Professional Documents
Culture Documents
18P31E0021
18P31E0021
“CAPITAL BUDGETING’’
(With reference to SRI RAMADAS PAPER BOARDS PVT.LTD, )
Submitted by
PICHIKA SAI VENKATA CHANDU
(Reg. No: 18P31E0021)
1
ADITYA COLLEGE OF ENGINEERING & TECHNOLOGY
(Approved by, AICTE, New Delhi & Affiliated to JNTU Kakinada)
ADB ROAD, SURAMPALEM -533333
CERTIFICATE
carried out by , Reg. No. 18P31E0021 is a bonafied work done under my guidance.
EXTERNAL EXAMINER
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3
DECLARATION
Place : Surampalem
Date :
PICHIKA SAI VENKATA CHANDU
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ACKNOWLEDGEMENTS
Finally, I thank all the teaching and non-teaching staff members and my
parents who extended their cordial and valuables.
PICHIKA SAI VENKATA CHANDU
(Regd. NO:18P31E0021 )
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INDEX
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CHAPTER-1
INTRODUCTION
RESEARCH METHODOLOGY
7
Introduction
anted a inancial reso rces are to e proc red fro s pplied reso rces and
Financial Management:
Financial management is a management linked to the management of
all financial operations. Financial management is concerned, with some overarching goal,
with acquisition, funding and asset management. In other words, financial management deals
with revenue and expense planning and determines which will help you to survive
and its efficient use for reaching the common aim of the organization. Financial management
is the executive activity that deals with the company's planning and control.. The process of
to provide different users with information for decision making is typically defined as
financial accounting.
Definition:
for obtaining and effectively, utilizing the funds necessary for efficient operations.
preparation and control. Although it was an economy branch till 1980, it has not had a
specific knowledge of the discipline as a separate operation until today, and still
In today's corporate world, financial management became more relevant. It's a money
science that helps the authorities to go much further. Financial management 's value
• t s pports the assess ent of lar e or s all ind stries' financial needs and
financial initiation.
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• ssists the ana e ent of profita le projects y analyzin the project ia ility
• Ena les ana e ent to protect a ainst shareholders ' interests thro h the
appropriate use of the supply of funds from various sources, and also to monitor and
finance manager. This will depend on the costs and benefits expected and on future
programs and policies. Estimates must be made in a way that increases the enterprise
's profitability.
made. This includes an examination of debt equity in the short and long term. This
depends on the share of equity and external funds that a corporation needs to raise
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Factor choice depends on the relative merits and demerits of each funding source and
period.
4. Investment of funds:
In order to ensure that investment security and regular returns are possible, the
5. Disposal of surplus:
The financial manager must decide on the net profit. This is necessary in two
respects:
6. Management of cash:
In cash management, the Finance Manager has to decide. For several items
such as salary and wage payments, power and water charges charged, investors, and
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The most significant financial feature of modern times is an effective
allocation of resources. The decision to commit funds to long-term assets involves
decisions. The value of company / company is determined by these decisions by
affecting production , productivity and risk.
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OBJECTIVES OF THE STUDY
report.
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METHODOLOGY
PRIMARY SOURCES
SECONDARY SOURCES
Furthermore, the time limit is another limiting factor, that is to say that the 8-
week schedule duration does not suffice to render the SRPB Capital Budgeting
Analysis independently.
Another limiting factor is the busy schedule of the officials in the SRPB.
Because of the busy schedule, I was restricted by officials to gather the full
organizational information.
Non-confidential financial data unavailability.
A short analysis, which in all respects has not been studied, shall be
performed.
All capital budgeting strategies in SRPB are not employed. Therefore, few
forms of capital budgeting could be explained.
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CHAPTER 2
PROFILE OF INDUSTRY
15
INDUSTRY PROFILE
The ord “paper” is deri ed fro the ater plant called “papyr s”
That ro s aro nd the “Nile Ri er”, E ypt The citizens of E ypt sed the ark of
“papyr s plant” after c ttin and dry it t as said that T Jaril r Chin” had
prepared paper with the bark of the mulberry tree in 105 A. D.
In 1336A the world's first paper mill was begun. D. Paper mills began
in 1586 in Switzerland and London, taking into account the enormous aspect of the
paper industry. It was later spread in no long time to all the other countries of the
world.
The technology used in paper making has made many modifications and was
entirely different from the technology used in the beginning. In the year 1927
chlorine as as sed for leachin of the p lp n 1979, “Ro ert Micholas” the
French scientist has designed first paper machine in the world. The paper machine
sed in the late 1960’s as desi ned y “Lo er did t and Bri al donklin” The
achines sed no a day’s are ite different and ery ell ad anced oth in capacity
to produce and the enormous speed with which they operated.
