Industry Profile: Transportation and Logistics Industry Services

FAR N PAR (INDIA) PRIVATE LTD.
INDUSTRY PROFILE
TRANSPORTATION AND LOGISTICS INDUSTRY SERVICES
FREIGHT FORWARDING IN INDIA
Freight Forwarding, the term evolving from the one!t of tran"!ortation of
#argo, had "low "tride in India in $ear". %&t now it i" one "!eed$ !ede"tal and
inrea"ing in lea!" and 'o&nd".
(owever, with India #ommere and Trade 'eing thrown o!en to the
m&ltinational there are ra!id hange" ta)ing !lae at o&r end. The li'erali"ed eonomi
!oli$ i" ver$ attrative now and traffi of trade i" on &!ward trend.
The traffi of Im!ort" and E*!ort" ha" inrea"ed and thi" all" for ind&tion of
new trend" and trait" for handling larger vol&me" of trade.
In the !roe"", the idea of Freight Forwarding i" al"o &ndergoing a
tran"formation in re"!on"e to ad+&"ting to the demand" of glo'al trade.
The Indian Freight Forwarding omm&nit$ i" "lowl$ falling in the line with the
rh$thm of their o&nter !art", "!eed and "t$le. New trend" have "et in handling the
#argo- .oderni/ation i" ta)ing !lae in ever$ !o""i'le wa$ and ever$ !ha"e. 0hether
it i" in !a)ing "toring, arr$ing, di"tri'&ting or in delivering one ha" to )ee! &!dating
him"elf to )ee! in !ae with the late"t mode and mehani"m of .odern Freight
Forwarding.
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The #om!an$ 'elieve in &!dating them"elve" to the trend" of modern
omm&niation "$"tem" '$ 'eing in on"tant ontat with 1lo'al Freight Forwarding
omm&nit$ aro&nd the world.
The '&"ine"" of freight Forwarding i" the fir"t !riorit$ of the #om!an$. It al"o
ta)e" are of the "&rfae tran"!ortation arrangement" in India for all it" &"tomer" for
tran"!orting argo to vario&" inland di"tination.
LOGISTICS ONE STOP SHOP AT FAR N PAR
Far n Par (Indai) Limited i" a #(A and IATA #argo agent and while handling
the argo, the om!an$ ta)e" are of &"tomer" in negotiating the 'e"t om!etitive rate"
for their #argo movement of Im!ort, E*!ort or even dome"ti argo '$ 'oth "ea and air.
A" an integrated logi"ti" om!an$ it ta)e" are of om!lete movement of #argo
till $o&r re3&ired de"tination aro&nd the world whether it i" Im!ort, E*!ort or even
dome"ti argo '$ 'oth "ea air.
EDI i" +&"t 'eing introd&ed in India for !roeeding do&ment" in &"tom" and
a&tomation i" ta)ing !lae in vario&" other a"!et" involved for allowing "!eed and
"mooth learne"".
Far n Par i" ver$ enth&"ia"ti in &!dating it" ")ill" and e3&i!ment '$
!artii!ating in all tehni3&e" of omm&niation "$"tem", there '$ im!roving
a&tomatiall$.
Services OFFERED
SPECIALISED SERVICES
Freight Forwarding for 'oth Im!ort" 5 E*!ort"
(andling for .a+or Pro+et" from end to end
(andling of !eri"ha'le #argo
(andling of D1R 1ood"
Door to Door 6ervie"
0areho&"e 7 Di"tri'&tion"
SERVICES
2. Do&mentation for Im!ort #learane"
4. #&"tom"
8. %onding 7 de'onding
9. Loading : ;nloading
<. 0areho&"e 7 Di"tri'&tion
=. Do&mentation for E*!ort #learane"
>. Pi)&! of #argo from 6ite 5 Fator
?. Pa)ing 5 #rating
@. 6torage 5 0areho&"ing of #argo
2A. Freight Negotiation for Im!ort" 5 E*!ort" '$ Air 7 6ea
22. In"&rane #overage
24. Pre!aration of %5L 7 I""&e of #ertifiate of Brigin
28. Notari"ation
29. %oo)ing '$ Air 5 Bean 5 Tr&) 5 Rai.
WAREHOUSE & STORAGE SERVICES
0hareho&"e "torage "ervie !rovider with m&lti!le wareho&"e loation" in
($dera'ad, #hennai, .&m'ai, %angalore and New Delhi i" "trategiall$ loated to
"&!!ort an$ wareho&"ing re3&irement" $o& ma$ haveC
aC P&'li wareho&"ing
'C Dr$ 1ood" 6torage
C Ind&"trial Prod&t" (andling
dC #ontainer Loading 5 ;nloading
eC Eletroni" Proeeding
fC #ro"" Do) and Tran"load 6ervie"
gC B&t door "torage Dard".
aC Loal Di"tri'&tion
'C Rever"e Logi"ti"
C Brder F&lfillment, Inventor$ .anagement 7 0areho&"ing
dC Tran"!ortation .anagement
eC 6&!!l$ #hain #on"&lting 6ervie"
fC B&tdoor 6torage Dard"
gC LongETerm 6torage or 6hortETerm 6torage
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COMPANY PROFILE
FAR N PAR (INDIA) PIVTE LI.TED wa" inor!orated a" a Private
Limited #om!an$ in .adra" (#hennai) d&ring the $ear 2@?9 '$ .r. D.
Amarnath, a !o"t grad&ate in ommere who mainl$ "tarted a" a &"tom"
learing agent and onentrated onl$ in 6ea im!ort". A" time !a""ed the
om!an$ ha" "!eiali/ed into Inland "&rfae tran"!ortation. Thi" wa" an o&t
ome of there &"tomer" need for tran"!ortation of their .ahiner$ 7 Raw
material" im!ort" to their fatorie" "it&ated in di"tant !lae" in and aro&nd the
neigh'oring "tate".
D&ring the $ear 2@@A, the '&l) dr&g ind&"tr$ "tarted m&"hrooming in and
aro&nd ($dera'd and !rod&tion of '&l) dr&g" and dr&g intermediari"e "tarted
in a 'ig wa$. Thi" ha" nee""itated thi" om!an$ to "tart an offie in ($dera'd to
ater to the need of their &"tomer" to tran"at im!ort e*!ort '&"ine"" thro&gh
inland ontained de!ot at ($dera'ad for "ea argo. D&ring the $ear 2@@2E@4 the
om!an$ ha" the di"tintion of handling the !ro+et im!ort" of mo"t of the
granite" "la'" and tile" man&fat&ring ind&"trie" "it&ated in Andhra Prade"h.
Eno&raged '$ the 'ooming e*!ort" mar)et for '&l) dr&g" and
intermediate and im!rovement in Air E*!ort" from ($dera'ad to vario&"
international de"tination", Air argo "etion wa" "tarted in ($dera'ad offie
d&ring the $ear 2@@8E@9. After f&lfillment of all the re3&i"ite '&"ine""
a!a'ilitie", e*!erti"e and finanial "trength", it ha" attained the "tat&" of an
a!!roved IATA agent d&ring the $ear 2@@<. The om!an$ i" !ro&d of 'eing the
fir"t a!!roved IATA argo agent from ($dera'ad.F
1&nt&r Engineering #ollege =
The #om!an$ handled mo"t of the 1reenho&"e" and Plant material
im!ort" of the Flori&lt&re !ro+et" that have ome &! in %angalore and
($dera'd and thi" in a wa$ eno&raged &" to o!en o&r %angalore 'ranh for
mainl$ e*!orting &t flower" (!eri"ha'le") to Am"terdam and other international
de"tination" d&ring the $ear 2@@=.
After on"olidating root" of o!eration in 8 !lae" thro&gh own offie", the
.&m'ai Bffie o!eration" had ommened from 4AA4 and Delhi from 4AA<.
The$ have al"o "!eiali/ed in handling Pro+et im!ort" and have ahieved
on"idera'le !erfetion in handling the entire !ro+et" from wareho&"e to
wareho&"e. And )ee!ing in view the demand" of the &"tomer" 7 the
gol'ali"ation that ha" ta)en !lae, FAN N PAR ha" evolved into a total logi"ti
"ol&tion" !rovider with it" "mall $et a dediated team of !rofe""ional".
FAR N PAR 0IT( it" arm" "!read in #entral India i" !re"entl$ "erving
it" &"tomer" thro&gh the"e Five !ort". (ene, it offer" "ervie" to i" &"tomer"
at other !ort" thro&gh it" a""oiate Networ).
