5,000, $3,000, $2,000, and $1,000. Both projects cost $14,000 and have a payback of 3.0 years, but the cash flows are very different. Similarly, two projects may have the same payback period while one project lasts five years beyond the payback period and the second one lasts only one year. Net present value Considering the time value of money is important when evaluating projects with different costs, different cash flows, and different service lives. Discounted cash flow techniques, such as the net present value method, consider the timing and amount of cash flows. To use the net present value method, you will need to know the cash inflows, the cash outflows, and the company's required rate of return on its investments. The required rate of return becomes the discount rate used in the net present value calculation. For the following examples, it is assumed that cash flows are received at the end of the period.

Using data for the Cottage Gang and assuming a required rate of return of 12%, the net present value is $80,452. It is calculated by discounting the annual net cash flows and salvage value using the 12% discount factors. The Cottage Gang has equal net cash flows of $50,000 ($250,000 cash receipt minus $200,000 operating costs) so the present value of the net cash flows is computed by using the present value of an annuity of 1 for seven periods. Using a 12% discount rate, the factor is 4.5638 and the present value of the net cash flows is $228,190. The salvage value is received only once, at the end of the seven years (the asset's life), so its present value of $2,262 is computed using the Present Value of 1 table factor for seven periods and 12% discount rate factor of .4523 times the $5,000 salvage value. The investment of $150,000 does not need to be discounted because it is already in today's dollars (a factor value of 1.0000). To calculate the net present value (NPV), the investment is subtracted from the present value of the total cash inflows of $230,452. See the examples that follow. Because the net present value (NPV) is positive, the required rate of return has been met. Cash Outflows Project Cost Cash Inflows $150,000 Cash from$250,000 Customers (1) 200,000 7 years 12% Salvage Value 5,000

Operating Costs (2) Estimated Useful Life Minimum Required Rate of Return

Annual Net Cash Flows ($250,000 - $50,000 $200,000) (1) - (2)

Present Value of Cash Flows

Present Value of Cash Flows Salvage Value ($5,000 .4523) Total Present Value of Net Cash Inflows Less: Investment Cost Net Present Value 2,262

230,452 (150,000) $ 80,452

When net cash flows are not all the same, a separate present value calculation must be made for each period's cash flow. A financial calculator or a spreadsheet can be used to calculate the present value. Assume the same project information for the Cottage Gang's investment except for net cash flows, which are summarized with their present value calculations below. Estimated Annual Net Cash 12% Period Flow (1) Factor (2) 1 2 3 4 5 6 7 $ 44,000 55,000 60,000 57,000 51,000 44,000 39,000 .8929 .7972 .7118 .6355 .5674 .5066 .4523 Discount Present Value (1) (2) $ 39,288 43,846 42,708 36,224 28,937 22,290 17,640

Estimated Annual Net Cash 12% Period Flow (1) Factor (2) $350,000 Totals

Discount Present Value (1) (2) $230,933

The NPV of the project is $83,195, calculated as follows: Present Value of Cash Flows Annual Net Cash Flows Salvage Value ($5,000 .4523) $230,933 2,26

Total Present Value of Net Cash Inflows 233,195 Less: Investment Cost Net Present Value (150,000) $ 83,195

The difference between the NPV under the equal cash flows example ($50,000 per year for seven years or $350,000) and the unequal cash flows ($350,000 spread unevenly over seven years) is the timing of the cash flows. Most companies' required rate of return is their cost of capital. Cost of capital is the rate at which the company could obtain capital (funds) from its creditors and investors. If there is risk involved when cash flows are estimated into the future, some companies add a risk factor to their cost of capital to compensate for uncertainty in the project and, therefore, in the cash flows. Most companies have more project proposals than they do funds available for projects. They also have projects requiring different amounts of capital and with different NPVs. In comparing projects for possible authorization, companies use a profitability index. The index divides the present value of the cash flows by the required

investment. For the Cottage Gang, the profitability index of the project with equal cash flows is 1.54, and the profitability index for the project with unequal cash flows is 1.56.

