Final Project DONE 1

CAPITAL BUDGETING PROCESS IN BMTC
CHAPTER-1
INTRODUCTION
BISHOP COTTON WOMENS CHRISTIAN COLLEGE Page 1

1.1 INTRODUCTION
This study is carried out at the Bangalore metropolitan transport corporation (BMTC), which
serves public by government of Karnataka. It is a government agency that operates the public
transport bus service in Bangalore. The Bangalore metropolitan transport corporation (BMTC) is
presenting their capital budgeting process with a capital budgeting decision. One of its first tasks
is to determine. Whether or not the project will prove to be profitable, the Net Present Value
(NPV), Internal rate of return (IRR), and Payback period (PBP). These methods are the most
common approaches to the preparing a capital budgeting plan.
“Finance is the art and science of managing money. For all activities is necessary, all individuals
and business organization earns or rise money and spend or invest money. Hence, the field is
board. It is the life blood and nerve system of any business organization. Just a circulation of
blood is necessary in the human body to maintain life. Finance is very essential to the business
organization for smooth running of the business.
The definition of finance is the provision of funds or loan supplied to an individual or company.
Often this term is used for the study of economics and how money is controlled. It can also be
defined as the management of funds and capital required by a business and private activities.
Management of finance has also developed into a specialized branch within the financial sector
is carried out by finance managers.
1.1 Meaning of finance management
Finance management is the subject which deals with the financial activities like careful selection
of the source of capital of low cost and judicious use of capital in order to enable a cash
management unit to in the direction of reaching its goals.

1.3 Types of finance
There are mainly two types of finance
1. Personal finance
In the finance decisions may involve paying for education, financing durable goods such as real
estate and cars, buying insurance e.g. Health and property insurance investing and saving for
retirement. Personal financial decisions may also involve paying for loan, or debit obligations.
2. Corporate finance
It is the task of providing the funds for a corporation’s activities corporate finance can easily
categorize in two categories. First one is short term finance which generally involves
balancing risk and profitability, which attempting to maximize an entity’s wealth and the
value of its stock.
1.4 Scope of finance
In the past, a finance function was confined to procurement of funds. The major issue in the
traditional approach to finance function was how resources would best be raised from
combinations of available sources. Therefore, the finance managers, those were exploded to have
through knowledge on their inter related aspects of rising and administrating resources from
outside.
They were:-
 Financial institutional setup and their functions in their capital market.

 Financial instruments used to fund rising.
 Legal and accounting legal aspects.

This approach is narrow in its scope and suffers from several weaknesses. It takes an outside or
supplier view of finance as the emphasis was a fund rising and in the process it ignores firm’s
financial decision making process. It has adopted a long term view of requirements and has not
shown interest in short tern finance. Other aspects of finance discipline in those days were the
focus given on mergers, reorganization and amalgamation etc but it did not consider day to day
issues.
Finance function has undergone significant changes in the recent time. In the modern approach
the scope of finance is wide. It encourages in its scope such as issue as allocation of funds,
financial planning and control, investment funds, besides the functions of acquisitions of funds.
1.5 Financial functions
The important functions are as follows
 Investment decision
It is the most important function. The allocation of capital to various investment proposal
needs to be evaluated involves risk it should evaluate all alternative proposals in the
preparation of capital budgeting.
 Financing
It is the process of acquiring the needed fund when it is needed by the organization at low
cost and at the right time. Identifying both the short requirement and the institutions
through which the fund can be required at responsible terms and contribution in the
essence of finance.
 Dividend decision
When a business firm generates profit Then major issues arises that whether the firm
should distribute all profits or retain them, or distribute a portion and retain the balance
for further usage of business

1.6 “CAPITAL BUDGETING”
Meaning
The term capital budgeting refers to the long term planning for proposed capital outlays or
expenditure for the purpose of maximizing return on investments. The capital expenditure may
be
(1) Cost of mechanization, automation and replacement.

(2) Cost of acquisition of fixed assets. E.g., land, building and machinery etc.
(3) Investment on research and development.
(4) Cost of development and expansion of existing and new projects.
1.7 DEFINITION OF CAPITAL BUDGETING
Capital budget is also known as “investment decision making or capital expenditure decisions”
or “planning capital expenditure” etc. normally such decisions where investment of money and
expected benefits arising there from are spread over more than one year, it includes both rising
of long-term funds as their utilization. Charles T. Hangmen has defined capital budgeting as
“capital their utilization. Charles T. Hangmen has defined capital budgeting as “capital budgeting
is long term. Planning for making and financing proposed capital outlays. “In other words,
capitals budgeting is the decision making process by which a firm evaluates the purchases of
major fixed assets including buildings, machinery and equipment. “Capital budgeting is
concerned with the firm’s formal process for the acquisition and investment of capital.”

1.8 IMPORTANCE OF CAPITAL BUDGETING
Capital budgeting is important because of the following reasons;
1) Capital budgeting decisions involves long-term implication for the firm, and
influence its risk complexion.
2) Capital budgeting involves commitment of large amount of funds.
3) Capital decisions are required to assessment of future events which are uncertain.
4) Wrong sale fore cast may lead to over or under investment of resources.
5) In most cases, capital budgeting decisions are irreversible. This is because it is
very difficult to find a market for the capital goods. The only alternative available
is to scrap the assets, in cur heavy loss.
6) Capital budgeting ensures the selection of right source of finance at the right time.
7) Many firms fail, because they have too much or too little capital equipment.
8) Investment decision taken by individual concern is of national importance
because it determines employment, economic activities and economic growth.
1.9 OBGECTIVES OF CAPITAL BUDGETING
The following are the important objectives of capital budgeting:

1) To ensure the selection of the possible profitable capital projects.
2) To ensure the effective control of capital expenditure in order to achieve by
forecasting the benefits and costs may be measured in terms of each flow.
3) Determining the required quantum takes place as per authorization and sanctions.
4) To ensure maximization of profit by allocating the available investible.

1.10TYPES OF METHODS
1. Pay-back period method: pay-back period is also termed as “pay-out period” or

pay-off period. Payout period method is one of the most popular and widely recognized
traditional methods of evaluating investment proposals. It is defined as the number of
years required to recover the initial investment in full with the help of the stream of
annual cash flows generated by the project.
Advantages of pay-back period method
It is an important guide to investment policy
 It is simple to understand and easy to calculate

 It facilities to determine the liquidly and solvency of a firm
 It helps to measure the profitable internal investment opportunities
 It enables the firm to select an investment which yields a quick return on cash
 It used as a methods of method of running competitive projects
 It ensures reduction of cost of capital expenditure.
Disadvantages of payback period method
 It does not measure the profitability of a project

 It does not value projects of different economic lives
 This method does not consider income beyond the pay-back period
 It does not give proper weight to timing of cash flows
 It does not indicate how to maximize value and ignores the relative profitability of the
project
 It does not consider cost of capital and interest factor which are very important factors in
taking sound investment decisions.

2. Average rate of return method (ARR) or Accounting rate of return
method:
Average rate of return method is also termed as accounting rate of return method. This
method focuses on the average net income generated in a project in relation to the
project’s average investment outlay. This method involves accounting profits not cash
flows and is similar to the performance measure of return on capital employed.
Advantages
 It considers all the years involved in the life of a project rather than only pay-back years.
 It applies accounting profit as a criterion of measurement and not cash flow.
Disadvantages
 It applies profit as a measure of yardstick not cash flow.

 The time value of money is ignored in this method.
 Yearly profit determination may be a difficult task.
3. Internal rate of return method (IRR)

Internal rate of return method is also called as “time adjust rate of return method”. It is
defined as the rate which equates the present value of each cash inflows with the present
value of cash outflows of an investment. In other words, it is the rate at which the net
present value of the investment is zero.
Hangmen and foster define internal rate of return as the rate of interest at which the
present value of expected cash inflows from a project equals the present value of
expected cash outflows of the project.