1&nt&r Engineering #ollege >
THE COMPANIES ACT, 1956
(COMPANY LIMITED BY SHARES)
ARTICLES OF ASSOCIATION
OF
FAR N PAR (INDIA) PRIVATE LIMITED
PRELIMINARY
2. 6&'+et a" hereinafter !rovided the reg&lation" ontained in Ta'le A
of 6hed&leE2 to the #om!anie" At, 2@<= "hall a!!l$ to the
om!an$.
INTERPRIETATION CLAUSE
In the"e artile" the following wor)" and e*!re""ion" "hall have the
following meaning &nle"" e*l&ded '$ the "&'+et or onte*t.
I. GThe AtH mean" the #om!anie" At, 2@<= or an$ "tat&tor$ modifiation"
thereof for the time 'eing in fore.
II. GThe %oardH of GThe %oar of Diretor"H mean" the %oard of Diretor" of
the #om!an$ a meeting of the Diretor" d&l$ alled and on"tit&ted or the
re3&i"ite n&m'er of, Diretor" entitled to !a"" a re"ol&tion '$ ir&lation
in aordane with the"e artile.
III. GThe #om!an$H or GThi" #om!an$H "hall mean FAR N PAR (INDIA)
PRIVATE LI.ITED
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IV. GDiretor"H mean" the Diretor" for the time 'eing of the #om!an$ or a"
the a"e ma$ 'e the Diretor" a""em'led at a %oard .eeting.
V. G.em'er"H "hall mean mem'er or the #om!an$ holding "hare or "hare"
of an$ la"" and regi"tered in the Regi"ter or .em'er" of the #om!an$.
VI. G.onthH mean" the %riti"h alendar month.
PRIVATE COMPANY
The #om!an$ "hall 'e a Private #om!an$ within the meaning of "etion
8(2) (iii) of the #om!anie" At, 2@<= and aordingl$.
a) No invitation "hall 'e i""&ed to the !&'li to "&'"ri'e for an$ "hare" in
orde'ent&re" of the om!an$
') The right to tran"fer "hare" of the #om!an$ i" re"trited In the manner
hereinafter !rovided.
CAPITAL
The a&thori/ed 6hare #a!ital of the #om!an$ i" R". 4<,AA,AAAA5E (R&!ee"
Twent$ five la)h" onl$) divided into 4,<AA E3&it$ 6hare" of R". 2,AAA5E eah.
The 'oard ma$ allot and i""&e "ale" in the a!ital of the #om!an$ a"
!a$ment are !art !a$ment for an$ '&"ine"" !ro!ert$ "ho&ld or tran"ferred good"
are mahiner$ and a!!liane" "o!!led, are "ervie" rendered of the om!an$ in
are a'o&t the formation or !romotion of the om!an$.
TRANSFERRED AND TRANSMISSION OF SHARES
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The right of .em'er" to tran"fer their "hare" "hall 'e re"trited a" follow"
(a) 6ave a" !rovided '$ "&'Ela&"e (i) of "&'Ela&"e (i) of thi" artile" no "hare"
"hall 'e tran"ferred to a !er"on who i" not a mem'er "o long a" an$ mem'er i"
willing to !&rha"e the "ame at a fair val&e.
(') If the om!an$ "hall, within the "!ae of thirt$ da$" after 'eing "erved with the
tran"fer notie, find a !&rha"ing mem'er, and "hall give notie there of to the
!ro!o"ing tran"feror, he "hall 'e 'o&nd &!on !a$ment of fair val&e a" fi*ed in
aordane with "&'Ela&"e (') or (d) of thi" artile to tran"fer the "hare to the
!&rha"ing mem'er.
() If the #om!an$ "hall not within the "!ae of thirt$ da$" after 'eing "erved with a
tran"fer notie, find a !&rha"ing mem'er and give notie in the manner
afore"aid the !ro!o"ing tran"feror "hall at an$ time within three month"
afterward" 'e at li'ert$ "&'+et to "&'a&"e of thi" Artile" to "ell and tran"fer the
"hare (or where there are more "hare" than one tho"e not !laed '$ the
#om!an$) to an$ !er"on and at an$ !rie.
(d) If an$ "hare"h "hall not 'e a!a'le of 'eing offered witho&t fration" to the
mem'er" in !ro!ortion to their holding" the "ame "hall 'e offered to the
mem'er" or "ome of them in "&h !ro!ortion or in "&h manner" a" ma$'e
determined '$ lot" to 'e drawn &nder the diretion" of the %oard.
(e) A "hare ma$ 'e tran"ferred '$ a mem'er to an$ !er"on whether a mem'er or not
with the on"ent in writing of all the "hareholder" and in "&h a"e the !roed&re
!re"ri'ed in "&'Ela&"e (') to (g) hereof "hall not a!!l$.
BOARD OF DIRECTORS
1&nt&r Engineering #ollege 2A
The N&m'er of Diretor" "hall not 'e le"" than two and &nle"" otherwi"e
determined '$ the #om!an$ in 1eneral .eeting not more than "even.
The !re"ent Diretor" of the #om!an$ are -
2) D. Amarnath
4) D. Dharma Te+a
8) I.P.V. Pra"ad
Finanial .anager - 1o!ala Jri"han
Per"onal .anager - 6&re"h
The #om!an$ in 1eneral .eeting ma$ a!!oint at an$ time and from time
to time an$ !er"on or !er"on" a" Additional Diretor or Diretor", and ma$ fi*
the ten&re of offie and other term" and ondition" in re"!et thereof.
MANAGEMENT OF BUSINESS
6&'+et to the !rovi"ion" of the At and the"e Artile", the ontrol of the
om!an$ "hall 'e ve"ted in the %oard who "hall 'e entitled to e*eri"e all "&h
!ower" and do all "&h at" and thing" a" the #om!an$ i" a&thori/ed to e*eri"e
and do, !rovided that the %oard "hall not e*eri"e an$ !ower or do an$ at or
thing whih i" direted or re3&ired '$ the At or an$ other "tat&e or '$
.emorand&m of the #om!an$ or '$ the"e Artile" a" amended from time to
time or otherwi"e to 'e e*eri"ed or done '$ the #om!an$ in 1eneral .eeting".
No reg&lation made '$ the #om!an$ in 1eneral .eeting "hall invalidate an$
!rior at of the Diretor" whih wo&ld have 'een valid if that reg&lation had not
'een made.
6&'+et to the !rovi"ion" of the At, the %oard man$ from time to time a"
the$ ma$ thin) fit dlegated to a .anaging Diretor or 6eretar$ all or an$ of the
!ower" onferred &!on the %oard other than !ower" e*!re""l$ re3&ired to 'e
e*eri"ed '$ the %oard &nder At.
COMMON SEAL
The %oard "hall !rovide a ommon "eal for the #om!an$ and "hall have
the !ower from time to time to de"tro$ the "ame and "&'"tit&te a new "eal in lie&
thereof and the "eal "hall 'e )e!t at the Regi"tered Bffie of the #om!an$ and 'e
in the &"tod$ of the .anaging Diretor or an$ other Diretor nominated '$ the
%oard.
The "eal "hall not 'e affi*ed to an$ in"tr&ment e*e!t '$ a&thorit$ of a
re"ol&tion of the %oard or of a ommittee of the %oard a&thori/ed '$ the %oard
in the 'ehalf. Ever$ deed or to their in"tr&ment in whih the "eal i" re3&ired to 'e
affi*ed "hall, &nle"" the "ame i" e*e&ted '$ a d&l$ on"tit&ted attome$ for the
#om!an$, 'e "igned '$ two Diretor" of the #om!an$ in who"e !re"ene the
"eal "hall have 'een affi*ed, !rovided that in regard to the affi*ing of the "eal on
"hare ertifiate" the !rovi"ion of law for the time 'eing in fore in re"!et
thereof "hall 'e om!lied with
AUDIT
The fir"t A&ditor or A&ditor" of the #om!an$ "hall 'e a!!ointed '$ the
%oard with in one month of the date of the Fir"t Ann&al 1eneral .eeting.
The !re"ent A&ditor in thi" #om!an$ KV PRASAD
B!"#ers $ S%!%e B!"# &' I"(i!
ICICI B!"#
ADDRESS OF THE COMPANY$
FAR N PAR )INDIA* PRIVATE LIMITED+
9A9, 9
th
Floar,
GTBPAKH GAmr&tha (ill"H P&n+ag&tta,
(DDERA%AD L <AA A?4, A.P., INDIA.