Internal rate of return The internal rate of return also uses the present value concepts. The internal rate of return (IRR) determines the interest yield of the proposed capital project at which the net present value equals zero, which is where the present value of the net cash inflows equals the investment. If the IRR is greater than the company's required rate of return, the project may be accepted. To determine the internal rate of return requires two steps. First, the internal rate of return factor is calculated by dividing the proposed capital investment amount by the net annual cash inflow. Then, the factor is found in the Present Value of an Annuity of 1 table using the service life

of the project for the number of periods. The discount rate that the factor is the closest to is the internal rate of return. A project for Knightsbridge, Inc., has equal net cash inflows of $50,000 over its seven-year life and a project cost of $200,000. By dividing the cash flows into the project investment cost, the factor of 4.00 ($200,000 $50,000) is found. The 4.00 is looked up in the Present Value of an Annuity of 1 table on the seven-period line (it has a seven-year life), and the internal rate of return of 16% is determined. Annual rate of return method The three previous capital budgeting methods were based on cash flows. Theannual rate of return uses accrual-based net income to calculate a project's expected profitability. The annual rate of return is compared to the company's required rate of return. If the annual rate of return is greater than the required rate of return, the project may be accepted. The higher the rate of return, the higher the project would be ranked.
The annual rate of return is a percentage calculated by dividing the expected annual net income by the average investment. Average investment is usually calculated by adding the beginning and ending project book values and dividing by two.

Assume the Cottage Gang has expected annual net income of $5,572 with an investment of $150,000 and a salvage value of $5,000. This proposed project has a 7.2% annual rate of return ($5,572 net income $77,500 average investment).

The annual rate of return should not be used alone in making capital budgeting decisions, as its results may be misleading. It uses accrual basis of accounting and not actual cash flows or time value of money.

Question: - Public Debt Management in India and the prospectus for an independent Debt management office.
Background: The government likes any other independent unit, collect revenue and spend it is also fact that the revenue collected does not match the expenditure to meet the deficit There may be sudden spurt in the government expenditure due to war or natural clalamaties the government has to incur heavy expenditure and may run into debt.Public debt has been raised by some rulers for financing useless purposes. Therefore having deficit budet and raising loans is the irrational behaviour and should be avoided.These days it is believed that the government of underdeveloped country should play active role in the development of economy in this way the budgetary is an effective tool in accelerating the process of capital accumulation and economic growth this may be done by borrowing and investing these funds in various projects. In case the government do not barrow the options left
a) either the government make arrangement from its reserve b) They may sell some of its properties and investment etc. c) It may creat more currency d) It may borrow and spent.

The option a) and c) will increase the money flow in the econnmy and may lead to inflation the option b) government use quiet rairely as the the only option left to borrow the money from the market In most the countries public debt as registered a continous upward trend.The question arises that is there any limit borrowing the answer is the will and capacity of government to raise loans. It is expected that the government should no borrow for consumption purpose and should borrow for economic compultions or furthering it may borrow for consumptions purposes such as defence education health and welfare purposes. The government borrowing adds to their demands and cause upward pressure on the interest rates. Gurley and Shaw & Redeliffe Committee emphasize the important role of public debt. They claim that the physical growth of the country can not sustained without a healthy and strong financial sector which necessitates the growth of public debt which provide foundation to the superstructure of credit in the economy. A fear is expressed that unless restricted by some means a government may resort to excessive borrowing and get into a debt trap that is a situations in which it has to barrow to service the existing debt. In case of foreign the country resources may be drained out.Public debt as a means of regulating the economy.The government by