4. Discounted cash flow method (or) time adjusted method:
Discount cash flow is a method of capital investment appraisal which takes into
account both the overall profitability and also the timing of return. Discounted
cash flow method helps to measure the cash inflow and outflow of a project as if they
occurred at a single point in time so that they can be compared in an appropriate way.
This method recognizes that the use of money has a cost, i.e., interest foregone.
In this method risk can be incorporated into discounted cash flow computations by
adjusting the discount rate or cut off rate.
5. Net present value method (NPV):

This is one of the discounted cash flow techniques which explicitly recognize the
time value of money. In this method all Cash inflows and outflows are converted into
present value (i.e., value at present time) applying an appropriate rate of interest
(usually cost of capital).
In other words, net present value method discount inflows and outflows to their
present value at the appropriate cost of capital and set the present value of cash inflow
against the present value of outflow to calculate net present value. Thus, the net
present value is obtained by subtracting the present value of cash outflows from the
present value of cash flows.
Advantages of net present value method:

 It recognizes the time value of money and is thus scientific in its approach.
 All the cash flows spread over the entire life of the project are used for
calculations.
 It is consistent with the objectives of maximizing the welfare of the owners as it
depicts the positive otherwise present value of the proposals.

Disadvantages
 This method is comparatively difficult to understand or use.

 When the projects in consideration involve different amounts of investment,
the net present value method may not give satisfactory results
6. Profitability index method:

Profitability index is also known as benefit cost ratio. It gives the present value of
future benefits, computed at the required rate of return on the initial investment.
Profitability index may either be gross profitability index or net profitability index.
Net profitability index is the gross profitability index minus one.
Advantages of profitability index:

 It duly recognizes the time value of money.
 For calculations when compared with internal rate of return method it requires
less time.
 It helps in ranking the project for investment decisions.
 As this method is capable of calculating incremental benefit cost ratio, it can
be used to choose between mutually exclusive projects.
The classification of capital budgeting projects is as follows
(1) Replacement projects:-

If a piece of equipment is out dated or hinders efficient production, company’s usually
tends to avoid over analyzing whether to replace the order equipment. This type of
project is usually carried out without detailed Analysis.

(2) Expansion projects:-
These projects expand the volume of the business product lines and more uncertainties of
sales forecasts should be considered. Very detailed analyses are usually involved in this
instance.
(3) Mandatory projects:-

These types of projects are required by the government, an insurance company, or some
other agency. These projects are usually related to safety or the environment and are
typically not revenue generating. Capital budgeting decisions are typically made to reach
the objective at the lowest cost to the company.
(4) New products and services:-
New products and services require more complex decision making processes, and careful
capital budgeting decisions are necessary.
Steps of capital budgeting process

The capital budgeting process involves generation of investment proposals, estimation of
cash flows for the proposals, evaluation of cash flows, selection of projects based on
acceptance criterion, and finally the continual revaluation of investment after their
acceptance. The steps involved in capital budgeting process are as follows.
(1) Project generation
(2) Project evaluation
(3) Project selection
(4) Project execution
(5) Significance and presentation
Capital budget decisions are among the most crucial business decision. A number of
factors are responsible for capital budget decisions. Care must be taken while making
capital budget decisions influence all the departments of the company such as production,
marketing, personal etc.

1.11 Principles of capital budgeting:
Capital expenditure decision should be taken on the basis of the following factors:
1. Creative search profitable opportunities:
The first stage is the conception of the profits making idea. Profitable investments should
be sought to supplement existing proposals.
2. Long range capital planning:
A flexible program of a company’s expected future development over long period of time
should be prepared.
3. Short range capital planning:
This is for short period. It indicates its sect oral demand for funds to stimulate alternative
proposals before the aggregate demand for the funds finalized.
4. Measurement of project work:
The economic growth of a project to a company is evaluated at this stage. The project is
ranked with other projects.
5. Screening and selection:
The project is examined on the basis of selection criteria, such as the supply and cost of
capital, expected returns, alternative investment opportunities.
6. Control and authorized outlays:
Outlays should be controlled in an order to avoid costly delays and cost over runs.

7. Post mortem:
The ex-post routines of a completed investment project should be re-valuated in order to

verify exact conformity with extant projections.
8. Retirement and proposals:
The expiry of the cycle in the life of the project is marked at this stage.
9. Forms and procedure:
This involves the preparation of reports necessary for any capital expenditure
programmed.
10. Authorization:
Since capital expenditure budget does not contain detailed expenditure, it is essential that
before any individual projects relating to capital areas are started, the expenditure should
be specifically authorized.

CHAPTER-2
REVIEW OF LITERATURE

2.1: MEANING OF REVIEW OF LITERATURE
A Literature review is an evaluative report of studies found in the literature related to our
selected area. The review should describe, summarize, evaluate and clarify this literature. It
should give a theoretical basis for the research and help us to determine the nature of our own
research. Select a limited number of works that are central to our area rather than trying to collect
a large number of works that are not as closely connected to our topic area.
2.2: REVIEW OF LITERATURE
According to Joe Burris (2012) Anne Arundel board of education of operating and
capital budgets The Anne Arundel county board of education was approved a list during its fiscal
year in 2012 operating and capital budgets, realigned funds for additional classrooms teachers,
heard nearly two hours of public testimony and said goodbye to two of its members. Firstly, they
don’t like this plan. Secondly, they like even the way that it was unveiled. This article says that
some parents and teachers were not agreed for this plan and later they were conveyed for this
which would make a better system.
According to Annie Linskey (2004) convention center money for Baltimore

stripped from capital house speaker Michael E. Busch told city lawmakers they should be
“upset” that the senate budget conferees took 2 million dollar’s, from the capital budget that was
embarked for planning a new convention centre in Baltimore. This article conveys that in this
city they have agreed to expand convention centre for larger development to construct room
hostels etc. they say this was the first built convention centre which in the place of 73 rd largest.

According to Sherry Joe et al Staff Writer (1996) HCC trustees to vote today
on capital budget Howard community trustees are scheduled to vote tonight on a $3.3 million
capital budget that calls for five new construction projects.
The board of trustees also considers raising President Dwight A. Burrill’s salary which is $96107
said Randall R. Bengfort spokesmen for the college.
This article says that the Burrill didn’t get any kind of increment like other employees because of
buildings, renovations, and the other road side facilities. The board of trustees will send the
capital budget request to the country government as soon as possible.
According to Paul Shred (1988) capital budget to be reviewed for public Annapolis
residents will have their tonight on mayor Alfred A. hop kin’s proposed capital improvement
budget.
The city council’s finance community has scheduled a public hearing on the budget at 7:30 pm in
the east port fire hall on bay Ridge Avenue.
This article conveys that Hopkins has to renovate each and every facility that should fair enough
to the people of the city. The city officials did not include money for a new landfill in the budget.
Country officials have rejected the city’s plants to expand its defense highway landfill.

According to James M. Coram (1999 ) capital budget request down 22% from fiscal
year country executive Charles I. Esker sent the country council an austere 563 million capital is
sure to provoke debate in two areas: public education and road resurfacing. The budget proposal
is the smallest request Mr. Esker has made during his three year term $18 million or $ 22%
below the country’s capital budget of a year ago. This article says that council members have
agreed to get a bonding idea from other members present in council. Mr. Esker told the council
that his trimming of the school board request is part of his overall plan to reduce the cost of
building, furnishing and operating all country’s facilities.
According to Gaudy A. Epstein (2004) as promised Gov. parries N Glendenning

released a $ 1.26 billion capital yesterday that is largely devoted to an ambitious binge of
building public school and colleges and environmental projects such as buying open space.
This article conveys that the release of the capital budget caps a weak of record construction
spending proposals from the governor last week the governor announced a record of $ 2.7 billion
in transportation projects, including two projects to be paid for in the general state fund.
According to Laurence D. Booth (1989) this article discusses the relative merits of
different capital budgeting techniques used by MNC is. The purpose is to show that APV
method, which has recently gained popularity, can cause incorrect choices to be made between
competing projects unless the NPV is already determined. The author calculating projects NPV
correctly.