Tel. Bff - A@2E9AE489A<@2?, 489A849A
Fa* - A@2E9AE48924<4A
EE.ail - www.farn!arindia.om
NEED OF THE STUDY
The a!ital '&dgeting dei"ion" ma$ 'e defined a" the firm," dei"ion to inve"t
in &rrent f&nd" mo"t effetivel$ 7 effiientl$ in the long L term a""et" in antii!ation
of an e*!eted flow of 'enefit" over a "erie" of $ear". The longEterm a""et" are tho"e
that affet the firm," o!eration" 'e$ond the one $ear !eriod. The firm," inve"tment
dei"ion" wo&ld generall$ inl&de" e*!an"ion, a3&i"ition moderni/ation and
re!laement of long term a""et". 6ale of a divi"ion or '&"ine"" i" al"o an inve"tment
dei"ion. Dei"ion li)e the hange in the method" of "ale" di"tri'&tion, or an
adverti"ement am!aign or re"earh and develo!ment !rogram have long Lterm
im!liation" for the firm," e*!endit&re and 'enefit", and therefore the$ "ho&ld al"o 'e
eval&ated a" inve"tment dei"ion".
The rationale &nderl$ing the a!ital '&dgeting dei"ion" effiien$ i" a firm
m&"t re!lae worn and o'"olete !lant and mahiner$, a3&ire fi*ed a""et" for &rrent
and new !rod&t" and ma)e "trategi inve"tment dei"ion". Thi" will ena'le the firm to
ahieve it" o'+etive of ma*imi/ing !rofit" either '$ wa$ of inrea"ed reven&e" or o"t
red&tion". The 3&alit$ of the"e dei"ion" i" im!roved '$ a!ital '&dgeting. #a!ital
'&dgeting dei"ion an 'e of two t$!e"-
2) To tho"e whih e*!and reven&e", and
4) To tho"e whih red&e o"t".
IMPORTANCE OF THE STUDY
#a!ital inve"tment", re!re"enting the growing edge of a '&"ine"", are deemed to 'e
ver$ im!ortant. The$ are three inve"ted fator"
2) The infl&ene firm growth in the long term on"e3&ene" a!ital inve"tment
dei"ion" have on"idera'le im!at on what the firm an do in f&t&re.
4) The$ affet the ri") of the firmM it i" diffi&lt to rever"e a!ital inve"tment
dei"ion" 'ea&"e the mar)et for &"ed a!ital inve"tment i" ill organi/ed or mo"t
of the a!ital e3&i!ment" 'o&ght '$ a firm to meet it" "!eifi re3&irement".
8) #a!ital inve"tment dei"ion" involve "&'"tantial o&tla$".
GFAR N PARH i" a growing onern, a!ital '&dgeting i" more or le"" a
ontin&o&" !roe"" and it i" arried o&t '$ different f&ntional area" of management
"&h a" !rod&tion, mar)eting, hemial engineering, finanial management et., all
the relevant f&ntional de!artment" !la$ a r&ial role in the a!ital '&dgeting
dei"ion !roe"".
1&nt&r Engineering #ollege 2<
OB,ECTIVES OF THE STUDY
To !re"ent theoretial framewor) relating to a!ital '&dgeting.
To "t&d$ the finanial a"!et" for f&t&re e*!an"ion of GFAR N PARH.
To di"&"" the !roe"" of !ro+et evol&tion followed '$ GFAR N PARH.
To eval&ate the element" on"ider '$ GFAR N PARH for e*!an"ion !ro+et.
To "&mmari/e and offer "&gge"tion" for the 'etter inve"tment !ro!o"al" in GFAR
N PAR.
1&nt&r Engineering #ollege 2=
LIMITATIONS OF THE STUDY
The following are the limitation" of the "t&d$-
6ine the !roed&re and !oliie" of the om!an$ will not allow to di"lo"e
onfidential finanial information, the !ro+et ha" to 'e om!leted with the
availa'le data given to &".
The !eriod of "t&d$ that i" ? wee)" i" not eno&gh to ond&t "t&d$ of the
!ro+et.
The "t&d$ i" arried 'a"ing on the information and do&ment" !rovided '$ the
organi/ation and 'a"ed on the interation with the vario&" em!lo$ee" of the
re"!etive de!artment".
There wa" no "o!e of gathering &rrent information, a" the a&diting ha" not
'een done '$ time of !ro+et wor).
1&nt&r Engineering #ollege 2>
CAPITAL BUDGETING
#a!ital '&dgeting i" the !roe"" of ma)ing inve"tment dei"ion" in a!ital
e*!endit&re". A a!ital e*!endit&re ma$ 'e defined a" an e*!endit&re the 'enefit" of
whih are e*!eted to 'e reeived over !eriod of time e*eeding one $ear. The main
harateri"ti of a!ital e*!endit&re i" that the e*!endit&re i" in&rred at one !oint of
time wherea" 'enefit" of the e*!endit&re are reali/ed at different !oint" of time in
f&t&re. In "im!le lang&age we ma$ "a$ that a a!ital e*!endit&re i" an e*!endit&re
in&rred for a3&iring or im!roving or im!roving the fi*ed a""et", the 'enefit" of whih
are e*!eted to 'e reeived over a n&m'er of $ear" in f&t&re.
Thi" !ro+et !re"ent" two ver"ion" of he&ri"ti algorithm to "olve a model of
a!ital '&dgeting !ro'lem in a deentrali/ed m&ltidivi"ional firm involving no more
than two e*hange" of information 'etween head3&arter" and divi"ion". (ead 3&arter"
ma)e alloation of f&nd" to eah divi"ion 'a"ed &!on it" a"h demand and it" !otential
growth rate. Eah divi"ion determine" whih !ro+et" to ae!t. Then, an additional
iteration i" !erformed to define the "ol&tion
To ta)e &! a new !ro+et, involve" a a!ital inve"tment dei"ion and it i" the to!
management," d&t$ to ma)e a "it&ation and fea"i'ilit$ anal$"i" of that !arti&lar !ro+et
and mean" of finaning and im!lementing it. Finaning i" a ra!idl$ e*!anding field,
whih fo&"e" not on the redit "tat&" of a om!an$, '&t on a"h flow" that will 'e
generated '$ a "!eifi !ro+et.

The a!ital '&dgeting dei"ion" !roed&re 'a"iall$ involve" the eval&ation of
the de"ira'ilit$ of an inve"tment !ro!o"al. It i" o'vio&" that the firm m&"t have a
"$"temati !roed&re for ma)ing a!ital '&dgeting dei"ion". The !roed&re for
ma)ing a!ital '&dgeting dei"ion" m&"t 'e on"i"tent with o'+etive of wealth
ma*imi/ation. In view of the "ignifiane of a!ital '&dgeting dei"ion", the !roed&re
m&"t on"i"t of "te! '$ "te! anal$"i" of the data to 'ridge the ga! in the organi/ation.
1&nt&r Engineering #ollege 2?
The a!ital !rogram i" generall$ finaned '$ 'orrowing mone$ &"&all$ thro&gh
the "ale" of 'ond". Thi" differ" from the om!an$," e*!en"e" '&dget, whih over" da$E
toEda$ o!erating e*!endit&re" 7 i" finaned '$ om!an$," ta*e" and other reven&e"
along with other om!anie" in the ind&"tr$.
The a!ital '&dgeting "trateg$ !re"ent" the goal", !oli$ on"traint",
a""&m!tion", the organi/ation," a!ital need" over the ne*t 2A $ear". The do&ment al"o
!rovide" the antii!ated "o&re" of finaning, and the im!liation" of the "trateg$,
inl&ding an$ !o""i'le eonomi, "oial and environmental effet". After a !&'li
hearing and a re!ort '$ the organi/ation !lanning ommi""ion or 'oard of diretor", the
final ver"ion of the "trateg$ i" relea"ed with the e*e&tive '&dget in ever$ $ear.
The "trateg$ !re"ent" a!ital !ro+et" in 'road ategorie" that reflet
organi/ation," agen$ goal". There are vario&" wa$" the organi/ation reord" the
!rogre"" of a!ital !ro+et". In general, the$ mea"&re finanial tran"ation, "!ending
and o'ligation, rather than what mo"t de!artment ome a'o&t the "tat&" of wor) on a
!arti&lar !ro+et. Altho&gh information i" !&'lil$ availa'le on ann&al a!ital
"!ending '$ '&dget line, no information i" &rrentl$ made !&'lil$ availa'le that
!rovide" detailed !ro+et level information on the "tat&" of a!ital !ro+et".