incresing the demand and supply through open market and therefore by chaning the volume of outstanding debt.Where the debt is meant for particular project such project are estimated to benefit specific area of section of people for example the cost of the dam can be met through public debt and the cost of the project can recovered by lavy of charges.The general idea is that the government should not raise debt for consumption . A burden of debt was emphasized and elaborated by E.D Domer he related the interest payment of the level of national incone and thus pointed out that asinterest on debt as a proportion of national income rises a larger portion of national income will have to be taxed to pay that interest. It is to remember that the tax revenue collected for interest payment is being disbursed to the debt holders. Public debt may be claimed to have added the burden of the debt. In India most of the funded public debt and treasury billsare owned by the Reserve Bank of India and other institutions as such it does cause and distributive problems the interest paid on provident funds and small savings owned by middle class the government resort to indirect taxes which of course tends to inequalities. Foresigns loans must be used for investment purposes by which the productive capacity of the debtor country will increase out of which the repayment can take place in that case there will be no burdon if these loans are not invested in the export oriented industries then therewill be balance of payment problem. Many African countreis are not in position to return the debt and have walked into the debt trap. Debt Management Hence there is need to formulation and implementation of debt policy designed to achieve certain objectives. There is a traditional philosphy debt management consisiting of keeping its interest cost to minimum possible and pay it off as early as possible. Hoever in moderen welfare state uses debt management as a policy tool for achieving various socio econmic objectives of couse every government is still interested in keeping the interest cost. If this objective comes into conflits it is sacrificed. Other important objectives before authorities include economic stablization growth employment and overall soundness of the financial syastem as a whole. Debt managemen policy has to run in harmony with the monetary management of the country. They both influence stabilization and economic growth. Open market operations are usually conducted by sale purchase of government securities. Through general and selective credit controls monetary policies tries to influence the volume and flow of funds.. The aggregate volume of outstanding debt reflects a cumulative effect of budgetary policy of the government the volume of debt is increasing and decreasing in the line of defict and surplus. In the case of public debt the management part would mainly consist of changing its maturity composition so as to affect its yield structure and liquidity content.

In big countries where the governemtn has more than one layer scuh as central and state there can inter governmental problems of coordination if both the centre and state government are allowed to enter the market the care should be taken that the timing, amounts, terms and other conditions of the loan do not work cross purposes normally the central government is in a position to borrow at low rates than state government . Further the different government should avoid entering the market at the same time or in quick succession particularly the availability of funds available is limited compared with the combined requirement of the government. In India the task of coordination in all these aspects is achieved through the agecy of the Reserve Bank of India. It advises them regarding timing terms and amount of loans that can be raised without any difficulty.

Debt Management Office World over, debt management is distinct from monetary management. The establishment of a Debt Management Office (DMO) in the Government has been advocated for quite some time The DMOs mandate will be to manage debt of the country. It will be an independent agency that will help the government manage borrowings efficiently. By separating debt management from monetary policy functions, policy makers expect the central bank to emerge as an independent central bank which like some of its peers will focus more on inflation control. RBI had first recommended this when Bimal Jalan was the governor. But subsequently, it dissented when a committee set up the government by the then financial minister, Yashwant Sinha, as the then governor, YV Reddy, thought the move will not help unless the fiscal deficit was reduced. In most of the countries, central banks are only responsible for monetary management and do not even function as a regulator for banks. In the US, the treasury manages public debt, not the Fed. In addition to these core problems of conflicts of interest, Indian debt management has many other weaknesses. There is no one place in the country where there is a full database of all the liabilities of GoI. This information is, hence, not used for risk management and optimisation of the financial burden of GoI. There is a big gap between the way mature market economies apply sophisticated financial economics for the purpose of devising optimal strategies for debt management, and the state of play in India. As far as the mechanics of implementation are concerned, the Budget speech says: "[I]n the first phase, a Middle Office will be set up." A mid office would constitute a single comprehensive database about all liabilities and guarantees of GoI, and a risk management overlay, which improves the risk profile of the overall portfolio. It is the logical starting point for the construction of the DMO. If the MoF is able to get key staff persons with experience in state-of-the-art debt management in public sector settings, Establishing a debt management office (DMO) would consolidate all debt management functions in a single agency, and be the catalyst for wider institutional reform and transparency about public debt. It is internationally accepted best practice that debt management should be disaggregated from monetary policy, and taken out of the realm of the central bank. Most advanced economies have dedicated debt management offices. Several emerging economies, including Brazil, Argentina, Colombia, and South Africa, have restructured debt management in recent years and created a DMO. In the present situation, it is imperative to seek every institutional innovation which can yield even the slightest improvements in the implementation of public borrowing, or slight Improvements in risk management. - Kelkar Report Looking ahead, a sound public borrowing strategy for India would incorporate three elements. . . An independent Indian debt management office - operating either as an autonomous agency or under the Ministry of Finance - that regularly auctioned a large quantum of INR denominated Bonds in an IFC in Mumbai. The size of these auctions would be substantial by world standards and would enhance Mumbais stature as an