According to Mao (1993) survey of capital budgeting major differences was a
manager viewing risk as semi variance of EPs and their reluctance to use IRR/NPV. Asked the
managers for their main objective, financial management they didn’t always “maximize share
value “, but it was implicit in all their answers. The goal of maximizing share value is treated
into translated into operating targets of growth and stability in the earnings stream. This article
states that the real difficulty is the search for a reliable probability distribution of cash flows to
base the decision upon. Thus, the author also again states that relatively slow acceptance of IRR
and NPV criteria of companies.
According to Gilman (1982) a survey of capital budgeting techniques used by

major U.S firms study confirms trend of increasing use of more sophisticated analysis tools. It
was surveyed on 1976 of 268 major company’s yields 103 responses on capital budgeting
procedures and techniques capital rationing and handling of risk.
This article conveys that project definition and cash flow estimation viewed as both most
difficult and most important part of the process. 71% of firms incorporate explicit consideration
of risk into their analysis with 43% increases minimum rate of return to do so.
According to Schell (1985) survey and analysis of capital budgeting methods trend
toward use of more sophisticated capital budgeting techniques continues. If this trend toward use
of more sophisticated capital budgeting techniques continues. If this trend were true i.e. if
business were becoming “smarter” at making investment decisions’ then one would presume an
increase in productivity. Caters paribus effects on productivity were week, then it places doubt
on the importance of the techniques to begin with.
This article states that most popular capital budgeting technique was payback. Most firms used
multiple methods 86% used IRR or NPV or both. The 86% figure is an increase over prior
survey. Risk analysis is also becoming more sophisticated

According to Harris (1990)Asymmetric Information, institutes and intra firm
resource a location provides rational for allocating resources via transfer pricing is an
asymmetric information principal agent features an environment of asymmetric information
between division managers and top management, where preference differ .This article conveys
that cost minimization result show” That certain types to transfer pricing schemes are optimal
“The schemes depend on whether production of the central resource is capacity bounds. If not
capacity bound, Then the optimal process is for each division to choose transfer froze a schedule
announced by a head quarters
According to Stanley (2000) survey of multinational capital budgeting. Survey of

multinational firms affirms trend of greater capital budgeting. U.S multinational firms appear to
be moving toward a more normative approach to the capital budgeting decision making process
the gap between the prescribed and the actual continues to narrow. This article suggests that
stock holder wealth maximization mentioned as the primary goal of the firm. Further
sophistication is also evidenced by the fact that the internal rate of return is the primary method
of evaluation for 65% of the respondents. “Larger firms appear to use more advanced techniques.
According to Ross (2001) capital budgeting practices of twelve manufacturers’

smaller projects are subject to high the facto hurdle rates. Capital rationing not a rational scheme
for focusing effort on the most profitable investment opportunities. The practice oat most firms is
thus to keep both the financial analysis of smaller project, and the process of communicating this
analysis to decision markers.
This article concludes that the importance of asking how capital budgeting practices differs at the
plant, division, investment committee, and CEO and board levels.

According to Tagore (1972) Allocating capital among a firms division. Most firms
use budgets as only one part of their capital allocation system. Most large firms use a hybrid
capital allocation system compromising hurdle rates, budgets, and occasional full information
analysis. Capital budgeting or rationing may be driven by external factors. This article concludes
that the hybrid process as iterative management sets preliminary divisional budget targets, as a
first step, based on strategic considerations.
Firms then distinguish between large and small projects and investment in new or existing
business.
According to Harris (1988) the capital budgeting process provides theory for
internal capital allocation processes. Model features an agency environment in which division
managers have private information and a desire for greater investment. The article conveys that
as audit decline, the initial spending limits decline and the allocation process becomes more
flexible. As investment opportunities improve initial spending limits decline, but approval of
requests becomes more likely and comprise allocations increase.
According to Revive (1933) capital budgeting and delegation investigates the

delegation of capital allocation decisions. The optimal scheme is similar in an aggregate capital
spending limit now the manager can request additional capital depending on audit costs. If costs
are low he can request one of two larger capital amounts. This article concludes that the main
result on delegation follows from the assumption that the division managers marginal utility for
capital is increasing with project productivity.

According to Clark (1923) capital budgeting, political risk and prudence uses
absolute prudence to rank politically risky international investment alternatives. In international
capital budgeting with both project and political risk associated good times is preferred risk
associated with bad times using the concept of absolute prudence, otherwise equivalent
investment can be ranked according to which possible outcomes are affected by the political risk.
This article concludes that absolute prudence measures the propensity to prepare and for earn
oneself in the face of uncertainty in contrast to risk aversion.
According to Ravi (1933) capital budgeting and delegation investigates the

delegation of capital allocation decisions. The optimal scheme is similar in an aggregate capital
spending limit now the manager can request additional capital depending on audit cists. If costs
are low he can request one of two larger capital amounts. This article concludes that the main
result on delegation follows from the assumption that the division managers marginal utility for
capital is increasing with project productivity.
According to Clark (1923) capital budgeting, political risk and prudence uses
absolute prudence to rank politically risky international investment alternatives. In international
capital budgeting with both project and political risk associated good times is preferred to
political risk associated with bad times using the concept of absolute prudence, otherwise
equivalent investments can be ranked according to which possible outcomes are affected by the
political risk. This article concludes that absolute prudence measures the propensity to prepare
and for earn oneself in the face of uncertainty in contrast to risk aversion.

According to Prather, Larry. J (1984) capital budgeting practices of small
business Capital budgeting decisions also known as capital investment or capital expenditure
decisions remain critical to the success of any firm. Brigham and ehrhardt argue that sound
capital budgeting decisions are vital to a firms must make. This article states that our survey
covered a variety of discounted cash flow and other traditional techniques and also examined the
incidence and treatment of capital rationing.
According to Shiminchen (2004) management compensation and pay back method

in capital budgeting while discounted cash flow techniques, such as net present value are the
primary normative models of capital budgeting recommended by finance theory our survey
suggests that one of the so called naïve methods the pay back criterion is widely used in practice.
This article states that the study finds out direct links between management compensation and
the use of payback.
According to cooper William D, Morgan Robert G, Ragman Alonzo,

Smith Margaret has done a study to assess the current level capital budgeting sophistication
in corporate America. A survey questionnaire was sent to the CFOs of the fortune 500
companies. They received response from 113 companies having a response rate of 23%. As per
the result of their study, the most popular backup technique is the PBP (23%), which is slightly
more popular than the IRR and the NPV (21%). Many firms use a team approach to evaluate
capital projects. The largest number of their respondents believes that project definition and cash
flow estimation is the most important and difficult stage of the capital budgeting process.
Majority of the firms used cut off rate between 10% and 15%. The most popular method of
handling risk in the capital budgeting process identified by 33% of the respondents was to
increase the required rate of return of cost of capital.

According to lord Beverley R. and Boyd Jenifer R. surveyed half of the New
Zealand local authorities to find out how they undertook capital budgeting. This study was later
extended to all New Zealand local authorities. Results of the two surveys show that 75% of local
authorities use cost-benefit analysis and NPV in financially evaluating capital investments.
However, compared to studies of the private sector, there is a greater focus on qualitative aspects
of decision-making. Post-audits were also highly used, but with a focus on quantitative
information.

CHAPTER-3
RESEARCH DESIGN

RESEARCH DESIGN
3.1: TITLE OF STUDY:
“A Study on capital budgeting process in Bangalore metropolitan transport corporation”
3.2: STATEMENT OF THE PROBLEM
Analysis of financial statement that is profit and loss account and balance sheet is very difficult
to analyze the complete picture of financial performance. Therefore there is a need of applying
the modern tool of capital budgeting methods according to access the exact financial
performance and effective decision making regarding capital expenditure in BMTC (Bangalore
metropolitan transport corporation). And also it tries to present the present financial position of
the Bangalore metropolitan transport corporation.
The current study was undertaken to investigate about the capital budgeting process in BMTC.
And to know how they take effective investment decisions by considering and analyzing capital
budgeting techniques.
To evaluate a firm’s financial conditions and performance, this is a need to perform check-up a
various aspects of firm’s financial health. A tool frequently used during this check-up is a
financial ratio or index, which relates to pieces of financial analyst user uses these ratios much
like a skilled accountants to effective decisions regarding capital budgeting process in Bangalore
metropolitan transport corporation (BMTC).