1&nt&r Engineering #ollege 2@
FACTORS FOR CAPITAL BUDGETING:-
#o"t of a3&i"ition of !ermanent a""et a" land and '&ilding, !lant and
mahiner$, goodwill, et.
#o"t of addition, e*!an"ion, Im!rovement or alteration in the fi*ed a""et".
#o"t of re!laement of !ermanent a""et".
Re"earh and develo!ment !ro+et o"t, et.
DEFINITIONS OF CAPITAL BUDGETING:-
G#a!ital '&dgeting i" a long term !lanning for ma)ing and finaning !ro!o"ed a!ital
o&tla$"H
: - T. Horngreen
-A '&dget i" an e"timate of f&t&re need" arranged aording at an orderl$ 'a"i"
overing "ome or all the ativitie" of an enter!ri"e for a definite !eriod of timeH
: - George R. Terry
-%&dget a" a finanial and5 or 3&antitative "tatement !re!ared to a definite !eriod of
time, of the !oli$ to 'e !&r"&ed d&ring that !eriod for the !&r!o"e of attaining a given
o'+etiveH
- E Icma, Lonon
SIGNIFICANCE OF CAPITAL BUDGETING:-
#a!ital '&dgeting dei"ion" de"erve to 'e treated in a different manner a" there are
one!t&al !ro'lem" involved whih nee""aril$ ma)e" the dei"ion !roe"" more
om!le*, while thi" ma)e" thing" more diffi&lt for the dei"ion !roe"" ma)er, it al"o
ma)e" the !ro'lem more hallenging. There are "everal !ratial rea"on" for !laing
greater em!ha"i" on a!ital e*!endit&re dei"ion". The"e are
!. LONG TER" PERIOD:-
The on"e3&ene" of a!ital e*!endit&re dei"ion" e*tend far into f&t&re. The "o!e
of &rrent man&fat&ring ativitie" of an organi/ation i" governed largel$ '$ a!ital
e*!endit&re" in the !a"t. Li)ewi"e, &rrent a!ital e*!endit&re" dei"ion !rovide" the
frame wor) for f&t&re ativitie". #a!ital inve"tment dei"ion" have an enormo&" 'earing
on the 'a"i harater of an organi/ation.
#. IRRE$ESIBILIT%:-
The mar)et" are &"ed for a!ital e3&i!ment in general i" illEorgani/ed. F&rther,
"ome t$!e" of a!ital e3&i!ment, &"tom made to meet "!eifi re3&irement", the
mar)et ma$ virt&all$ 'e nonEe*i"tent.
&. SUBSTANCIAL OUTLA%:-
#a!ital e*!endit&re &"&all$ involve" "&'"tantial o&tla$". An integrated "teel
!lant, for e*am!le, involve" an o&tla$ of "everal tho&"and million". #a!ital o"t" tend
to inrea"e with advaned tehnolog$.
NEED OF CAPITAL BUDGETING:-
The im!ortane of a!ital '&dgeting an 'e well &nder"tood from the fat that
&n"o&nd inve"tment dei"ion ma$ !rove to 'e fatal to the ver$ e*i"tene of the onern.
The need, "ignifiane or im!ortane of a!ital '&dgeting ari"e" mainl$ d&e to the
following
Large inve"tment"
LongEterm ommitment of f&nd"
Irrever"i'le nat&re
LongEterm effet on !rofita'ilit$
Diffi&ltie" of inve"tment dei"ion"
National im!ortane.
FEATURES OF CAPITAL BUDGSTING PROCESS:-
Potentiall$ large antii!ated 'enefit".
A relative high degree of ri").
A relative long time !eriod 'etween the initial o&tla$ and antii!ated ret&rn".
OB'ECTI$ES FOR CAPITAL BUDGETING:-
It determine" the a!ital !ro+et" on whih wor) an 'e "tarted d&ring the
'&dget !eriod after ta)ing into ao&nt their &rgen$ and the e*!eted rate of
ret&rn on eah !ro+et.
It e"timate" the e*!endit&re that wo&ld have to 'e in&rred on a!ital !ro+et"
a!!roved '$ the management together with the "o&re" from whih the re3&ired
f&nd" wo&ld 'e o'tained.
It re"trit" the a!ital e*!endit&re on !ro+et" within a&thori/ed limit".
(INDS OF CAPITAL BUDGETING:-
#a!ital '&dgeting refer" to the total !roe"" of generating, eval&ating, "eleting and
following &! a a!ital e*!endit&re alternative". The firm alloate" or '&dget" finanial
reo&r"e" to new inve"tment !ro!o"al". %a"iall$, the firm ma$ 'e onfronted with
three t$!e" of a!ital '&dgeting dei"ion"-E
To ae!t or re+et dei"ion,
The m&t&all$ e*l&"ive hoie dei"ion", and
The a!ital rationing dei"ion
T%PES OF CAPITAL BUDETING DECISIONS:-
#a!ital '&dgeting dei"ion" are of !aramo&nt im!ortane in finanial dei"ion ma)ing.
In fir"t !lae the$ affet the !rofita'ilit$ of the firm. The$ al"o have a 'earing on the
om!etitive !o"ition of the firm 'ea&"e the$ relate to fi*ed a""et". The fi*ed a""et" are
tr&e good" that an &ltimatel$ 'e "old forE!rofit. 1enerall$ the a!ital '&dgeting of
inve"tment dei"ion inl&de" addition, di"!o"ition, modifiation, and re!laement of
fi*ed a""et".
E)PANSION OF E)ISTING BUSINESS:-
A om!an$ ma$ add a!ait$ to it" e*i"ting !rod&t line" to e*!and e*i"ting
o!eration". For e*am!le %harati "oa! wor)" (%60) ma$ inrea"e it" !lant a!ait$ to
man&fat&re more detergent" "oa!" 7 !owder. It i" an e*am!le of related e*!an"ion.
E)PANSION OF NE* BUSINESS:-
A Firm ma$ e*!and it" ativitie" in a new '&"ine"" e*!an"ion of a new '&"ine""
re3&ire" inve"tment and new )ind of !rod&tion ativating with in the firm. If !a)ing
man&fat&ring om!an$ inve"t" in a new !lant and mahiner$ to !rod&e 'all 'earing",
whih the firm ha" not man&fat&red 'efore, thi" re!re"ent" e*!an"ion of new '&"ine""
or &nrelated diver"ifiation. 6ometime" aom!an$ a3&ire" e*i"ting firm" to e*!and
it" '&"ine"".
REPLACE"ENT AND "ODERANI+ATION:-
The main o'+etive of moderni/ation and re!laement i" to im!rove
o!erating effiien$ to red&e o"t". #o"t "aving" will reflet in the inrea"ed !rofit",
1&nt&r Engineering #ollege
TDPE6 BF #APITAL
%;D1ETIN1
ENPAN6IBN BF
ENI6TIN1
%;6INE66
ENPAN6IBN BF
NE0 %;6INE66
REPLA#E.ENT 7
.BDERNIKATIBN
48
'&t the firm," reven&e ma$ remain &nhanged. A""et" 'eome o&tdated and a'"ol&te
with tehnologial hange". The firm m&"t deide to re!lae tho"e with new a""et" that
o!erate more eonomiall$. Re!laement dei"ion" hel! to introd&e more effiient and
eonomial a""et" and therefore, are al"o alled o"tEred&tion inve"tment".
(owever re!laement dei"ion" that involve "&'"tantial moderni/ation and
tehnologial im!rovement" e*!and reven&e" a" well a" red&e o"t". Det another
&"ef&l wa$ to la""if$ inve"tment" i" a" follow"-
.&t&all$ e*l&"ive inve"tment"
Inde!endent inve"tment"
#ontingent inve"tment"
CAPITAL BUDGETING PROCESS:-
The !re!aration of the a!ital '&dget i" a !roe"" that la"t" man$ month" and i"
intended to ta)e into ao&nt neigh'orhood and 'o&gh need" a" well a" organi/ation
wide. The !roe"" 'egin in the fall, when eah of the "egment hold" !&'li hearing",
eah omm&nit$ 'oard "&'mit" a "tatement" of it" a!ital !rioritie" for the ne*t fi"al
$ear to the managing diretor and a!!ro!riate 'oard hairman. The a!ital '&dgeting
!roe"" involve" ? "te!" e*!lained in diagrammati 7 theoreti a" follow"-
DIAGRA"ATIC REPRESENTATION OF CAPITAL BUDGETING:-

!, IDENTIFICATION OF IN$EST"ENT PROPOSALS:-
The a!ital '&dgeting !roe"" 'egin" with the identifiation of inve"tment
!ro!o"al". The inve"tment !ro!o"al" ma$ originate from the to! management or from
an$ offier of the organi/ation. The de!artment head anal$"e" the vario&" !ro!o"al" in
the light of the or!orate "trategie" and "&'mit the "&ita'le !ro!o"al to the a!ital
'&dgeting ommittee in a"e of large organi/ation" onerned with !roe"" of longE
term inve"tment !ro!o"al".