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HISTORY OF INDIAN PAPER INDUSTRY
Unlike Iron & steel, textile and sugar industry the paper making industry
didn’t exist in ancient ndia for ritin p rpose ancient ndian’s sed Bhoja patras
(bark of tree) and tal patras (bark of palm) were used some of the old man scripts and
many grand has preserve up to the present times were written on these materials
which are not prevalent now a days.
The modern art of paper making came to India quite late the
fo ndations of latest papers ind stry ained o ent fro late 1870’s prior to the
latest technology, people used different techniques.
Old Egyptians (paper mailing to India) used sheets of papyrus made of plant
papyrus stem tissue. The earliest written boards, now a day, was usable up to five
thousand years ago. The Aryans used the Bhoja patras for writing with derived and
processed palm leaves and thin bark leaves.
irst s ccessf l paper ill in ndia “the tata har” paper ills as esta lished
in the year 1891 in Bangalore, East India from this year onwards, the paper industry
in India has gained much movements and speed throughout the country and increased
in number
The fact that of 17 major mills with a capacity of 1.37 tons per year is
a reflector of its production. At the end of the 7th 5-year plan in 1957, the industry
was increased to 319 mills with an annual output of 32,31 tons.
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And in 1994 the volume of paper and paperboards was 380 and the total
installed production capacity of 37,09 lakhs was approximately 22 lakhs tons, except
newsprints. The lack of large-scale investments by the Indian paper company in the
public sector to make it important for the growth of the industry to meet its demands
in the near future in the wake of many 1987 anticipations of a paper industry scheme
y the Ger an paper co pany −MODV T in recent years Efforts ere ade to
reduce the importance of the news point and forced some cultural varieties of papers
manufactured by Indian mills into use by new papers and magazines.
Paper industry supplies various types of paper board, special paper to a no. of
uses which include Government education, companies packing, news paper &
magazines etc.
The Indian paper industry produces a number of varieties of papers & paper
boards. These include glassine paper, art paper, carbon papers, insulation papers,
draft papers, maplitho papers, quoted papers, quoted board, duplex boards, triplex
boards, straw boards, paper boards, lotterypaper, Xeroxpaper,
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INDIAN PAPER INDUSTRY
STANDARD GLAZED
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CONSUMPTION OF PAPER IN INDIA
PRESENT STATUS
In 1974, the Indian Government adopted a paper inspections order controlling the
prices and quality of panels when paper inspections were removed. The industry has earned
some receipt and hope for greater productivity through the manufacture of these paper and paper
board blends, which are driven by appalling demand.
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A large number of units in the past two or three years have achieved a significant
term. However, many conflicting signals were given by the paper industry in 1992.
The following steps have been taken to encourage and improve paper and paper
board manufacturing in the country in which paper units have been exempt from industrial
permits subject to 10 cautionary angulars using at least 75% the pulp derived from luggage,
agricultural and residues and other non-contravention raw materials.
The manufacture of printing paper and exposed hand paper, which are made from a
mixture of rice and wheat, straws, jute and luggage, not less than 75% by weight, containing the
pulp of more pulp containing the above materials excluded from service.
Importation of water paper at low customs duty rates (20 percent) was freely allowed
without the need for an import license. In recent years the government has concessions to help
industries improve their capacity utilization and financial responsibility in other concessions.
These include free imports of raw materials, the sanding of different paper and paperboard
vacancies and the de-licensing of certain paper types.
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CHAPTER 3
PROFILE OF
RAMADAS PAPER BOARD PVT LTD
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RAMADAS GROUP – A PROFILE
Ramadas Group of Industries was established in the year 1974 with a modest workshop, by name
Sri Ramadas Engineering Works. Sri Ramadas Engineering Works earned good name in the
Paper Industry by virtue of quality of the equipment such as Stock pumps, Vacuum pumps,
Centrifugal Cleaners, Screens, Refiners, Head boxes etc. supplied to the industry all over the
country.
Soon, Sri Ramadas Engineering Works started manufacturing Egg Tray manufacturing
machines. The demand for egg and egg export created boom for Egg Trays and the machines (to
manufacture trays). Besides supplying several machines, the group has gone in for Egg Tray
manufacturing also. It is no wonder the Trays manufactured are selling product soon and till
day enjoying name for their quality.
The first Paper machine – Sri Ramadas Paper Boards Pvt. Ltd. was established in the year
1994 with a capacity of 10 Tons per day. MG Plain & Ribbed Kraft Papers from 40 to 150
GSM are the products manufactured. The mill is now producing 15 TPD after a rebuild. The mill
also manufactures special quality lower GSM Kraft Papers for export purpose.