3.3: SCOPE OF THE STUDY
Investment is perhaps the first financial tool development to analyze and interpret the capital
budgeting process and is still use widely for the purpose, financial performance analyze is well
reached area innumerable technique.
The study covers the calculation of payback period, average rate of return, net present value,
profitability index, internal rate of return (etc), also the study includes how the Bangalore
metropolitan transport corporation take decisions regarding that are to be made for investment
process and percentages of capital budgeting techniques helps in analyzing. The funds for
investment purpose in Bangalore metropolitan transport corporation only under the shanthinagar
depot surveillance.
 The company should understand their contribution to the performance of the company.
 The present and potential investors, outside parties such as the creditors, debtors,
government and many more get an idea of the overall performance of the firm.
3.4:- OBJECTIVES OF THE STUDY
 TO analyze the number of existing vehicles and new vehicles added.

 To understand investment made in various fixed assets.
 To evaluate the amount of money spent in construction of new depots and new
bus stations.
 To analyze how the company will take the effective investment decisions.
 To analyze the profit and loss that is affected.
 To evaluate the financial investments associated with the replacement of existing
assets and purchase of new assets.

3.5: Research methodology
 Tools for data collection.
The tools are used for data collection is previous year profit and loss account and balance sheets.
3.6: Sources of data
 Secondary data:-
The organization by way of recorded facts and information, annual reports and manuals are
the secondary sources of data. The balance sheet and profit and loss account provide the
secondary information. Such data already prepared in some other context and not specifically
for project taken up.
 Plan of analysis
The plan of analysis used in my research is excel. And comparison of profit and loss
account and balance sheets of three financial years that are 2014-2015, 2015-2016, 2016-
2017.
3.6: LIMITATIONS OF THE STUDY:
 The period of the study is limited.
 Financial matters are sensitive in nature, the same could not acquire easily.
 It may be due to restrictions imposed by management.
 Decisions are long term and majorly irreversible in nature.

 Decisions in capital budgeting are not modifiable as it is hard to locate the market for
capital goods.
CHAPTER SCHEME:
Chapter 1: Introduction
The chapter gives the general information of the theoretical background of the concept. It gives
introduction to finance and capital budgeting.
Chapter 2: Review of literature
The review of literature is about the study that is previously conducted by scholars and published
in journals regarding capital budgeting process in BMTC.
Chapter 3: Research design
o Statement of the problem

o Scope of the study.
o Objectives of the study
o Tools for data collection
o Plan of analysis
o Limitations of the study
o Chapter scheme

Chapter 4: Company profile
This chapter gives information about the history of organization, growth and development
program of organization, function and objectives of the organization. It includes vision and
mission statements of the organization.
Chapter 5: Data analysis and interpretation
This chapter analyze the data and give interpretation. It reveals the profitability position of the
organization. For the simplification the data has been used in various graphs and tables.
Chapter 6: Summary of findings, suggestions and conclusion
The findings of the research study have been summarized in this chapter, the conclusions and
suggestions have been drawn. Bibliography and annexure is attached
Bibliography
Annexure


CHAPTER-4
COMPANY PROFILE

INTRODUCTION
VISION:
“Make BMTC sustainable, people-centered and choice mode of travel for everyone”.
The Bangalore Metropolitan Transport Corporation is the sole public bus transport provider for
Bangalore, serving urban, sub-urban and rural areas. BMTC is committed to provide quality,
safe, reliable, clean and affordable travel. The testimony of its success lies in increasing
passenger trips everyday by a wide range of customer base. In an effort to modernize its services
for commuter comfort, BMTC strives to strengthen information systems and improve processes
through introduction of intelligent technology solution, make capacity enhancement through
infrastructure development, user-friendly interchange facilities, fleet up gradation and
augmentation, apart from its core activities, which includes fare structuring, route network
optimization, planning and monitoring. BMTC reaches far and wide, in every nook and corner of
the city, making public transport an attractive travel choice for everyone. BMTC’s stronghold in
the area of public transport in Bangalore is a testimony to its adoption of sound Management,
HR, Quality and Environmental policies and strong support from the Government of Karnataka
and esteemed passengers.

MISSION:
 To provide people-centered (quality, efficient, integrated and safe) services.

 Commuter responsive service planning and promotion.
 Optimize resources and build capacity.
 Adopt environment-friendly and sustainable practices.
 Strengthen commuter feedback mechanism.
 Modernize and maintain zero breakdown fleet.
 Evolve effective mechanism to monitor service performance.
 Conduct safety training, performance audits and awareness for stakeholders.
 Increase commercial revenue through monetizing land, buildings & buses
 Increase efficiency in operations and administration.
 Ensure inter-agency coordination and multi-modal integration.
 Formulate and enforce police measures for sustainability of the service provision.
 Implement Intelligent Transport System to improve the quality of service.
 Extend travel concession to the weaker sections of the society.
 Act as an agent for cultural synthesis and national integration.
 Promote research on urban transport.
MOTO: Moving you most economically; bringing Bangalore to your doorstep.
The Bangalore Metropolitan Transport Corporation (BMTC) was formed in 1997, as the result of
a split of the Karnataka State Road Transport Corporation, in the context of the Bangalore's
expansion. The Bangalore Transport Service (BTS) became the BMTC, and the color scheme
was changed from red to a blue and white combination. BMTC remains a division of KSRTC.

Bangalore Metropolitan Transport Corporation (BMTC) was formed, as an independent
Corporation with effect from 15-08-1997 after bifurcation from Karnataka State Road Transport
Corporation, in which it consisted of two Divisions headed by Director (BTS) since 1993. Prior
to that since from 1961 it was under MSRTC/KSRTC.
Consequent upon the formation of BMTC, the organization was structured to function under a
two-tier system- viz., Depots and the Corporate office and during 2011-12 the systems has been
switched over to three tier systems via, Depots divisions and corporate office with a view to
have closer liaison and better control.
Bifurcation brought the desired results in short span. The government on its part, helped by
allowing the corporations to revise the fares in order to meet the increasing costs of diesel and
other inputs and by reducing
The rate of the Motor Vehicle Tax from 17 per cent of the turnover to 7.7 per cent for the
KSRTC and 5.5 per cent for the BMTC
Period Covered
This is the Fifteenth Annual Administration Report of Bangalore Metropolitan Transport

Corporation. It covers the period from 1st April 2011 to 31st March 2012.
Management
The amended KSRTC Act 1982 provides for the management of the Corporation by Board of
Directors. The Board of the Bangalore Metropolitan Transport Corporation as on 31st March
2012 consisted of 11 official Directors and 6 non officials Directors. The Government of
Karnataka appoints the Official Directors representing the State Government and also non
official Directors. The Official Directors representing Central Government of India.