IFC. - This is also a good time to carefully think about changing the structure of public debt management, particularly in a way that minimizes financial repression and generates a vibrant government bond market. The Ministry of Finance has announced that an independent Debt Management Office (DMO) will be set up. This provides an opportunity to think about and incorporate best practices in this field. - Raghuram Rajan Committee Report Need of DMO in India Three key issues that influence the design of debt management in India is: - consolidation, conflicts of interest and financial repression. ConsolidationA well structured debt management office is one where all information about onshore and offshore liabilities, and contingent liabilities, is centralized into a single database and will enables better information transmission to the bond market. Unification of information also makes possible a variety of strategies for reducing the cost of borrowing. Conflicts of interest the debt management office works as the investment banker for the government, selling bonds and engaging in other portfolio management tasks in close coordination with its client, the budget division. Each of these agencies then has a clear focus and conflicts of interest are avoided. Financial repression- Debt management is relatively simple when financial firms are forced to purchase government bonds through financial repression. In this context, the task of funding public debt will become more complex. It is hence important to undertake institutional reform that strengthens debt management alongside the process of financial sector reforms that eases financial repression. In India, the debt management function is presently dispersed over several agencies. Broadly, external debt and non marketable debt and other liabilities are largely managed by the Ministry of Finance through various departments and marketable debt is largely managed by the Reserve Bank of India. In course of managing the government debt and financing requirement by the Reserve Bank, however, the fiscal operations have been perceived to be overburdening the monetary policy and even leading to blurring of distinction between fiscal and monetary policy operations. Ways and means agreement of the Reserve Bank with the Government in 1997 and prohibition of direct borrowings by the Central Government from the Reserve Bank under the Fiscal Responsibility and Budget Management Act, 2003 have provided greater transparency and operational autonomy to the monetary policy framework. International Scenario in Debt Management office Moving public debt management from the Central Bank to a DMO is internationally accepted best practice (IMF and World Bank, 2002). However, there are certain common features across countries that have restructured and modernized public debt management: The Central Bank no longer manages public debt; there is a clear separation between monetary policy and public debt management. Debt management is integrated in one entity rather than dispersed over several Departments and authorities. The split between external and domestic debt management gives way to integrated debt management, with a front-middle-back office structure. The DMO focuses on making debt management more transparent. The DMO focuses on communicating regularly and clearly with financial markets Maintaining and developing an appropriate framework for efficiently managing the portfolio and the risks associated with it. Disbursing cash to departments and facilitating departmental cash management. Advancing funds to government entities in accordance with government policy. Providing capital markets services and derivative transactions for departments and government entities.