Sri Vinayaka Paper Boards Pvt. Ltd. emerged in the 1998 with a capacity of 15 Tons per
day of Kraft Paper. The mill was producing 50 Tons per day after two rebuilds. MF Kraft Paper
from 90 to 180 GSM and Burst Factor 14 to 22 were the products made. The MF Kraft Paper
earned name for its quality and catered to several corrugators all over South India. Motivated by
the market response for Kraft Paper quality and the demand for White paper varieties, Sri
Vinayaka Paper Boards has changed its product mix to Newsprint, Writing & Printing Papers.
The mill is presently producing Creamwove and Deluxe Creamwove varieties with 72 to 76
percent brightness and Newsprint of 55 percent brightness. Inview of vigorous expansions in
Ramadas Groups, Sri Vinayaka has sold in March 2009.
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Sri Ramadas Paper Boards, expanded its production capacity (In addition to the existing
capacity of 15 Tons per day of Kraft paper), by installing a second machine in the year 2002 with
a capacity of 45 Tons per day. While Newsprint is the primary product, Creamwove, Super
Deluxe Creamwove, Map Litho and Map Litho (Special) papers are the other products. Ramadas
Newsprint Deluxe and Ramadas (Prime Quality) are two qualities manufactured with 55 and 60
percent brightness. Creamwove, Deluxe Creamwove, Map Litho and Map Litho (Special) papers
are manufactured with 75 to 80 percent brightness.
Power without any interruptions and voltage fluctuations is very essential for continuous
process like paper manufacture. Sri Ramadas Paper Boards has started a 4 MW Co-generation
Power Plant in the year 2005. This Power Plant supplies quality Power and Steam to the paper
units in Ramadas, which helps in making better quality paper cost effectively.
Ramadas group uses recycled fibre i.e. waste paper as raw material for paper
manufacture. Also, the group employs total Chlorine Free (TCF) Bleaching to protect ecology
and environment. All the Writing & Printing grades at Ramadas group are manufactured in
neutral/alkaline medium using special sizing chemicals. These papers are multi purpose papers,
good for Ink Jet, Bubble
Jet, Laser and Offset printing. Care is taken in the manufacture of paper to impart the
requisite characteristics to paper for high print quality. Paper manufactured in neutral/ alkaline
medium using functional additives in the paper furnish are surface toughened, stronger, brighter,
permanent in nature.
The management of Ramadas group never compromises with quality of product despite
higher input costs. The Ramadas group have well established laboratory to conduct stringent
Quality Control and carry out Research & Development work as well. Having understood the
importance of end use requirement of Newsprint, Writing & Printing papers and Kraft paper for
corrugators, Ramadas group carried R & D work to strike the right raw material mix and process
to get best out of recycled fiber.
The Market response for Newsprint, Writing & Printing papers at Ramadas is highly
satisfying and motivating. Enthused by the success and market patronization, Ramadas group has
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expanded production by installing one more paper machine of 80 to 100 Tons per day capacity.
This new machine was commissioned and started production in March 2009.
As on date Ramadas group is producing about 150 Tons per day of Various grades of
paper in its paper division.
2) Vizag
3) Vijayawada
4) Gunlur
5) Tirupathi
6) Warangal
2) Kolkata
3) Mumbai
4) Pune
5) Nagpur
6) Chennai
7) Pond cherry
8) Bangalore
Labour Facilities:
The production plant of SRPB in Rajahmundry requires skilled and semi skilled works
which draws from near by areas. The qualified persons who work in the organization are having
the best knowledge in both technical managerial skills. The labour facility in SRPB very
impressive.
It is implemented that the factory is working under 4 shifts viz A, B, C and General
shifts. The shifts are arranged in a way as to carry on the production continuously round the
clock. The following table exhibits the shifts and timings.
SHIFTS TIMINGS
A 6:00 AM to 2:00 PM
B 2:00 PM to 10:00 PM
C 10:00 PM to 6:00 AM
ORGANISATION CHART:
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CHAIRMAN & MANAGING DIRECTOR
DIRECTOR
GENERAL MANAGER
MANAGER
DEPUTY MANAGER
Asst. MANAGER
JUNIOR MANAGER
SUPERVISORS
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Fiber Furnish :
(A) 60-70% Indigenous waste paper like Old Newspapers; Old Text
Books, Office record and note books.
(B) 30-40% Imported waste paper like News & Pams ; Magazine
Trimmings; Printer off Cuts and Coated Book Stock.
Imported waste paper will be dumped mainly from Europe and to some extent from US and
other countries.