#, SCREEN PROPOSALS:-
The e*!endit&re !lanning ommittee "reen" the vario&" !ro!o"al" reeived from
different de!artment" in different angle" to en"&re that the"e are in "eletion riteria of
the organi/ation and al"o do not lead to de!artment im'alane".
?
>
=
<
9
8
4
2
#a!ital
'&dgeting
4<
&, E$ALUTION OF $ARIOUS PROPOSALS:-
The ne*t "te!" in a!ital '&dgeting !roe"" i" to eval&ate the !ro'a'ilit$ of
vario&" inde!endent !ro!o"al" tho"e whih do not om!ete with one another and the
"ame wa$ 'e either ae!ted or re+eted on the 'a"i" of a minim&m ret&rn on
inve"tment re3&ired.
-, FI)ING PRIORITIES:-
After eval&ating vario&" !ro!o"al", the &n!rofita'le or &neonomi !ro!o"al"
ma$ 'e re+eted "traight awa$. %&t it ma$ not 'e !o""i'le for the organi/ation to inve"t
immediatel$ in all the ae!ta'le !ro!o"al" d&e to limitation" of f&nd". (ene, it i" ver$
e""ential to ran) the vario&" !ro!o"al" and to e"ta'li"h !rioritie" after on"idering
&rgen$, ri") 7 !rofita'ilit$ involved i" the riteria.
., FINAL APPRO$AL:-
Pro!o"al" meeting the eval&ation and other riteria are finall$ a!!roved to 'e
inl&ded in the a!ital e*!endit&re '&dget. (owever !ro!o"al" involving "maller
inve"tment ma$ 'e deided at the lower level" for e*!editio&" ation. The a!ital
e*!endit&re '&dget la$ down the amo&nt of e"timated e*!endit&re to 'e in&rred on
fi*ed a""et" d&ring the '&dget !eriod.
/, I"PLE"ENTING PROPOSALS:-
Pre!aration of a a!ital e*!endit&re '&dget 7 inor!oration of !arti&lar
!ro!o"al" in the '&dget doe" not it"elf a&thori/e to go ahead with im!lementation of the
!ro+et. A re3&e"t for a&thorit$ to "!end the amo&nt "ho&ld 'e made to 'e the a!ital
e*!endit&re ommittee whih ma$ li)e to review the !rofita'ilit$ of the !ro+et in
hanged ir&m"tane". In the im!lementation of the !ro+et" networ)" tehni3&e" "&h
a" PERT 7 #P. are a!!lied for !ro+et management.
0, PERFOR"ANCE RE$IE*:-
In thi" "tage the !roe"" of a!ital '&dgeting i" the eval&ation of he !erformane of
the !ro+et. The eval&ation i" made thro&gh !o"t om!letion a&dit '$ wa$ of
om!ari"on of at&al e*!endit&re on the !ro+et with the '&dgeted one, and al"o '$
om!aring the at&al ret&rn from the inve"tment with the antii!ated ret&rn. The
&nfavora'le variane" if an$ "ho&ld 'e loo)ed into and the a&"e" the "ame 'e
identified "o that orretive ation ma$ 'e ta)en in f&t&re.
1, FEEDBAC(:-
The la"t "te! in the a!ital '&dgeting !roe"" i" feed'a) from em!lo$ee"
involved in the organi/ation. If an$ on"e3&ene" are there the !roe"" ma$ ome to 2
"t
"te! of the !roe"".
GUIDELINE FOR CAPITAL BUDGETING:-
There are man$ g&ideline" for a!ital '&dgeting !roe"" either it i" longEterm or
"hortE term !lan. The ma+or !oint" are-
Need and o'+etive" of the owner
6i/e of mar)et in term" of e*i"ting 7 !ro!o"ed !rod&t line" and antii!ated
growth of the mar)et "hare
6i/e of e*i"ting !lant" 7 !lan" for new !lant "ite" and !lant
Eonomi ondition" whih ma$ affet the firm," o!eration" and
%&"ine"" and finanial ri") a""oiated with the re!laement 7 e*i"ting a""et" of
the !&rha"e" of new a""et".
CO""ITTEE IN CAPITAL BUDGETING:-
#(IEF
ENE#;TI
VE
PRBD;#TIBN
.ANA1ER
6ALE6
.ANA1ER
FINAN#E
.ANA1ER
BUDGET
OFFICER
BUDGET
COMMITTEE
A##B;NT6
.ANA1ER
PER6BNNEL
.ANA1ER
RE6EAR#( 7
DEVELBP.EN
T .ANA1ER
4?
CAPITAL CO""IT"ENT PLAN:-
The !rogre"" of !ro+et" inl&ded in the a!ital '&dget, a a!ital ommitment
!lan i" i""&ed three time" a $ear. The ommitment !lan la$" o&t the antii!ated
im!lementation "hed&le for the &rrent fi"al and the ne*t three $ear". The fir"t
ommitment !lan i" !&'li"hed within @Ada$" of the ado!tion of the a!ital '&dget.
;!dated ommitment !lan" are i""&ed in Ian&ar$ 7 A!ril along with the om!an$,"
'&dget !ro!o"al".
The ommitment !lan tran"late" the a!!ro!riation" a!!roved &nder the ado!ted
a!ital '&dget into "hed&le for im!lementing individ&al !ro+et". The fat that f&nd"
are a!!ro!riated for a !ro+et in the a!ital '&dget doe" not nee""aril$ mean that wor)
will "tart or 'e om!leted that fi"al $ear. The hoie of !rioritie" and timing of !ro+et"
i" deided '$ offie management 7 '&dget in on"&ltation with the agenie" along with
on"ideration" of how m&h the managing diretor thin)" the organi/ation an afford to
a!!end on a!ital !ro+et" overall.
The a!ital ommitment !lan la$" o&t the antii!ated im!lemented "hed&le for
a!ital !ro+et" and i" one "o&re of information on how far along !ro+et" are altho&gh
not on"i"tent or alwa$" &"ef&l one. The ado!ted ommitment !lan i" &"&all$ !&'li"hed
in 6e!tem'er, 7 then &!dated in Ian&ar$ 7 A!ril.
In the a!ital '&dgeting for ever$ two ad+aent $ear" there will 'e ga!. The ga!
'etween a&thori/ed ommitment" and the target i" !re"ented in a!ital ommitment
!lan a" dimini"hing over the o&r"e of the $ear !lan, in !ratie man$ of the
G&nattained ommitment"H will 'e rolled over into the ne*t $ear," !lan, "o that the
&rrent $ear ga! will remain large. The ga! ha" grown in reent $ear e*eeding in la"t
two e*e&tive a!ital !lan".
SI"ILARITIES BET*EEN CAPITAL BUDGETING 2 SECURIT%
$ALUTION:-
Bne a !otential a!ital '&dgeting !ro+et ha" 'een identified, it" eval&ation
involve" the "ame "te!" that are &"ed in "e&rit$ anal$"i"-
Fir"t, the o"t of the !ro+et m&"t 'e determined. Thi" i" "imilar to finding the
!rie that m&"t 'e !aid for "to) or 'ond.
Ne*t, management e"timate" the e*!eted a"h flow" from the !ro+et,
inl&ding the "alvage val&e of the a""et at the end of it" e*!eted life. Thi" i"
"imilar to e"timating the f&t&re dividend or intere"t !a$ment "tream on a "to)
or 'ond, along with the "to)" e*!eted "ale" !rie or the 'ond," mat&rit$ val&e.
Third, the ri")ine"" of the !ro+eted a"h flow" m&"t 'e e"timated. Thi" re3&ire"
information a'o&t the !ro'a'ilit$ di"tri'&tion of the a"h flow".
1iven the !ro+et," ri")ine"", management determine" the o"t of a!ital at
whih the a"h flow" "ho&ld 'e di"o&nted.