Current Growth of BMTC
BMTC is catering to the transport services in city and suburban areas of Bangalore in a radius of
about 40.4 kms and the area of operation is expanded from 3527 Sq. kms to 5130 Sq. kms in
view of Greater Bangalore. The operations have improved during the year by adding 154
schedules. The no, of schedules were increased from 5869 to 5949, 385 vehicles were added and
299 aged vehicles were scrapped/transferred and removed from the fleet during the year.
Administrative Setup
The Corporation is functioning with Three-tier system of administration with corporate office,
Divisions and Depots. There were 37 Depots, 5 Divisions and two Central Workshops under its
jurisdiction as on 31-03-2012.
AWARDSCONFERRED ON BMTC
The Corporation has been conferred with the following awards during the year 2011-12.
a. Apollo Commercial Vehicle Award for the Best services given to

Commuters
b. UITP- First Regional Award-2011 for doubling Public Transport in Bangalore Metropolitan
area- Initiatives of Bangalore Metropolitan Transport Corporation.
c. ASRTU Award for profit making STU in Urban services.

d. ASRTU Award for minimum operational cost (Without the Element of Tax) In Urban
Service during 2009-10.
e. ASRTU Award for Maximum improvement in contribution towards Secretarial Rebate

during 2010-11.
f. World Water Summit Award.
New Initiatives – Implementation highlights
a. Public relations for the Effective Transport Management Initiatives:
 Commuter Comfort Task Force and Commuter Advisory and Facilitation Committee with
official and non-official members to redress public grievances.
 Help desks at bus stations, central offices and at control room were
Established.
 Updated Citizens’ charter was published.HRD related documentary films were prepared and
utilized in the training of the personnel.
 Institutionalized in house training programmers for all the categories for personnel with
special concentration to drivers and conductors.
 Call center facilities to respond for commuter’s suggestions and complaints was provided.
b. Innovative Technology for Effective Transport Management Initiatives:

 Updating of newly designed BMTC website www.bmtcinfo.com,
http://www.bmtcinfo.com/site/BSJnnurmOngoing.jsp
 Bus route information and query on website.
 Payment of salary to employees through Electronic Clearance System (ECS).
 Online registration of complaints for 12 hours in a day through Call center facilities for
commuters through outsourced agencies.
 Issue of passenger ticket through Electronic Ticket Vending machines in 1489 buses on pilot
basis.
 Electronic LED based destination board in buses on pilot basis.
 Smart card for student passes and ID cards of monthly passes.
 Online paperless recruitment by launching of website www.bmtccareers.com.
 Installation of Air suspension for smooth riding.
 Voice Announcement System has been provided in the buses under JnNURM scheme.
c. Vehicular Air Pollution Management Initiatives:
 ISO-14001 certification for 4 Depots.
 Functioning of Environmental Cell in BMTC.

 Operation of Parisara Vahini buses.
 Stringent checking of vehicles for compliance with pollution norms.
 Computerized smoke testing system at Depot level.
 Installation of water recycling plant at Depot level.
 Installation of Rain water harvesting system in the Depots.
 Installation of solar lights at Depots.
d.Financial front:
 Tendering of Diesel supply.
 Tendering in chassis procurement.
 Prompt payment Discount (PPD) scheme for Chassis and other supplies enhanced from 2%
to 3%.
VAYU VAJRA SERVICES
 BMTC is operating Vayuvajra services with the aim of providing seamless, safe and
comfortable and reliable bus connectivity between the city and the new International Airport.

 It was also aimed at presenting a suitable alternative to other modes like Taxies etc which till
then had monopolized this sector of transport activity. Volvo buses to airport operated from
12 routes. Free Wi-Fi access is provided to the commuters in these buses.
PROGRESS OF OPERATIONS:
Operational details of the Corporation are enumerated below:
a. Casual Contract Services:

In addition to regular passenger services, the Corporation provided buses to public on casual
contract on payment of prescribed charges on the basis of either kilometers or on hourly
duration taken. The rates for hiring buses on casual contract as on 31-03-2012 are furnished
in Schedule-C.
b. Concessions/Season passes and free passes:

Concessions extended by the Corporation to different categories of traveling public/students
are detailed below:

Commuter Passes System: BMTC has one of the best and well-patronized Commuter pass
system. A variety of passes tailored to suit the travel requirements of different sections of
society are made available to the public. The system is very popular owing to services
offered at modest rates to these pass users, it accounts for more than half of the traffic
revenue earnings of BMTC. They include:
1. Day Pass.
2. Monthly Commuter Passes.
3. Monthly Dedicated Passes.
c. Dedicated Services:
With a view to meet the increased demand from industries for operating dedicated services
and also to encourage the demand for such services premium pass system was introduced.
During the year under report, revenue of Rs.14.89 crore has been realized as against Rs. 8.02
crore during the previous year.
d. Advertisements:
In order to mobilize the commercial revenue, BMTC has started sparing its buses for
advertisement and also hoardings. From advertisements, BMTC has earned the revenue of
Rs.774.59 lakhs the current year as against the realization of Rs.494.27 lakhs during the
previous year.
e. Commercial Establishments:
During the year under report, the Corporation has earned revenue of Rs.806.20 lakhs from
commercial establishments as against Rs.643.20realized during the previous year period.

QUALITY POLICY
BMTC will strive to provide commuter friendly services and is committed to ensure
economically sustainable, clean, timely, and courteous, safe and commuter education with the
involvement of suppliers and eco-friendly purchasing policy is also its aim.
RECORDS
 BMTC introduces multi-axle Volvo buses for local transport for the first time in the country.
These 14.5 meter long buses can accommodate 55 percent more passengers compared to
normal Volvo buses.
 BMTC was the first in the country to introduce intra-city Volvo buses. Earlier, they were
well received on the IT sector routes but are now patronized on all routes in the city. It has
the record for making profits consistently for years.
 It has the youngest fleet of buses in the country due to which the KMPL is also higher
compared to other undertakings.
 BMTC is one of the few undertakings to introduce pneumatic doors in India even in its fleet
of ordinary buses to provide safety for passengers. Currently, buses in Chennai and
Hyderabad have adopted this system.
 Operates the longest city bus route in India: Route no. 600 (circular bus route) which starts
from Banashankari and covers 117 kilometers (73 mi) round trip to reach Banashankari,
covering BTM layout 100 feet road, Hour Road, NH-207 (Attibelle to Varthur), ITPL, K. R.
Puram, Hebbal, Banashankari Ring Road. It traverses an entire circle covering these places to
reach Banashankari.

 BMTC has also introduced Mercedes Benz buses on a trial basis. BMTC would be
introducing buses powered by solar energy in Bangalore.
TYPES OF SERVICE
 Red buses:
Introduced i.e. December 2011, the buses belong to new batch of ordinaries that have
arrived in the city with BS IV emission norms-majority of them are red in color and a few
of them in the light blue color.
 Suvarna:

Silver colored with red lining. Earlier they had Re.1 higher fare than ordinary. Since the
revision of fares in June 2010, Suvarna and Ordinary bus tickets cost the same. Many
Suvarna buses are now being re-painted into the white and blue color or converted into
big circle/Small Circle buses/Metro Feeder services.
 BIG 10:
BIG10 services deploy (Suvarna class of) buses branded in green and bottle green on 12
major corridors coming in from surrounding sub-rubs in the city - Hosur road,
Bannerghatta road, Sarjpura road, Kanakapura road, Mysore road etc.

 BIG Circle:
 These buses are white colored with BIG Circle written on the sides and it also has arrows
painted in green, red, orange and black. These buses ply on ring roads connecting various
parts of the city. Some of these buses are numbered with a C prefix and others are
numbered with a K prefix (small circle on Inner Ring road).

 Pushpak:
Launched in the late 90's. Single door bus with/without conductors. Driver acts as
conductor when there is no conductor (Janapriya Vahini). These are coffee colored buses
with fares similar to Suvarna. Generally provided on contract to IT companies and
schools.

 Vajra:
Hi-tech buses from Volvo running on routes serving the IT companies' locations and
various residential routes as well. Higher fares about 1.5 to 3 times that of ordinary
depending on the route. LED boards.

 Atal Sarige:
Low-cost buses with single seats along the windows and LED display. Have a tri-color
outside. On 1 June 2009, to celebrate their first anniversary, the Government of
Karnataka and the Bangalore Metropolitan Transport Corporation sold off a pro-poor
bus service called the Atal Sarige. The service aims at providing low-cost connectivity
for the economically backward sections of the society to the nearest major bus station.
 Marcopolo AC

Buses from Tata-Marcopolo collaboration introduced under the JnNURM scheme. Their fare
is costlier by 1.5times the fare of ordinary buses. Usually ply on routes where Volvo is not
popular.
 Metro Feeder:
Introduced w.e.f October 2011 after the launch of the 1st line of metro, these buses have
painting similar to the color of the Metro train and running on 10 routes as feeder to the
Metro stations
BMTC has also introduced Mercedes Benz buses on a trial basis. BMTC would be introducing
buses powered by solar energy in Bangalore.