The above said waste paper mix will be charged to high consistency pulper through belt
conveyor and 15-16% consistency will be maintained by adding water. The required
chemicals like
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From pulp retention tower the pulp passes into No. I chest then goes to High density cleaner
(where the heavy particles like sand, grit pins etc. are separated) and then passed away to
separplast (light materials like plastics polystyrene etc. are eliminated in separplast). The
separplast accepts comes into No.2 chest and rejects in the sense remained plastics and other
light weight materials goes to Diabolo screening. Some portion fiber might be in separplast
rejects. This fiber also will be separated and recollected into No.2 chest during Diabolo
screening.
From No.2 chest pulp passes to sand trap pump then forwarded to de-inking cell with proper
dilution. (the sand would settle in the bottom and can be removed periodically in sand trap
cleaner)
In De-inking cell majority of the ink which was printed on waste paper will come out along
with the foam by flotation method. 0.8 to 1.1% consistency will be maintained in this
operation. The primary cell accepts (ink removed cleaned pulp) goes to three stage
centricleaning and slotted pressure screen where the rejects (ink along with fiber) goes to
secondary stage of de-inking cell.
Dust, shives and sand particles will be eliminated during centricleaning with centrifugal
action and the fiber length is uniform is slotted screening.
After getting screened the low consistency (1%) pulp processed to a flow box then forwarded
to thickness. The constancy of pulp is around 6% after thickening and collected into a chest.
From the thickener chest pulp is to be taken into Twin drum press and pulp is thickened upto
26-28% consistency. From this pulp is forwarded to Hot dispecer.
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The pulp will be diluted to 21-22% consistency from 26-28%.before going to hot dispersion.
During the hot dispersion the temperature for the pulp is about 85-90oC will be maintained
where un dissolved hot melts and some unbleached shives / contaminants will be dissolved
completely with the temperature. From the hot disperser the pulp will be sent to retention
tower and retain atleast for one hour for better results.
From retention tower again the pulp will be diluted into 4% consistency and forwarded to
mixing chest.
In mixing chest all necessary dyes and chemicals like Talcum powder and other whitening
agents will be added.
After getting thoroughly mixed in mixing chest pulp is forwarded to Receiving chest and
then Machine chest to proceed for paper making.
2. PAPER MAKING :
Without the need for an Import Licence, importation of water paper at a low tariff rate (20
percent). The government has concessions in recent years in support of industries in further
concessions to increase their utilization of capacity and their financial responsibility. These
include free imports of raw materials, the sanding and de-licensing of certain paper types of
different paper and carton vacancies.
3. FINISHING :
The cylinders wound on the paper machine are wound on a cylindrical rewinder to a
desired cylindrical size and loaded on to a sheet cutter for commercial papers, in which the
cylinders are packed and sent to market.
Now a days fresh water is very much costly and valuable also. Our fresh water
consumption is very less compared to other industries where as we have full-fledged effluent
treatment plant system.
All the waste water from different sources in the plant will be collected into an
equalization tank (the suspended solids of water is 3000 PPM) and pumped to Primary clarifier.
The primary clarifier overflow passes into Aeration tank and then forwarded to secondary
clarifier. Secondary clarifier overflow water suspended solids 100 to 150 PPM) will be reused in
our process in place of fresh water.
Primary and secondary under flows are processed into sludge centrifuge. The generated
sludge from centrifuge will be sent for waste land filling.
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The pulp so obtained is bleached in a number of stages. Bleaching removes the coloring matter
and imparts brightness to the pulp. Unbleached pulp as such is utilized in the manufacture of
various packing and wrapping papers.
Bleached pulp is utilized for the manufacture of various writing, printing and base papers.
During the first stage of the bleaching process, the pulp is directly chlorinated with chlorine and
allowed retention time of one hour. This pulp is extracted with solution of caustic, washed and
again bleached in the subsequent stages with solution of either calcium hypochlorite or chlorine
dioxide with intermediate washing between the stages. The washed pulp is stored in stock chests.
The pulp at very low consistencies is formed into a sheet on an endless screen mesh made
of phosphor bronze / plastic wire. The sheet is calendared to impart smooth finish in the surface
on both sides. A calendar consists of a number of chilled iron rolls with good surface finish,
through which the sheet is passed between the nips formed by the rolls.
This paper is reeled or cut into sheets by the cutters depending on the requirement for the
customers.Steam is required for power generation and process requirement. Part of the
requirement is met with steam generated from the Recovery Boilers and the balance steam is
generated in Coal-Fired Boilers.
OPERATIONS DEPARTMENT:
The SRPB manufactures of writing & printing paper, poster paper, Kraft and
business papers like Copier, and multipart stationery. Using Waste Paper, Chemicals Dyes, oils,
coal etc., are main raw materials. The Company produces 120-150 tons per day.