Ne*t, the e*!eted a"h flow" or inflow" are !&t on a !re"ent val&e 'a"i" to
o'tain an e"timate of the a""et," val&e. Thi" i" e3&ivalent to finding the !roe""
val&e of "to)," e*!eted f&t&re dividend".
Finall$, the !re"ent val&e of e*!eted a"h inflow" i" om!ared with the
re3&ired o&tla$. If the PV of the a"h flow" e*eed" the o"t, the !ro+et "ho&ld
'e ae!ted. Btherwi"e, it "ho&ld 'e re+eted.
DIFFICULTIES OF CAPITAL BUDGETING:-
0hile a!ital e*!endit&re dei"ion" are e*tremel$ im!ortant, the$ al"o !o"e
diffi&ltie" whih "tem from three !rini!al "o&re"-
Identif$ing 7 mea"&ring the o"t" 7 'enefit" of a a!ital e*!endit&re !ro!o"al
tend" to 'e diffi&lt
There i" great deal of &nertaint$ for a!ital e*!endit&re dei"ion whih
involve" o"t 7 'enefit" that e*tend far into the f&t&re
It i" im!o""i'le to !ro+et e*atl$ what will ha!!en in the f&t&re
The time !eriod reate" "ome !ro'lem" in e"timating di"o&nt rate" 7
e"ta'li"hing e3&ivalene".
LI"ITATIONS OF CAPITAL BUDGETING:-
#a!ital '&dgeting tehni3&e" "&ffer from the following limitation"-
2) All the tehni3&e" of a!ital '&dgeting !re"&me that vario&" inve"tment
!ro!o"al" &nder on"ideration are m&t&all$ e*l&"ive whih ma$ not !ratiall$
'e tr&e in "ome !arti&lar ir&m"tane".
4) The tehni3&e" of a!ital '&dgeting re3&ire e"timation of f&t&re a"h inflow"
and o&tflow". The f&t&re i" alwa$" &nertain and the data olleted for f&t&re
ma$ not 'e e*at. B'livio&"l$ the re"&lt" 'a"ed &!on wrong data ma$ not 'e
good.
8) There are ertain fator" li)e morale of the em!lo$ee", goodwill of the firm,
et., whih annot 'e orretl$ 3&antified '&t whih other wi"e "&'"tantiall$
infl&ene the a!ital dei"ion.
9) ;rgen$ i" another limitation in the eval&ation of a!ital inve"tment dei"ion".
<) ;nertaint$ and ri") !o"e the 'igge"t limitation to the tehni3&e" of a!ital
'&dgeting.
COST EFFECTI$E ANAL%SIS:-
In the o"t effetivene"" anal$"i" the !ro+et "eletion or tehnologial hoie,
onl$ o"t" of two or more alternative" hoie" are on"idering treating the 'enefit" a"
idential. Thi" a!!roah i" &"ed when the a3&i"ition of how to minimi/e the o"t" for
&nderta)ing an ativit$ at a given di"o&nt rate" in a"e the 'enefit" and o!erating o"t"
are given, one an minimi/e the a!ital o"t to o'tain given di"o&nt.
PRO'ECT PLANNING:-
The !lanning of a !ro+et i" a tehniall$ !reEdetermined "et of inter related
ativitie" involving the effetive &"e of given material, h&man, tehnologial and
finanial re"o&re" over a given !eriod of time. 0hih in a""oiation with other
develo!ment !ro+et" re"&lt in the ahievement of ertain !redetermined o'+etive"
"&h a" the !rod&tion of "!eified good" and "ervie"O
Pro+et !lanning i" "!read over a !eriod of time and i" not a one "hot ativit$.
The im!ortant "tage" in the life of a !ro+et are-
It," identifiation
It," initial form&lation
It," eval&ation
It," final form&lation
It," im!lementation
It," om!letion and o!eration
The time ta)en for the entire !roe"" i" the ge"tation !eriod of the
!ro+et. The !roe"" of identifiation of a !ro+et 'egin" when we are "erio&"l$
tr$ing to over ome ertain !ro'lem". The$ ma$ 'e nonE&tili/ation to overome
availa'le f&nd", Plant a!ait$, e*!an"ion et.
CONTENTS OF THE PRO'ECT REPORT:-
Raw material
.ar)et and mar)eting
6ite of !ro+et
Pro+et engineering dealing with tehnial a"!et" of the !ro+et
Loation and la$o&t of the !ro+et '&ilding
%&ilding
Prod&tion a!ait$
0or) "hed&le
CRITERIA FOR CAPITAL BUDGETING:-
Potentiall$, there i" a wide arra$ of riteria for "eleting !ro+et". 6ome
"hareholder" ma$ want the firm to "elet !ro+et" that will "how immediate "&rge" in
a"h flow, other" ma$ want to em!ha"i/e longEterm growth with little im!ortane on
"hortEterm !erformane viewed in thi" wa$M it wo&ld 'e 3&ite diffi&lt to "ati"f$ the
differing intere"t" of all the "hareholder". Fort&natel$, there i" a "ol&tion.
METHODS FOR EVALUTION:-
Non DCF cr34er3a
5a, Pay 6ac7 8er3o
The !a$ 'a) !eriod one of the mo"t !o!&lar and widel$ reogni/ed traditional
method" of eval&ating inve"tment !ro!o"al". Pa$ 'a) !eriod i" the n&m'er of $ear"
re3&ired to reover the original a"h o&tla$ inve"ted in a !ro+et.
#a!ital
'&dgeting
tehni3&e"
NonED#F
riteria

D#F riteria
Net !re"ent
val&e (NPV)
Internal rate
of ret&rn
(IRR)
Profita'ilit$
inde* (P.I)
Pa$ 'a)
!eriod (P%P)
Ao&nting
rate of ret&rn
(A.R.R)
89
If the !ro+et generate" on"tant ann&al a"h flow", the !a$ 'a) !eriod an 'e
om!&ted '$ dividing a"h o&tla$ '$ the ann&al a"h inflow".
Pa$ 'a) !eriod P
C
C
o
inflow" a"h Ann&al
inve"tment Initial
o
C
P Initial inve"tment
# P Ann&al a"h inflow"
In the a"e of ;N e3&al a"h inflow", the !a$ 'a) !eriod an 'e fo&nd o&t '$
adding &! the a"h inflow &ntil the total i" e3&al to the initial a"h o&tla$.
56, Acco9n43ng Ra4e o: Re49rn 5ARR,
The ao&nting rate of ret&rn (ARR) al"o )nown a" the ret&rn on inve"tment
(RBI) &"e" ao&nting information, a" revealed '$ finanial "tatement", to mea"&re the
!rofita'ilit$ of an inve"tment. The ao&nting rate of ret&rn i" the ratio of the average
after ta* !rofit divided '$ the average inve"tment. The average inve"tment wo&ld 'e
e3&al to half of the original inve"tment if it were de!reiated on"tantl$.
A R R P
2AA
inve"tment Average
Inome Average
DCF Cr34er3a
5a, Ne4 Pre;en4 <a=9e 5NP$,
The NPV !re"ent val&e (NPV) method i" the la""i method of eval&ating the
inve"tment !ro!o"al". If D#F tehni3&e e*!liitl$ reogni/e" the time val&e at different
time !eriod" differ in val&e and om!ara'le onl$ when their e3&i!ment !re"ent val&e" L
are fo&nd o&t.
N.P.V P
A
n
n
8
8
4
4 2
)) (2
#
.........
)) (2
#
)) (2
#
)) (2
#
C
+
+
+
+
+
+
+
+
NPV P
=
+
n
i
o
C
k
C
A
2
2
) 2 (
0here
NPV P Net !re"ent val&e
fi
C
P #a"h flow" o&rring at time
) P the di"o&nt rate
n P life of the !ro+et in $ear"
A
C
P #a"h o&tla$
56, In4erna= Ra4e o: Re49rn 5IRR,
The internal rate of ret&rn (IRR) method i" another di"o&nted a"h flow
tehni3&e whih ta)e" ao&nt of the magnit&de and thing of a"h flow", other term"
&"ed to de"ri'e the IRR method are $ield on an inve"tment, marginal effiien$ of
a!ital, rate of ret&rn over o"t, time L ad+&"ted rate of internal ret&rn and "oon.
NPV P
= +
+
+
+
n
A i
n 2
fi
) ) 2 (
0# 6V
) ) 2 (
#
0here
fi
#
P #a"h flow" o&rring at different !oint of time
) P the di"o&nt rate
n P life of the !ro+et in $ear
A
#
P #a"h o&t la$
6V 7 0# P 6alvage val&e and wor)ing a!ital at the end of the n $ear".