Infrastructure
BMTC has six bus stations in Bangalore. Apart from these, it also has a number of minor
terminuses. It has 42 depots spread all over Bangalore (Depots 1 & 5 are closed because they
have been converted as TTMC) out of which 40 are operational.
BMTC is also constructing modern bus stations at 10 places in its first phase. These will have
places to park vehicles and a separate waiting room for airport-bound passengers with the
timings displayed. As of April 2013, the stations at Jayanagar 4th block, Kengeri, Vijayanagar,
Bannerghatta, Yeshawantapura, Shivajinagar, Shantinagar, Koramangala, Domlur and ITPL
have been opened.

Intelligent Transport System
The BMTC's Intelligent Transport System (ITS) was planned to launch in 2013. The
69 crore (US$11 million) system will set up electronic
Ticketing machines (ETMs), which allow the swiping of smart cards for fare collection. The
smart cards can also be used on KSRTC buses, the Namma Metro, and also for debit and credit
transactions. The co-branded cards, by the issuing bank and BMTC, are also debit or credit
cards.
The ITS also includes vehicle tracking systems and passenger information systems that provide
real time information to passengers regarding the arrival of buses. All BMTC buses will be fitted
with GPS tracking, which will allow the monitoring of deviation in routes, and also more
accurate prediction of when buses will arrive at a station. This information will be relayed to
commuters through LED display boards that will be installed in 35 bus stations in the city. As of
January 2014, no further deadline has been set.

BMTC Buses standing in Hebbal Bus Bay, Bangalore, on Outer Ring Road.
BMTC Volvo Buses standing in Hebbal Bus Bay, under the flyover, near ORR Bangalore.

ACHIVEMENTS AND AWARDS
2013-14
 ASRTC productivity award for higest tyre performance urban serices for trhe year 2011-
12.
 ASRTC productivity award for minimum operation cost ( without the element of tax).
2012-13
 ASRTU award for minimum operational cost in city services duribg 2010-11
 ASRTU award for maximum improvement in tyre perfermnce in cituy serices during
2010-11
2011-12
 Bangalore world water summit award.

 ASTRU award for maximum improvement in contribution towards secretarial rebate
during 2010-11.
2012-13
 ASRTU Award for Minimum operational cost in city services during 2010-11
 ASRTU Award for Maximum improvement in type performance in city services during
2010-11
2011-12
 Bangalore world water summit Award.
 ASRTU Award for maximum improvement in contribution towards secretarial rebate
during 2010-11

2010-2011
 International UITP-ITF award for outstanding innovations on public transport for the
yearn2009-2010 chief ministers annual ratna award.
 Safety minister trophy for the state road transport undertakings.
SWOT ANALYSIS:
A SWOT analysis is a structured planning method used to evaluate the strengths, weaknesses,
opportunities, and threats in a project or in a business venture. A SWOT analysis can be carried
venture or project and identifying the internal and external factors that are favorable and
unfavorable to achieve that objective.
STRENGTHS:
1. Customer centric
2. Ability to blend the operations and performance if BMTC to meet the need and demands
of commuters who are the source of earnings.
3. In order to provide comfortable travelling, it has introduced newer models of various
buses with more luxurious seating, air conditioned like Volvo.

WEAKNESSES:
1. Ineffective marketing of various services provided by BMTC to customers.
2. In spite of conducting programmers for improvements of soft skills, mannerisms, and
behavioral, not able to wee-out the belief among commuter towards the behavioral
aspects of the workers.
OPPURTUNITIES:
1. The wide spread opportunity to cover rural market.
2. The expanding boundary limits of Bruhat Bengaluru Mahanagara Palike have opened the
doors of opportunity to expand its operations, increase responsibility and revenue.
3. Great opportunity to dominate entire urban and rural market by utilizing modern
technologies.
THREATS:
1. Increasing traffic congestion is creating a barrier in achieving punctuality.
2. Private transportation is acting as a favorable mode of transport in rural areas by
providing services at challenging fares and schedules.
3. METRO RAIL is rising as a competitor.

CHAPTER-5
DATA ANALYSIS AND
INTERPRETATION

Table5.1:- Showing Purchase of Buses and Domestic Vehicles
Year Buses and domestic Percentage

vehicles (Rs. In lakhs)
2014-2015 5311.10 44.08
2015-2016 15.23 0.12
2016-2017 6723.28 55.80
Total 12049.61 100
Analysis:
The above table represents that in the year of 2014-2015 the amount of 5311.10 lakhs rupees was
spent by BMTC for the purchase of buses and domestic vehicles.
In the next financial year that is 2015-2016 the amount spent on purchasing of buses and
domestic vehicles was decreased by 5295.87 lakhs from 5311.10 lakhs. By this we can say that
there is a decrease in purchasing of buses and domestic vehicles.
In the next financial year i.e., 2016-17 the amount spent on the purchasing of buses and domestic
vehicles was increased by 6708.05 lakhs from 15.23 lakhs. By comparing the post previous
financial year to the previous financial year there is an increase in the purchasing activity of
buses and domestic vehicles.

Graph1.1:- Showing Purchase of Number of Buses and Domestic vehicles.
Graph showing buses and domestic

vehicles
100
15000
10000 55.8
44.08
5000 0.12
0
2014-2015 2015-2016 2016-2017 total
Buses and domestic vehicles percentage
Interpretation:
As per the research we can conclude that in the year of 2014-15 there is 44.08% of amount spent
on purchase of buses and domestic vehicles. In the next financial year 2015-16 there is a
decrease in purchase of buses and domestic vehicles i.e., 0.12%.There is increase of 55.80%
purchases of buses and domestic vehicles in the financial year 2016-17. There is increase in
purchasing activity because the BMTC providing more bus facilities to the public.

Table5.2:- showing number of depots and bus station construction
year Depots and bus station Percentage

construction(rupees in lakhs)
2014-2015 5563.70 35.45
2015-2016 4625.78 29.46
2016-2017 5509.83 35.09
Total 15699.31 100
Analysis
From the above table we analyze that the amount of 5563.70 lacks spent on construction of
depots and bus stations that is the financial year 2014-2015.
In the next financial year that is 2015-2016 there is decrease in the amount that is spent on
construction of depots and bus stations that is 4625.78 lacks. Here we can conclude that there is
decrease in the amount spent on construction 0f depots. And bus stations.
When we comparing the past two previous financial years there is an increase in construction of
depots and bus stations of 5509.31 lacks was spent on construction of depots and bus stations
that is in the financial year of 2016-2017.

Graph5.2:- showing number of depots and bus station construction
Graph showing depots and bus station

construction
40 35.45 35.09
35
29.46
30
25
20
perc entage
15
10
5
0
2014-2015 2015-2016 2016-2017
Interpretation:
on depots and bus station construction. In the next financial year 2015-16 there is a decrease
depots and bus station construction i.e., 29.46% there is increase of 35.09% depots and bus
station construction in the financial year 2016-17.

Table 5.3:- showing amount spent on purchase of plant and machinery
year Purchase of plant and Percentage

machinery(Rupees in lakhs)
2014-2015 375.61 64.29
2015-2016 77.54 13.27
2016-2017 131.04 22.44
Total 584.19 100
Analysis
From the above table we analyze that the amount of 375.62 lacks spent on purchase of plant and
machinery. That is the financial year 2014-2015.
In the next financial year that is 2015-2016 there is decrease in the amount that is spent on plant
and machinery that is 77.54 lacks. Here we can conclude that there is decrease in the amount
spent on purchase of plant and machinery.
When we comparing the past two previous financial years there is an increased in purchase of
plant and machinery 5509.31 lacks was spent on purchase of plant and machinery that is in the
financial year of 2016-2017.