2005-06 2,050
2006-07 6,030
2007-08 21,046
2008-09 22,977
2009-10 23,920
2010-11 26,286
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2011-12 33,697
2012-13 33,857
2013-14 35,156
2014-15 40,096
2015-16 55,416
2016-17 50,500
2017-18 61,500
2018-19 61,000
PRIMARY TREATMENT :-
Raw Effluent from Unit-I & II passed through stationary screens and joins Equalization
tank. The purpose of stationary screens is to eliminate floating bodies from Raw Effluent
entering Effluent Treatment Plant. Raw Effluent along with sludge thickener over flow and
Sludge De watering Machine filterate pumped from equalization tank to Primary Clarifier. The
Floating bodies like plastic pieces and polythine covers are to be avoided as they are non –
Biodegradable.
In the Primary Clarifier the suspended matter from Raw Effluent Settled at bottom and
from there the Primary Clarifier under flow (Consistency 1.5%) pumped to the sludge thickener.
The Primary Clarifier outer flow (Suspended solids less than 100ppm) sent to Aeration tank.
Removal of suspended matter from Effluent is an important and essential aspect as it helps not
only removal of suspended solids. But also reduces BOD (upto 40%) thereby contributing in
reducing load on biological treatment.
Impurities present in the Raw Effluent are floating bodies like plastic/polythine pieces,
pulp, starch, talcum powder, clay, sand, organic and inorganic waste materials.
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The Primary Clarifier under flow sludge with around 1.5% consistency pumped to sludge
thickener for further thickening the over flow of the sludge thickener with around 600 ppm sent
to equalization tank. The under flow of the sludge thickener with around 5.0% consistency,
pumped to sludge dewatering machine.
At sludge dewatering machine the sludge is pressed in between the wires for removing
the water and sludge coming out of the sludge dewatering machine as pressed cake with a
moisture of around 65%. The filterate with around 800 ppm suspend solids is being sent to
equalization tank. The pressed cake is disposed off to egg tray manufacturing units.
SECONDARY TREATMENT :-
The primary clarifier over flow with BOD of around 300 ppm is taken to aeration tank for
Biological Treatment (The Aerobic activated Biological Sludge Process). In the aeration tank
bacteria cultured the BOD (organic matter) present in the Effluent is food for bacteria. In the
process bacteria oxygen is given for strengthening the bacteria nutrients like urea and DAP are
added.
In the aeration tank MLSS (Mixed Liquor Suspended Solids) of around 3500 ppm is to be
maintained the high MLSS result in saturation deaths of bacteria. The dead bacteria floats and
causes problems in secondary clarifier.
The over flow with 3500 MLSS pumped to Secondary Clarifier from aeration tank. 90%
of the setteled sludge (Bio Mas) is to be re-circulated to aeration tank. This is required to
maintain MLSS in aeration tank for better biological treatment. 10% of the sludge is to be
diverted to sludge thickener. This is required to arrest the abnormal growth of MLSS in aeration
tank. The secondary clarifier over flow (Treated Effluent) pumped to the factory which
drastically reduces fresh water consumption.
Total
Condu
S.No. Particulars pH Suspended B.O.D Oxygen Ash
-ctivity
Solids T.S.S
1 Raw Effluent 7.0 /7.5 - 2300 ppm 500 ppm - -
2 P.C. over flow - - >100 ppm 300 ppm - -
3 P.C. under flow - - 1.5 % - - -
4 S.T. Over flow - - 600 ppm - - -
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5 S.T. Under flow - - 5.0 % - - -
S.D. M/c
6 - - 35% - - 40%
pressed cake
MLSS 3500
8 Aeration tank - - - 3.0 ppm -
ppm
9 Treated Effluent - - >100 ppm >30 ppm - -
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CHAPTER 4
THEORETICAL FRAME-WORK
37
CAPITAL BUDGEING
Decision on the allocation of spending funds for various long-term assets relating to
capital budgeting. These have long-term effects, impacting the company's potential growth and
earnings.
For instance: land purchase is an example of the decision on capital budgeting. Improved
investment in the research and product production of a new advertising campaign, etc. are both
examples of decisions on capital budgeting. Likewise replaced obsolete equipment with modern
machinery, branch or company recruitment, computerization and networking of the organisation.
38
In all cases, however, decisions have a long-term impact on the organization 's
performance. The company's existence as a profitable entity may endanger even a single wrong
decision.
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3. Difficulty in Quantification of Impact: Financial analysts may be unable to quantitatively
calculate the costs and benefits of projects. Example: the proposed new product to be
introduced by the company will trigger sales of other goods to be increased or decreased
from the same brand already sold. The effect of sales of other goods can also have influences
other than the introduction of the new product, which make it very difficult to assess.