IRR P L Q
) L ( (
) ' a (
A
0here
L P Lower di"o&nt rate at whih NPV i" !o"itive
( P (igher di"o&nt rate at whih NPV i" negative
A P NPV at lower di"o&nt rate, L
% P NPV at higher di"o&nt rate, (
5C, Pro:34a63=34y 3ne> 5PI,
Det another time L ad+&"ted method of eval&ating the inve"tment !ro!o"al" i"
the 'enefit L o"t (%5#.) ratio or !rofita'ilit$ inde* (PI) Profita'ilit$ inde* i" the ratio
of the !re"ent val&e of a"h inflow", at the re3&ired rate of ret&rn, to the initial a"h o&t
of the inve"tment.
PI P
o&tla$ #a"h Intial
inflow #a"h of PV
0here PV P Pre"ent Val&e
CRITERIAN TABLE-E
In the eval&ation !roe"" or a!ital '&dgeting tehni3&e" there will 'e a riteria
to ae!t or re+et the !ro+et. The riteria will 'e e*!re""ed a"-
#riteria5.ethod Ae!t Re+et Indifferent
Pa$ %a) Period (P%P) RTarget Period STarget Period PTarget !eriod
Ao&nting Rate of
Ret&rn (ARR)
S Target Rate R Target Rate PTarget rate
Net Pre"ent Val&e (NPV) S A R A P A
Internal Rate of Ret&rn
(IRR)
S#o"t Bf #a!ital R#o"t Bf #a!ital Po"t of a!ital
Profita'ilit$ inde* (PI) S 2 R 2 P 2
DATA ANALYSIS
A !ro+et i" an ativit$ "&ffiientl$ "elfEontained to !ermit finanial and
ommerial anal$"i". In mo"t a"e" !ro+et" re!re"ent e*!endit&re of a!ital f&nd" '$
!reEe*i"ting whih the$ want to e*!and or im!rove their o!eration.
In general a !ro+et i" an ativit$ in whih, we will "!end mone$ in e*!an"ion
of ret&rn" whih logiall$ "eem" to lead "elf !lanning. Finaning and im!lementation"
a" a &nit, i" a "!eifi ativit$ with a "!eifi !oint and a "!eifi ending !oint intended
to aom!li"h a "!eifi o'+etive of the "t&d$
#a!ital '&dgeting ha" it" going in the nat&ral reo&r"e and infra"tr&t&re"
"etor". The &rrent demand for infra"tr&t&re" and a!ital inve"tment" i" 'eing f&eled
'$ dereg&lation in the GFMCGH (Fa"t .oving #on"&mer 1ood"), teleomm&niation,
7 tran"!ortation "etor", '$ the glo'ali/ation of !rod&t mar)et" and the need" from
man&fat&ring "ale, and '$ the !rivati/ation of government owned entitie" in
develo!ed 7 develo!ing o&ntrie"
NON DCF CRITERIA:
5a, PA% BAC( PERIOD5PBP,:-
DEAR
DEPRE#IATIBN
(R6)
#A6( IN
FLB0 (PAT)
(R6)
#A6( IN
FLB0 (R6)
#;.;LATIVE
#A6T IN FLB06
(R6)
2 4,<2,A@>.AA 2,@<,9@<.>> 9,9=,<@4.>> 9,9=,<@4.>>
4 9,4<,=82.9< 9,<4,<>8.<< ?,>?,4A<.AA 28,49,>@>.>>
8 8,@<,><@.AA 9,>@,498.@@ ?,><,AA4.@@ 42,@@,?AA.>=
9 =,8A,9<4.AA =,@2,99>.9@ 28,42,?@@.9@ 8<,42,>AA.4<
< 22,<@,A2?.=< 29,@A,=2A.2@ 4=,9@,=4?.?9 =2,>2,84@.A@
= 4=,>?,48@.AA 8=,<2,@>8.<> =8,AA,424.<> 2,4<,A2,<92.==
> 44,4@,29=.>> 9<,94,8<8.>8 =>,>2,<AA.<A 2,2@,>8,A94.2=
? 89,=?,A9?.?= <>,A<,??A.8> @2,>8,84@.48 4,?9,9=,@>2.8@
Initial o&tla$ P 9=, A?,??=
Pa$'a) !eriod P
2@ . =2A , @A , 29
>< . 2?< , ?> , 2A
9 +
P 9QA.>4@
P 9.>8 .onth"
Cr34er3a :or e<a=9a43on:-
If the !a$'a) !eriod om!&ted for a !ro+et i" le"" than the !a$'a) !eriod "et
'$ management of the om!an$, it wo&ld 'e ae!ted. A !ro+et at&al !a$'a) !eriod
i" more than the determined !eriod '$ the management, it will 'e re+eted.
Dec3;3on:-
The "tandard !a$'a) !eriod i" "et '$ %60 for on"idering the e*!an"ion
!ro+et i" "i* $ear", wherea" at&al !a$'a) !eriod i" 9.>8 month". (ene we an
ae!t the !ro+et.
56, A$ERAGE RATE OF RETURN 5ARR,:-
DEAR IN#B.E DEPRE#IATIBN #A6( IN FLB06
2 2,@<,9@<.>> 4,<2,A@>.AA (E) <<,=A2.48
4 9,<4,<>8.<< 9,4<,=82.9< 4=,@94.2
8 9,>@,498.@@ 8,@<,><@.AA ?8,9?9.@@
9 =,@2,99>.9@ =,8A,9<4.AA =A,@@<.9@
< 29,@A,=2A.2@ 22,<@,A2?.=< 8 82,<@2.<9
= 8=,<2,@>8.<> 4=,>?,48@.AA @,>8,>89.<>
> 9<,94,8<8.>8 44,4@,29=.>> 48,28,4A=.@=
? <>,A<,??A.8> 89,=?,A9?.?= 44,8>,?82.<2
ARR P
Inve"tment Average
!rofit Average
T 2AA
Average !rofit P
?
@8 <@,><,2?<.
P >, 9=,?@?.49
Average inve"tment P
4
9=,A?,??=
P 48, A9,998
ARR P
2AA
48,A9,998
9 >,9=,?@?.4
P A.8492 T 2AA
P 84.92
RBI P
2AA
inve"tment Initial
!rofit Average
P
9=,A?,??=
9 >,9=,?@?.4
T 2AA
P A.2=4A< T 2AA
P 2=.42
Aording to thi" method if ARR i" higher than minim&m rate of ret&rn
e"ta'li"hed '$ the management it i" ae!ted. It will 'e re+eted the !ro+et ha" le""
ARR than the minim&m rate "et '$ the management.
Dec3;3on:-
The "tandard ARR "et '$ Nagar+&na Fertili/er" management i" 4<U. The at&al ARR i"
84.48U thi" i" higher than the "tandard ARR "et '$ the management, hene the !ro+et
an 'e ae!ted.
DCF CRITERIA:
5a, Ne4 Pre;en4 $a=9e:-
DEAR #A6( INFLB06 D#F (2<U)
PRE6ENT
VAL;E(#D#F)
2 9,9=,<@4.>> A.?>A 8,??,<8<.>2
4 ?,>?,4A<.AA A.><= =,=8,@44.@?
8 ?,><,AA4.@@ A.=<? <,><,><2.@>
9 28,42,?@@.9@ A.<>4 >,<=,24=.?<
< 4=,9@,=4?.?9 A.9@> 28,2=,?=<.<8
= =8,AA,424.<> A.984 4>,89,=<2.?8
> =>,>2,<AA.<A A.8>= 4<,9=,A?9.2@
? @2,>8,84@.48 A.84> 4@,@@,?>9.?=
Total 2,2@,?2,?28.@4
NPV P 2, 2@, ?2,?28.@4 L 9=, A?,??=
P >8, >4,@4>.@4
In a"e of al&lated NPV i" !o"itive or /ero, the !ro+et "ho&ld 'e ae!ted. If
the al&lated NPV i" negative, the !ro+et "ho&ld 'e re+eted.
Dec3;3on:-
The !ro+et i" ae!ted a" the al&lated NPV i" !o"itive.