Graph 5.3:- showing amount spent on purchase of plant and machinery
Graph showing purchase of plant and

machinery
70 64.29
60
50
40
30 22.44 Percentage
20 13.27
10
0
2014-2015 2015-2016 2016-2017
Interpretation:
on purchase of plant and machinery. In the next financial year 2015-16 there is a decrease
purchase of plant and machinery i.e., 13.27% there is increase of 22.44% purchase of plant and
machinery in the financial year 2016-17.

Table 5.4:- showing amount spent on purchase of computer hardware
year Purchase of computer Percentage

hardware
2014-2015 113.07 38.55
2015-2016 85.46 29.14
2016-2017 94.72 32.31
Total 293.25 100
Analysis
From the above table we analyze that the amount of 113.07 lacks spent on purchase of computer
hardware. That is the financial year 2014-2015.
purchase of computer hardware that is 85.46 lacks. Here we can conclude that there is decrease
in the amount spent on purchase of computer hardware.
When we comparing the past two previous financial years there is a decrease in amount of 94.72
lacks was spent on purchase of computer hardware. That is in the financial year of 2016-2017.

Graph 5.4:- showing amount spent on purchase of computer hardware
Graph showing purchase of computer

hardware
70 64.29
60
50
40
30 22.44 Percentage
20 13.27
10
0
2014-2015 2015-2016 2016-2017
Interpretation:
on purchase of computer hardware .In the next financial year 2015-16 there is a decrease i.e.,
;.29.14% There is increase of 32.21% depots and bus station construction In the financial year
2016-17.

Table 5.5:- showing amount spent on purchase of land
year Purchase of land Percentage

2014-2015 0 0
2015-2016 2.02 100
2016-2017 0 0
Total 2.02 100
Analysis
From the above table we analyze that the amount of 0 lacks spent on purchase of land... That is
the financial year 2014-2015.
purchase of land that is 2.02 lacks. Here we can conclude that there is increase in the amount
spent on purchase of land.
When we comparing the past two previous financial years there is a decrease in purchase of land
of 0 lacks was spent on purchase of land. That is in the financial year of 2016-2017.

Graph 5.5:- showing amount spent on purchase of land
Graph showing purchase of land

120
100
100
80
60
Percentage
40
20
0 0
0
2014-2015 2015-2016 2016-2017
Interpretation:
As per the research we can conclude that in the year of 2014-15 there is 0% of amount spent on
purchase of land .In the next financial year 2015-16 there is a increase i.e., 100% There is
decrease of 0% purchase of land In the financial year 2016-17.

Table 5.6:- showing amount spent on capital expenditure
year Capital expenditure Percentage

2014-2015 11363.48 39.69
2015-2016 4806.03 16.78
2016-2017 12458.87 43.53
total 28628.38 100
Analysis
From the above table we analyze that the amount of 11363.48 lacks spent on capital expenditure.
That is the financial year 2014-2015.
purchase of land that is 4806.03 lacks. Here we can conclude that there is increase in the amount
spent on capital expenditure
When we comparing the past two previous financial years there is an increase in capital
expenditure of 12458.87lacks was spent on purchase of land. That is in the financial year of
2016-2017

Graph 5.6:- showing amount spent on capital expenditure
Graph showing amount spent on

capital expenditure
50
43.53
39.69
40
30
Percentage
20 16.78
10
0
2014-2015 2015-2016 2016-2017
Interpretation:
on amount spent on capital expenditure. In the next financial year 2015-16 there is a decrease
i.e., 16.78% there is increase of 43.53% amount spent on capital expenditure in the financial year
2016-17.

Table 5.7:- Table showing depreciation fund
year Depreciation fund Percentage

2014-2015 2855.62 9.63
2015-2016 12312.00 41.53
2016-2017 14477.92 48.84
Total 29645.54 100
Analysis
From the above table we analyze that the amount of 2855.62 lacks spent on depreciation fund
that is the financial year 2014-2015.
In the next financial year that is 2015-2016 there is increase in the amount that is spent on
purchase of land that is 12312.00 lacks. Here we can conclude that there is increase in the
amount spent on depreciation fund
When we comparing the past two previous financial years there is a decrease in depreciation
fund of 14477.92lacks was spent on purchase of land. That is in the financial year of 2016-2017.

Graph 5.7:- showing depreciation fund
Graph showing depreciation fund

60
48.84
50
41.53
40
30 Percentage
20
9.63
10
0
2014-2015 2015-2016 2016-2017
Interpretation:
As per the research we can conclude that in the year of 2014-15 there is 9.63% of depreciation
fund. In the next financial year 2015-16 there is a decrease i.e., 41.53% there is increase of
48.84% depreciation fund in the financial year 2016-17

Table 5.8:- showing financial budgeting derived from balance sheet
year Financial budgeting derived Percentage

from balance sheet
2014-2015 269159.97 23.22
2015-2016 279442.57 24.11
2016-2017 280436.29 24.22
2017-2018 329750.75 28.45
Total 1158789.28 100
Analysis
From the above table we analyze that the amount of 269159 lacks spent on financial budgeting
derived from balance sheet that is the financial year 2014-2015.
financial budgeting derived from balance sheet that is 279442.57 lacks. Here we can conclude
that there is increase in the amount spent on financial budgeting derived from balance sheet.
When we comparing the past two previous financial years there is an increase in financial
budgeting derived from balance sheet of 280436.29lacks was spent on purchase of land. That is
in the financial year of 2016-2017.
In the next financial year 2017-2018 the amount of 329750.75lacks was spent on financial
budgeting derived from balance sheet.

Graph 5.8:- showing financial budgeting derived from balance sheet
Graph showing financial budgeting

derived from balancesheet
30 28.45
23.22 24.11 24.22

25
20
15
Percentage
10
5
0
2014-2015 2015-2016 2016-2017 2017-2018
Interpretation:
As per the research we can conclude that in the year of 2014-15 there is 23.22% of financial
budgeting derived from balance sheet. In the next financial year 2015-16 there is a decrease i.e.,
24.11% there is increase of 24.22% financial budgeting derived from balance sheet. In the
financial year 2016-17. In the next financial year there is an increase of 28.45 % on the amount
spent on financial budgeting that is derived from balance sheet.

Table 5.9:- showing number of fixed assets purchased.
year Purchase of fixed assets Percentage

2014-2015 12602.63 22.23
2015-2016 14776.19 26.06
2016-2017 16833.80 29.69
2017-2018 12470.75 22.02
Total 56683.37 100
Analysis
From the above table we analyze that the amount of 12602.63 lacks spent on purchase of fixed
assets that is the financial year 2014-2015.
purchase of fixed assets that is 14776.19lacks. Here we can conclude that there is increase in the
amount spent on purchase of fixed assets.
When we comparing the past two previous financial years there is an increase in purchase of
fixed assets of 16833.80lacks was spent on purchase of land. That is in the financial year of
2016-2017.
In the next financial year 2017-2018 the amount of 12470.75lacks was spent on purchase of
fixed assets

Graph 5.9:- showing number of fixed assets purchased
Graph showing purchase of fixed

assets
24.5 24.11 24.22
24
23.5 23.22
23
22.5 22.02
22 Percentage
21.5
21
20.5
2014-2015 2015-2016 2016-2017 2017-2018
Interpretation:
As per the research we can conclude that in the year of 2014-15 there is 22.23% of purchase of
fixed assets. In the next financial year 2015-16 there is a decrease i.e., 26.06% there is increase
of 29.69% purchase of fixed assets .In the financial year 2016-17. In the next financial year there
is an increase of 22.02% on the amount spent on purchase of fixed assets.

Table 5.10:- showing number of buses purchased
year Number of buses purchased Percentage

2014-2015 197 100
2015-2016 0 0
2016-2017 0 0
Total 197 100
Analysis
From the above table we analyze that the amount of197 lacks spent on purchase of buses that is
the financial year 2014-2015.
purchase of buses that is 0 lacks. Here we can conclude that there is decrease in the amount spent
on purchases of buses
When we comparing the past two previous financial years there is a decrease in depreciation
fund of 0lacks was spent on purchase of buses that is in the financial year of 2016-2017.