The decision-making process on capital budgeting is a multiple, analytical process. There must
be a variety of assumptions.
1. Certainty with respect to cost & Benefits: The cost and benefits of a
plan over two-three years are very difficult to estimate..
To diversification. To diversification.
Reduction in costs.
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FEATURES OF INVESTMENT DECISIONS:
41
Cash flows are taken into consideration in determining the real profitability of the project and
are a clear way of identifying good pool projects. Ranking is possible because larger cash
flows are better than smaller ones, early cash flows can be referred to later ones, which I
should help to make maximum use of the wealth of shareholders between mutually exclusive
projects. This should also be a criterion that applies independently to others to any significant
investment initiative. There are many approaches in use. The technical diagram can be
represented as follows:
A classic economic framework for assessing investment proposals is the Net Present
value test. This is one of the discounted cash flow forms. It acknowledges the value of money to
money.
It correctly postulates that cash flows from different times vary in value and are only
compared when current values are discovered.
42
The following steps are involved in the calculation of NPV:
• ct al ass ptions sho ld e sed to esti ate the in est ent project cash flo s
• reasona le rate of interest to disco nt cash flo s sho ld e selected, s ally the expense of
the co pany's o n capitalization .
• Capital cost discounting will be used to measure the present value for the inflows and the
outflows of a plan for investment.
• The Net resent al e is the difference et een the €/Cash Cash lo Val e and the Cash
Flow Value present.
• C rrent net al e sho ld e esta lished by removing the cash outflow present value from the
present cash inflow value. If the NPV is positive, the project should be approved.
NPV = Present Value of Cash inflow – Present value of the cash outflow
Acceptance Rule:
Accept if NPV > 0
Another discounted cash flow strategy is the internal return rate (IRR) approach. The
approach is based on the present value theory. The size and pacing of cash flows are taken into
account.
IRR is nothing but the current value of the future net financial flows, equivalent to the
present value of the expenditure required to undertake a project for capital investment.
43
In the case of a single project, the concept of the internal return rate is easy to understand.
Acceptance Rule:
Accept if r > k
Reject if r < k
May accept if r = k
Acceptance Rule :
Accept if PI > 1
Reject if PI < 1
May accept if PI = 1
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PAY BACK PERIODE METHOD:
The period when money is returned is one of the major concerns of any individual or
organization which invests a great deal of money. The investment concern would like to see
the invested capital recovered at least as soon as possible. The period for reimbursement is
defined as the period required for the proposal to match the cumulative cash flow to its cash
outflows. In other words, the time taken to recover the initial project cost is the repayment
duration. The reimbursement period is usually given by the number of years. The period
required for the plan to pay off even on its net investments may also be specified. This is the
time limit.
The payback period is the number of years the firm takes before depreciation but after
taxation recovers its original investments by net returns.
The pay-back period is completed if the investment produces continuous annual cash inflows.
as follows:
Initial Investment
Pay Back = ------------------------
Annual cash inflow
In the event of unequal cash inflows, a payback period can be determined by adding the
cash inflows up to the initial cash expenditure total.
Acceptance Rule:
Accept if the calculated value is less than the standard, otherwise rejected by
management.
If the reimbursement period for a project is below a maximum company reimbursement
period it can be accepted.
The project with the lowest pay-back period and the lowest classification level in a
project with the highest pay-back period ranks as a level form.
45
DISCOUNTED PAY BACK PERIOD:
One of the major drawbacks to the system of payment is that the cash flow is not
discounted. This has led to the existence of a reduced pay-back period. The time taken to recover
the investment costs on the basis of the present value is referred to as the discounted return
period.
Discounted payment returns are higher because cash balances are high before the cost is
recovered.
Acceptance Rule:
• ccept if the eas red rate eets the ana e ent ini li it
• The ana e ent of proposals can also assist in rankin on the asis of the RR
• a project with the highest ARR will be rated the highest while a project with the lowest ARR
will be rated the smallest.
46
CAPITAL BUDGETING METHODS IN PRACTICE
Almost every backbone company has been found to be tat in a review of the budgeting of
capital activities of fourteen medium to large companies in India.
Approximately 2/3 of companies used IRR and approximately 2/5 NPV with their payback
and/or other technology. The second most popular way of using IRRs was found.
Their concentrate on early recovered investment and focus on risk gains importance as they
are easy to use and understand.It was found that 1/3rd of companies always insisted on
computation of pay back for all projects, 1/3rd for majority of projects & remaining for some
of the projects.
Reasons for secondary DCF techniques were difficult to understand and use three-way
techniques, lack of qualified professionals, and lack of a willingness to employ the DCF
techniques by top management.
A major production and marketing company said that its business conditions did not require
DCF techniques.