 Providing reporting for fiscal forecasting and financial statements. Maintaining a diversified funding base and, where appropriate, enhancing relationships with investors who hold, or are potential holders of, New Zealand government securities and with financial intermediaries and the international credit rating agencies. Practicable structure of the DMO There are four models for debt management offices: A division or unit within the Ministry of Finance. An executive agency which is not a creature of statute, and operates at arms length from the Government. A statutory body which functions at arms length from the Ministry of Finance. A state-owned company that manages public debt. IMF, in its guidelines on Public Debt Management (2001), discussed that operational responsibility for debt management is generally separated into front and back offices with distinct functions and accountabilities, and separate reporting lines. This separation helps to promote the independence of those setting and monitoring the risk management framework and assessing the performance from those responsible for executing market transactions. Major functions of the Middle Office, inter alia, include preparation of a medium-term debt management strategy, issuance of periodic calendars for borrowings, managing Government cash requirements, managing the risks in Government debt portfolio, developing and maintaining a centralized database on Government liabilities, preparing periodical reports on public debt and disseminating debt-related information. Middle Office has begun work on some of these functions such as preparation of a medium term strategy framework, annual issuance programmes, instrument framework for managing cash surplus/deficit of the Government, developing a comprehensive debt database, etc. Indian DMO should be a statutory body corporate with considerable operational autonomy, which functions as an agent of the Central and State Governments. DMO is likely to move away from the current division between managing foreign and domestic debt and towards a front, middle and back office structure. However, the draft Bill does not specify operational arrangements, and concentrates instead on defining the DMOs management structure. Issues in debt management office: RBI would like to have control over the proposed National Treasury Management Agency; the Finance Ministry wants the agency in its fold. RBI has built up considerable expertise in market operations. In fact, it is quite likely that the staff of the Bank may continue to be employed in the NTMA for a couple of years, with deputation allowance, till the government officials learn the ropes. Thus the control of NTMA by the government would only result in increased expenditure without any additional tangible benefit to the economy. RBI has had a policy of grooming the market for new floatation through conversions of the old ones. If government does not take note of the status of the market flowing from RBI actions the loan programme may come a cropper if the subscribers quote high yields and the government is not willing to pay them. Thus there could be a conflict between monetary and debt policies in the new set-up. Once the DMO is established, it will operationalise the decision to issue government securities for MSS when the central government and the RBI decide on it. The operational part is crucial and has an element of immediacy for the RBI to carry out its monetary function. It cannot lose time by asking the NTMA to act. There will be no change in Policy and Operations area, irrespective of whether the DMO is in the Government or with the RBI. Only the nitty-gritty of the actual floatation of loans will be handled by the DMO.

 Issue of conflict of interest, in the current Indian context where 70 per cent of the banking assets remain in the public sector banks, setting up of a DMO under the Ministry of Finance may, in fact, exacerbate the conflict between governments role as a debt manager and its status as the owner of a substantial portion of the banking sector. Recent Development: The Reserve Bank of India (RBI) has advised the government to put the creation of a debt management office (DMO) on the backburner because of the huge borrowing programme this fiscal. The finance ministry is at present working on a Bill to set up a separate DMO, independent of the ministry and the RBI. There is already a middle office housed within the finance ministry that crunches data, but a full-fledged office will have a far larger role. It will operate on an MoU with the finance ministry that will decide the amount of bonds to be floated each year, the price of the coupons, the tenor of the papers and even their periodicity. The government plans to legally empower the proposed Debt Management Office (DMO) with the mandate to do debt profiling and debt stock analysis of borrowings of the Centre and states. Though the work profile of DMO was to include these functions, the finance ministry wants to explicitly spell these out as it starts framing the draft legislation. DMO is to take over the Reserve Bank of Indias function of managing government debt. It is likely to be in place by the second half of 2010-11The finance ministry has also decided that till the DMO is created, the existing office, the middle office, within the ministry will be strengthened. The middle office currently has a three-member structure, with a director-level official as its head. The officials are dawn from RBI and are functioning independent of the ministry, though they are located within the ministry premises. The middle office is taking care of the governments debt strategy and stock monitoring, though the actual raising of debt is done by RBI. They are free to consult RBI. While welcoming the creation of DMO, state governments have suggested it should aim at bringing down the cost of borrowing. Besides state governments, the ministry of finance has got suggestions from various stakeholders, experts and multilateral lending agencies like the World Bank, International Monetary Fund and the Asian Development Bank on a report of an internal working group set up for suggesting the structure of DMO. Most of these suggestions were on the operational aspect of the terms of reference. DMOs activity should be broad-based. The underlying idea is to separate the functions of government debt management and monetary policy, both currently vested with RBI. It is felt that the present arrangement creates a conflict of interest. Conclusion Process of setting up the proposed independent debt office needs to be carried forward. In this regard, the Report of the Internal Working Group on Debt Management (October 2008) has laid down the broad road map including the required legislation, institutional and governance structure of an independent debt office, its responsibilities and transition issues. The steps involved in evolution of the independent debt office need to be traversed in a manner characterized by urgency and transparency on the one hand and caution and coordination on the other. ( Source indiastat.com Dec., 2009 - Jan, 2010 socio - economic voices Debt Management Office: Relevance and Concern Dr. Nikhil Saket, Senior Assistant Secretary, ICAI, New Delhi )
Trends in Outstanding Public Debt