Graph 5.10:- showing number of buses purchased
Graph showing number of buses

purchased
120
100
100
80
60
Percentage
40
20
0 0
0
2014-2015 2015-2016 2016-2017
Interpretation:
As per the research we can conclude that in the year of 2014-15 there is 100% of number of
buses purchased. In the next financial year 2015-16 there is a decrease i.e., 0% there is decrease
of 0% number of buses purchased in the financial year 2016-17

Table 5.11:- showing net profit
Year net profit Percentage

2014-2015 (-64.90) -33.27
2015-2016 13.73 -33,27
2016-2017 (-260.91) -33.46
Total (-312.08) 100
Analysis
From the above table we analyze that the amount of 13.73 lakhs gained as net profit that is the
financial year 2014-2015.
In the next financial year that is 2015-2016 there is loss in the amount that is spent on purchase
of buses that is (-260.91) lacks. Here we can conclude that there is loss in net profit.
When we comparing the past two previous financial year there is a loss in net profit (-312.08)
lacks loss in the financial year of 2016-2017.

Graph 5.11:- showing net profit
Graph showing fluctuations in net profit

40 33.46
30
20
10
0 percentage
(-64.90) 13.73 (-260.91)
-10
-20 2014-2015 2015-2016 2016-2017

-30
-40 -33.27 -33.27
Interpretation:
As per the research we can conclude that in the year of 2014-15 there is -33.27% of fluctuations
in net profit .In the next financial year 2015-16 there is a decrease i.e.,-33.27% There is increase
of 33.46% fluctuations in net profit In the financial year 2016-17.

CHAPTER: 6
SUMMARY OF FINDINGS,
SUGGESTIONS AND CONCLUSIONS

FINDINGS
1. From the research it is found that the amount spent on purchase of vehicles is
decreasing from year to year.
2. The expense spent on construction of depo and bus station is decrease to rupees
4,625.78 lakhs in the last two financial years.
3. The Amount spent purchase of plant and machinery is decreased to 77.54 lakhs
from 375.62 lakhs in the year to year respectively.
4.The amount spent on purchase of computer hardware is decreased in the year
2015-16 when compare to 14-15 that amounted to 94.72 lakhs.
5.The amount spent on purchase of land is decreased in the year 15-16 when
compare to 14-15 that amounted to 0 lakhs.
6. The amount incurred in capital expenditure 11,363 and 8 lakhs in the financial
year
7. The amount spent on capital expenditure is decreased in 2015-16 is decreased
by 9.63% compare to previous year 2014-15.
8. The amount shown in financial budgeting derived from balance sheet which is
increased from 24.22 to 28.45 compare to previous year amount spent on financial
budgeting.
9. The amount spent on purchasing of fixed assets is increased by 22.02%
compared with previous year 2015-2016.

10. The amount spent on purchasing of new buses there is no fluctuation in
decrease or increase in the purchasing of buses.
11. The amount of net profit is fluctuated by increased 33.46% compared to
previous year of 2017-2018

6.2: Suggestions
1). BMTC must take effective decisions regarding purchase of capital assets.
2). Top level management should focus on increasing net profit which is
decreasing from year to year.
3). BMTC should take effective decisions regarding investment for the purchase
of more buses that should help to yield investment with some profit.
4). Corporation should introduce more and more eco-friendly buses that are
electric buses because present electric buses introduced by BMTC is not enough
to gain the capital expenditure.
5). At BMTC there is an need to modernize and improve the system in division to
increase its profitability.
6). The company may introduce new attractive scheme which is beneficial to
public and attract more peoples.
7). BMTC must never show negligence towards capital budgeting process.
8). BMTC need to develop and implement strategies to maximize the capital by
taking effective investing decisions.
9). BMTC should improve its working capital by improving the status of current
assets in the company.
10). Liquid assets such as cash at hand. Bank and marketable securities has to be
maintained sufficiently.

6.3: Conclusions:
BMTC is the oldest and well established public limited company which has made a sufficient
name and fame in the minds of public for its services offered. BMTC has a very good reputation
for its brand name and also for quality service.
Capital budgeting is an inevitable burden in BMTC. This will affect the profit of the corporation.
But capital budgeting cannot be eliminated. The BMTC can maximize it over a period of time.
The BMTC can recover the capital through transactions. Before making capital budgeting
decisions, finance professionals, often generate, review, analyze select and implement long term
investment proposals that meet firm-specific criteria and are consistent with the firm’s strategic
goals.

BIBLIOGRAPHY
ANNUAL REPORTS
 BMTC annual reports 2014-15
WEBSITES
 www.googleschlor.com
 www.shodhganga.com
 www.mybmtc.com
 www.wikipedia.com
BOOKS
 Research methodology C R Kothari
 Capital investment John willey &sons
 Capital budgeting Pamela P. Peterson & frank j. fabozzi

ANNEXURE


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CAPITAL BUDGETING PROCESS IN BMTC

BISHOP COTTON WOMENS CHRISTIAN COLLEGE Page 1

1.1 Meaning of finance management

BISHOP COTTON WOMENS CHRISTIAN COLLEGE Page 2

There are mainly two types of finance

1.4 Scope of finance

 Financial institutional setup and their functions in their capital market.

BISHOP COTTON WOMENS CHRISTIAN COLLEGE Page 3

1.5 Financial functions

The important functions are as follows

BISHOP COTTON WOMENS CHRISTIAN COLLEGE Page 4

(1) Cost of mechanization, automation and replacement.

1.7 DEFINITION OF CAPITAL BUDGETING

BISHOP COTTON WOMENS CHRISTIAN COLLEGE Page 5

Capital budgeting is important because of the following reasons;

1.9 OBGECTIVES OF CAPITAL BUDGETING

The following are the important objectives of capital budgeting:

BISHOP COTTON WOMENS CHRISTIAN COLLEGE Page 6

1. Pay-back period method: pay-back period is also termed as “pay-out period” or

Advantages of pay-back period method

It is an important guide to investment policy

 It is simple to understand and easy to calculate

Disadvantages of payback period method

 It does not measure the profitability of a project

BISHOP COTTON WOMENS CHRISTIAN COLLEGE Page 7

 It applies profit as a measure of yardstick not cash flow.

3. Internal rate of return method (IRR)

BISHOP COTTON WOMENS CHRISTIAN COLLEGE Page 8

5. Net present value method (NPV):

Advantages of net present value method:

BISHOP COTTON WOMENS CHRISTIAN COLLEGE Page 9

 This method is comparatively difficult to understand or use.

6. Profitability index method:

Advantages of profitability index:

The classification of capital budgeting projects is as follows

(1) Replacement projects:-

BISHOP COTTON WOMENS CHRISTIAN COLLEGE Page 10

(3) Mandatory projects:-

Steps of capital budgeting process

BISHOP COTTON WOMENS CHRISTIAN COLLEGE Page 11

1. Creative search profitable opportunities:

2. Long range capital planning:

3. Short range capital planning:

4. Measurement of project work:

5. Screening and selection:

6. Control and authorized outlays:

BISHOP COTTON WOMENS CHRISTIAN COLLEGE Page 12

The ex-post routines of a completed investment project should be re-valuated in order to

8. Retirement and proposals:

9. Forms and procedure:

BISHOP COTTON WOMENS CHRISTIAN COLLEGE Page 13

BISHOP COTTON WOMENS CHRISTIAN COLLEGE Page 14

2.2: REVIEW OF LITERATURE

According to Annie Linskey (2004) convention center money for Baltimore

BISHOP COTTON WOMENS CHRISTIAN COLLEGE Page 15

BISHOP COTTON WOMENS CHRISTIAN COLLEGE Page 16

According to Gaudy A. Epstein (2004) as promised Gov. parries N Glendenning

BISHOP COTTON WOMENS CHRISTIAN COLLEGE Page 17

According to Gilman (1982) a survey of capital budgeting techniques used by

BISHOP COTTON WOMENS CHRISTIAN COLLEGE Page 18

According to Stanley (2000) survey of multinational capital budgeting. Survey of

According to Ross (2001) capital budgeting practices of twelve manufacturers’