INTERNAL RATE OF RETURN:-
DEAR #A6( INFLB06 D#F (29U) PRE6ENT VAL;E
2 9,9=,<@4.>> A.?>> 8,@2,==2.?=
4 ?,>?,4A<.AA A.>=@ =,><,88@.=<
8 ?,><,AA4.@@ A.=>< <,@A,=4>.A4
9 28,42,?@@.9@ A.<@4 >,?4,<=9.?<
< 4=,9@,=4?.?9 A.<2@ 28,><,2<>.8>
= =8,AA,424.<> A.948 4=,>>,=>@.@4
> =>,>2,<AA.<A A.9AA 4>,A?,=AA.4A
? @2,>8,84@.48 A.8<2 84,4A,A9@.2=
Total 2,49,42,=?A.A8
DEAR #A6( INFLB06 D#F (2=U) PRE6ENT VAL;E
2 9,9=,<@4.>> A.?=4 8,?9,@=4.@=
4 ?,>?,4A<.AA A.>98 =,<4,<A=.82
8 ?,><,AA4.@@ A.=92 <,=A,?>=.@4
9 28,42,?@@.9@ A.<<4 >,4@,=??.?<
< 4=,9@,=4?.?9 A.9>= 24,=2,448.88
= =8,AA,424.<> A.92A 4<,@<,8?>.2<
> =>,>2,<AA.<A A.8<9 48,@>,222.2?
? @2,>8,84@.48 A.8A< 4>,@?,A9?.92
Total 2,28,?=,<A9.A2
IRR P 29 Q
) 29 2= (
9.A2 2,28,?=,<A E A.A8 2,49,42,=?
9=,A?,??= E A.A8 2,49,42,=?

P
4
A4 2A,8<,2>=.
A8 >?,24,>@9.
29 +
P 29Q2<.A@
P 4@.A@
In thi" method the !ro+et i" ae!ted when IRR i" higher than it" o"t of a!ital
or &t o&t rate. The !ro+et i" not ae!ted when the IRR i" le"" than o"t of a!ital.
Dec3;3on:-
The !ro+et i" ae!ted 'ea&"e the IRR i" higher than it" o"t of a!ital. The
o"t of a!ital fi*ed '$ management i" 4AUM the at&al i" more than it" "tandard.
(ene, the !ro+et i" ae!ted.
56, PROFITABILIT% INDE):-
DEAR #A6( IN FLB0 (R6)
2 9,9=,<@4.>>
4 ?,>?,4A<.AA
8 ?,><,AA4.@@
9 28,42,?@@.9@
< 4=,9@,=4?.?9
= =8,AA,424.<>
> =>,>2,<AA.<A
? @2,>8,84@.48
PI P
9=,A?,??=
2.8@ 4,?9,9=,@>
P =.2>
A !ro+et an 'e ae!ted if it" PI inde* i" greater than one. If the PI i" le"" than
one we "ho&ld re+et the !ro+et.
Dec3;3on:-
1&nt&r Engineering #ollege <A
Profita'ilit$ inde* of !ro!o"ed e*!an"ion !ro+et i" fo&nd o&t to 'e =.<>M thi" i"
more than the PI.
1&nt&r Engineering #ollege <2
FINDINGS
The al&lated !a$'a) !eriod i" 9$ear" and >month". %&t "tandard !a$'a)
!eriod wa" "i* $ear" '$ Nagar+&na Fertili/er" management.
The ARR i" fi*ed '$ Nagar+&na Fertili/er" i" 4<U. The at&al ARR i" 84.48U
and it" ret&rn on inve"tment i" 2=.42U.
The NPV i" at&all$ >8, >4,@4>.@4 whih the$ are getting i" !o"itive.
The IRR wor)ed for !ro+et i" 4@.A@U '&t the e*!eted IRR i" 4AU le"" than
the at&al IRR.
The PI i" getting at&al for the e*!an"ion !ro+et i" "i* time" more than the
inve"tment.
SUGGESTIONS
It ha" 'een "&gge"ted that the Nagar+&na Fertili/er" management that the
!a$'a) !eriod i" fi*ed for the e*!an"ion !ro+et i" = $ear". %&t the at&al i"
le"" than the "tandard. It i" advi"a'le to fi* !a$'a) !eriod to le"" than "tandard
!a$'a) !eriod.
It i" "&gge"ted to Nagar+&na Fertili/er" management that it i" 'etter to fi* RBI
a" more than the "tandard RBI. 6o it i" advi"a'le to maintain "ame
on"ideration of !ro+et in the f&t&re al"o.
The NPV of the !ro+et i" !o"itiveM it i" advi"a'le to "elet the "ame t$!e of the
!ro+et".
The e*!eted o"t of a!ital for the om!an$ i" 4AU where a" the at&al IRR i"
wor)ed for the !ro!o"al i" 4@.A@U, whih i" 'elow the ae!ted level.
It i" "afer to ae!t !ro!o"al it i" = time" more than it" inve"tment. 6o it i"
advi"a'le to "elet the "ame t$!e of !ro+et "in the f&t&re al"o.
CONCLUSION
%a"ed on the "t&d$ in Nagar+&na Fertili/er" I ame to &nder"tand that, there are
two "ide" of a !ro+et, vi/ the inve"tment "ide 7 the finaning "ide. The "e!aration
!rini!le "a$" that the a"h flow" a""oiated with the"e "ide" "ho&ld 'e "e!arated.
0hile e"timating the a"h inflow on the inve"tment "ide doe" not on"ider the
finaning hange" li)e intere"t or dividend.
Forea"ting the !ro+et a"h flow" involve" n&mero&" e"timate" 7 man$
individ&al" 7 de!artment" !artii!ate in thi" e*eri"e. The role of the finane manager
i" to oEordinate the effort" of vario&" de!artment" and o'tain" information from them,
en"&re that the e*eri"e fo&"ed on relevant varia'le", and minimi/e the 'ia"e" inherent
in a"h flow forea"ting.
In the "t&d$ I )now that the om!an$ i" following !a$ 'a) !eriod. %a"ed on
the anal$"i" of data "how" that the om!an$ an ado!t an$ riteria to get ret&rn on
inve"tment in time
The !ro+et GA 6T;D BN ENPAN6IBN PRBIE#T T(RB;1( #APITAL
%;D1ETIN1 IN NA1ARI;NA FERTILIKER6 7 #(E.I#AL6 LTDH 6tate" that
the om!an$ i" in good !o"ition. It i" "&gge"ted to hold the om!an$ in the "ame level.
It al"o reveal" that a"h flow" having &!" 7 down" d&e to e*!an"ion of a""et"
"im&ltaneo&"l$ in de!reiation.
The om!an$," !lant" ontin&e to o!erate effiien$ and the fertili/er
o!eration of the om!an$ are via'le and !rofita'le. The fertili/er o!eration" of
the reoverie" are e*traordinar$ item" of a non Lre&rring nat&re. The om!an$
!ro!o"e" to im!rove !rofita'ilit$ '$ ta)ing mea"&re" for 'etter effiien$ and
!rofita'ilit$.
#om!an$ wa" maintaining ade3&ate "to) of inventor$ in order to meet
the demand of o&t!&t. Thi" need" "ome "ort of im!rovement". The om!an$ an
gain more if it an get hea!er finanial re"o&re" '$ derea"ing it" intere"t
om!onent even thro&gh the om!an$ i" !rod&ing &rea at it" f&ll a!ait$ the
"ale" to fi*ed a""et are le"" than one 'ea&"e the om!an$ it" a!ital inten"ive
ind&"tr$.
0e feel that whole fertili/er will 'e going for reErating, a" the !rofita'ilit$
of the om!an$ will inrea"e in oming $ear".
BIBILOGRAPHY
F;NDA.ENTAL6 BF FINAN#IAL
.ANA1E.ENT E E;1ENE.F.%RI1(A.
IBEL.F.(B;6TBN
FINAN#IAL .ANA1E.ENT E I.. PANDED
FINAN#IAL .ANA1E.ENT E PRA6ANNA #(ANRDRA
FINAN#IAL .ANA1E.ENT E ..D.J(AN 7 IAIN
1&nt&r Engineering #ollege <<
FINAN#IAL .ANA1E.ENT I... PANDED
FINAN#IAL .ANA1E.ENT ..D.J(AN 7 P.J. IAIN
FINAN#IAL .ANA1E.ENT PRA6ANNA #(ANDRA
FINAN#IAL .ANA1E.ENT DR. VAR.A 7 A1AR0AL
FINAN#IAL ANALD6I6 NAND JI6(BRE 6(AR.A
#B.PAND ANN;AL REPBRT6 4AA>E4A24 (< DEAR6)
Email- !"a#$%a#i$&ia!'(m
FAR N PAR (INDIA) P#i)a*+ limi*+& %#("il+ a$& A$$,al #+%(#*-
1&nt&r Engineering #ollege <=

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