The total public debt (excluding liabilities that are not classified under public debt) of the Government increased to `37,52,576 crore at end-June 2012 from `35,78,244 crore at end-March 2012 (Table 8). This represented a Quarter-on-Quarter (QoQ) increase of 4.9 per cent (provisional) compared with an increase of 4.8 per cent in the previous quarter (Q4 of FY12). Internal debt constituted 90.6 per cent of public debt, compared with 90.1 per cent at the end of the previous quarter. Marketable securities (consisting of Rupee denominated dated securities and treasury bills) accounted for 80.9 per cent of total public debt, compared with 79.9 per cent at end-March 2012.

The outstanding internal debt of the Government at `33, 98,154 crore constituted 33.4 per cent of GDP compared with 36.4 per cent at end-March 2012.
Composition of Public Debt Item At end-June 2012 At end-Mar At end-June 2012 2012 (% of Total) 3 4 35,78,244 100.00 At end-Mar 2012

(`Crore) 1 2 5 Public Debt 37,52,576 100.00 (1 + 2) 1. Internal 33,98,154 32,23,822 90.56 90.10 Debt Marketable 30,34,696 28,60,364 80.87 79.94 (a) Treasury 3,28,940 2,67,035 8.77 7.46 Bills (i) 91-days 1,24,656 4.41 3.48 1,65,386 Treasury Bills (ii) 182-days 52,001 1.55 1.45 58,000 Treasury Bills (iii) 364-days 1,05,555 90,378 2.81 2.53 Treasury Bills (b) Dated 27,05,755 25,93,329 72.10 72.47 Securities Non3,63,458* 3,63,458 9.69 10.16 marketable (i) 14-days 97,800* 97,800 2.61 2.73 Treasury Bills (ii) Securities 2,08,183* 2,08,183 5.55 5.82 Issued to NSSF (iii) 27,849* 27,849 0.74 0.78 Compensatio n and other bonds (iv) Securities 29,626* 29,626 0.79 0.83 issued to International Financial Institutions (v) Ways and 0* Means Advances 2. External 3,54,422* 3,54,422 9.44 9.90 Debt (i) 2,22,581* 2,22,581 5.93 6.22 Multilateral (ii) Bilateral 99,610* 99,610 2.65 2.78 (iii) IMF 31,528* 31,528 0.84 0.88 (iv) Rupee 702* 702 0.02 0.02 debt *:-These data are not available for June 30, 2012. So they are carried over from previous quarter.

Note:- Foreign Institutional Investors (FII) investment in government securities and treasury bills (`57,828 crore at end-March 2012) is included in the internal marketable debt.

(Source source public debt management quarterly report April-2012 to June 2012 finmin.nic.in)

Parliamentary Committees
The functions of Parliament are not only varied in nature, but considerable in volume. The time at its disposal is limited. It cannot make very detailed scrutiny of all legislative and other matters that come up before it. A good deal of Parliamentary business is, therefore, transacted in the committees of the House, known as Parliamentary Committees. Parliamentary Committee means a Committee which is appointed or elected by the House or nominated by the Speaker and which works under the direction of the Speaker and presents its report to the House or to the Speaker and the Secretariat for which is provided by the Lok Sabha Secretariat.

Both Houses of Parliament have a similar committee structure, with a few exceptions. Their appointment, terms of office, functions and procedure of conducting business are also more or less similar and are regulated as per rules made by the two Houses under Article 118(1) of the Constitution. By their nature, Parliamentary Committees are of two kinds: Standing Committees and Ad hoc Committees. Standing Committees are permanent and regular committees which are elected or appointed every year or periodically and their work goes on, more or less, on a continuous basis.