Again, another company has confirmed that substitute projects in this business were very
popular and DCF techniques for assessing such projects were not deemed appropriate.
Techniques in India involved challenges in understanding and using three techniques, lack of
trained practitioners, and lack of ability to use DCF techniques in the top management
PROCESS
CAPITAL BUDGETING PROCESS:
At least five phases of capital expenditure planning & control can be identified:
47
INVESTMENT IDEAS:
Investment opportunities have to be identified or created investment proposals arise at different
levels within a firm.
n est ent proposals sho ld e enerated to e ploy the fir ’s f nds f lly ell & efficiently
FORECASTING :
Cash flow forecasts by operating managers, with the assistance of financial managers,
should be growth. The related risk should be managed correctly. Cashflow evaluation calls for
the compilation and review, both in financial and non-financial terms, of both qualitative and
quantitative data. These data are given by MIS.
48
EVALUATION :
Experts should be grouped who are free from grinding when selecting assessment
methods such as NPV , IRR, PI, Pay Back, ARR & Discounted Pay Back.
Pay Back periods are used as the oscillation of the primary process and the IRR / NPV in India.
Pay Back duration is used as the same form. It is necessary to take the following into account.For
evaluation, minimum rate of return or cut-off is necessary.
• Us ally if the ei hted a era e capital costs ( CC) are calc lated
• Capital opport nity cost sho ld e ased on the risky cash flo ness of in est ent
propositions.
• si nificant factor is risk ana e ent T o essential approaches are used in India:
sensitivity analysis & cost conservative.
AUTHORIZATION:
Screening and selecting may differ from one company to another. When large sums are
involved usually final approval rests with top management. Delegation of approval authority
may be effected subject to the amount of outlay. Budgetary control should be rigidly exercised.
In order to control capital spending reports, Indian companies regularly use reporting
projects that may be continuous quarterly, semi-annual, monthly or bi-monthly.
Date costs
Three stages of decision-making were established for planning and control purposes:
• Jo
• d inistration
• trate ic trate ic
Requires big investments to acquire new company or to grow into a new century, treated
In a planned economy, like in India, public sector projects must be identified within the
national sector planning framework as a whole. At the time of formulating the plan, all projects
50
of each sector must be scientifically identified. In practice, the alteration stage is the most
neglected phase of project planning. In practice, it is, however, observed.
The five-year plans demonstrate the specific economic development planning agenda and
other primary targets that are to be achieved during the plan era. Each sector 's role in meeting its
physical objectives and financial outlays, which could be made available for the development of
the sector during the planning period, is largely indicated by the macro planning work carried
forward at the start of every five years plan.
In the Five-Year Plan, naming a project is not the approval of the execution of the
project. It sends a preliminary audit to the FR of the project in the Ministery and subsequently
copies of the feasibility report to the evaluation agencies, i.e. the Planning Commission, the
Bures of Public Enterprises and Plan Finance of the Ministery, to the Department of Finance
(DFOE). It also provides only a "model signal" to prepare the feasibility report for assessment
and investment.
Importing (i) replacements (ii) available and raw materials (iii) available technology and
skills (iv) inter-industry ties (v) current industrial (vi) growth plan (vii) old projects etc. are
considered the most critical steps in project identification and planning.
These measures can not be objectively tested in actual practice and are followed at the
point of recognition by the public sector administrative ministry business. The public sector
projects frequently randomly on the basis of Vorstellungen und Möglichkeiten zur Nachfrage
oder Verfügbarkeit of raw materials rather than an outcome of scientific study and the systematic
analysis of feasible projects.
PROJECT FORMULATION :
The second step of Phase Phase Cycle project viz. Project Formulation is an experiment in
advance to decide whether to invest, when to invest and how much to invest. Project formulation
In order to assess the technical , financial, commercial, organizational and economic viability of
the project planning process in Indian the project / feasibility reports are required mainly because
51
their importance is relatively delayed in realization. In addition, expenditure decisions for large
projects in the past have been more common than exceptions for half-baked projects and poorly-
conceived projects, and time periods and the cost-over runs of projects from the public sector.
In the early 1970s , the government set up a new project assessment division in the
Planning Commission along with the formation of the Public Investment Board (PIB). In the
1974 reporting of the Feasibility Reports of Industrial Projects the Division prepared and
circulated the guidelines.
This directive, unlike the previous manual, includes all the information and data to be
submitted and analyzed in the Feasibility Report in order to allow the assessment agency to carry
out I a technical analysis, in order to determine whether technical parameter requirements are
realistic
The guidelines outline the details required to be given and evaluated on following issues:
(a) general sectoral information;(b) the intent of the proposal; (c) alternative means where
appropriate to achieving the objectives and better suitability of the proposed project; (d) project
description
PROJECT APPRAISAL :
The project evaluation follows the stage of formulation. The aim of the evaluation
process is not only to decide whether or not to accept or reject a proposal for investment, but also
to recommend ways of redesigning or reformulating the project in order to provide better
technical , financial, commercial and economic viability.