The Financial Committees, DRSCs and some other Committees come under the category of Standing Committees. :Standing Committees: Among the Standing Committees, the three Financial Committees Committees on Estimates, Public Accounts and Public Undertakings - constitute a distinct group as they keep an unremitting vigil over Government expenditure and performance. While members of the Rajya Sabha are associated with Committees on Public Accounts and Public Undertakings, the members of the Committee on Estimates are drawn entirely from the Lok Sabha. The Estimates Committee reports on 'what economies, improvements in organisation, efficiency or administrative reform consistent with policy underlying the estimates' may be effected. It also examines whether the money is well laid out within limits of the policy implied in the estimates and suggests the form in which estimates shall be presented to Parliament. The Public Accounts Committee scrutinises appropriation and finance accounts of Government and reports of the Comptroller and Auditor-General. It ensures that public money is spent in accordance with Parliament's decision and calls attention to cases of waste, extravagance, loss or nugatory expenditure. The Committee on Public Undertakings examines reports of the Comptroller and Auditor-General, if any. It also examines whether public undertakings are being run efficiently and managed in accordance with sound business principles and prudent commercial practices. Besides these three Financial Committees, the Rules Committee of the Lok Sabha recommended setting-up of 17 Department Related Standing Committees (DRSCs). Accordingly, 17 Department Related Standing Committees were set up on 8 April 1993. In July 2004, rules were amended to provide for the constitution of seven more such committees, thus raising the number of DRSCs from 17 to 24. The functions of these Committees are: 1. to consider the Demands for Grants of various Ministries/Departments of Government of India and make reports to the Houses; 2. to examine such Bills as are referred to the Committee by the Chairman, Rajya Sabha or the Speaker, Lok Sabha, as the case may be, and make reports thereon; 3. to consider Annual Reports of ministries/departments and make reports thereon; and 4. to consider policy documents presented to the Houses, if referred to the Committee by the Chairman, Rajya Sabha or the Speaker, Lok Sabha, as the case may be, and make reports thereon. Other Standing Committees in each House, divided in terms of their functions, are 1. 2. 3. 4. 5. Committees to Inquire: Committees to Scrutinise: Committees relating to the day-today business of the House: Committee on the Welfare of Scheduled Castes and Scheduled Tribes, Joint Committee on Salaries and Allowances of Members of Parliament, Joint Committee on Offices of Profit examines the composition and character of committees and other bodies appointed by the Central and State governments and Union Territories

Administrations and recommends what offices ought to or ought not to disqualify a person from being chosen as a member of either House of Parliament; 6. The Library Committee consisting of members from both Houses, considers matters concerning the Library of Parliament; 7. On 29 April 1997, a Committee on Empowerment of Women with members from both the Houses was constituted with a view to securing, among other things, status, dignity and equality for women in all fields; 8. On 4 March 1997, the Ethics Committee of the Rajya Sabha was constituted. The Ethics Committee of the Lok Sabha was constituted on 16 May 2000. Ad hoc Committees: Ad hoc Committees are appointed for a specific purpose and they cease to exist when they finish the task assigned to them and submit a report. The principal Ad hoc Committees are the Select and Joint Committees on Bills. Railway Convention Committee, Joint Committee on Food Management in Parliament House Complex etc also come under the category of ad hoc Committees.Such Committees may be broadly classified under two heads: 1. committees which are constituted from time to time, either by the two Houses on a motion adopted in that behalf or by Speaker/Chairman to inquire into and report on specific subjects, (e.g., Committees on the Conduct of certain Members during President's Address, Committees on Draft Five-Year Plans, Railway Convention Committee, Committee on Members of Parliament Local Area Development Scheme, Joint Committee on Bofors Contracts, Joint Committee on Fertilizer Pricing, Joint Committee to enquire into irregularities in securities and banking transactions, Joint Committee on Stock Market Scam, Joint Committees on Security in Parliament Complex, Committee on Provision of Computers for Members of Parliament, Offices of Political Parties and Officers of the Lok Sabha Secretariat; Committee on Food Management in Parliament House Complex; Committee on Installation of Portraits/Statues of National Leaders and Parliamentarians in Parliament House Complex, etc.), and 2. Select or Joint Committees on Bills which are appointed to consider and report on a particular Bill. These Committees are distinguishable from the other ad hoc committees inasmuch as they are concerned with Bills and the procedure to be followed by them as laid down in the Rules of Procedure and Directions by the Speaker/Chairman.