The assessed projects are a multidisciplinary activity and are an important resource for
sound decision taking and selection of projects. Yet that is also viewed as skepticism and has
played a key role in leading to systematic approaches for forecasting the future and creating
methods for evaluating social costs and benefits, however the investment plan can not be
completely evaluated by them alone.
The need to analyze the projects and make decisions about investment based on social
viability emerges mainly because of the fundamental characteristics of developing countries,
52
which have limited development capital and numerous needs. The aim of planning is to achieve
social justice economic growth. The assessment of the proposal is a simple and thorough way to
achieve the economic development plan objectives. A certain minimum of reliable and up-to -
date data is available throughout the country and the availability of trainees to carry out the
assessment analysis. The evaluation work requires
As previously stated, the investment decision of the projects of the public sector must be
made under the approved plan framework work. Therefore, in the Planning Commission was
created the Project Evaluation Division (PAD), to prepare the detailed assessment report for the
Central Plan projects. For any investment proposals within the scope of the annual budget work,
the finance ministry issues expenditure sanction. The Finance Program Division and the Ministry
of Finance 's Bureau of Public Enterprises will also consider and report on the government's
investment proposals.
53
CHAPTER -5
DATA ANALYSIS & INTREPRETATION
54
DATA ANALYSIS & INTREPRETATION
An investment plan starts all financial operations, which includes a financial assessment
of a project. Capital Budgeting has a part to play here. Each project is evaluated on the basis of
the following
Cost Estimates.
Cost Generations.
COST ESTIMATES :-
Feasibility The project's report is prepared on the basis of the costs of similar units at the
time of the project report and the latest cost should be increased. The compilation of information
concerning expenditures of the various equipment should be focused on the basis of ongoing
planning, so that for the project, a fair estimation of the costs is made.
COST OF GENERATION :-
Public sector borrowing is essentially based on the equity of 3:1 debt, and the central
government 's general interest rate on loan components is 10.5% (now increased to 11%). The
plant life as provided for by the 1948 Electricity Supply Act is 25 years and a depreciation of
90% of the cost fixed assets must be calculated on a straight line basis. The expenses for
operation and maintenance normally amount to 2.5% on the basis of these assumptions of the
capital cost, the cost for the generation of cash flow could be calculated at a discounted rate of
IRR of 12%. Various organizations have typically acknowledged this pace
Feasibility Report based on above-noted methodology and site selection, coal
connections, power delivery examined in all instances where investment is Rs.1 Crore and
above. Feasibility report Report Feasibility Because SRPB is a public sector corporation, the
government shall officially approve all investment decisions after the approval of the Public
Investment Board.
55
SHARE CAPITAL :
It is a government of India which owns the entire share capital. No additions were made
throughout the year. However, from Rs. 80,000 toRs. 1,00,000 million, the approved capital was
increased and the favored value or share was divided to Rs.10/- each by Rs.1000 per-.
The financial manager is the project team level. It plays an important role in
the study stage of the project by analyzing and choosing different alternatives. The
accuracy of the data and the quality of the data as a financial analyst needs to be
checked and fulfilled.
The energy projects are highly capital intensive and a thorough feasibility
report needs to be planned before substantial resources are allocated to a scheme.
Cost Estimates :- Cost estimates, financial justification and project returns are the fields in
which financial management has a role to play. Cost forecasts by cost analysts are to be prepared
and the finance manager is to be reviewed. Cost engineering is a specialist registered company
and needs to be established at the energy projects contest due to inadequate cost data on project
components.
56
The current methodology of preparing cost estimates without any price contingencies
provision raises an important question. Due to the time gap between cost estimate planning and
investment decisions, these figures are now out of date and will also require an update following
their analysis by evaluating agencies.
CAPITAL BUDGETING
EXAMPLE OF STAGE I & II
Interpretation:
The Net Present Value is the difference between the “ resent al e of cash inflo s” and
“ resent al e of cash o tflo s
58
2010-11 3,192,444.28 45070 60000
2011-12 3,071,183.11 54640 80000
2012-13 3,545,210.87 18630 30000
2013-14 9,025,874.00 161290 22000
2014-15 3,991,459.40 19210 33000
2015-16 4,038,114.20 11130 70000
2016-17 3,667,441.15 65420 40000
2017-18 7,338,000.00 19233 80000
2018-19 2,089,775.00 61323 60000
Total: 498896 525000
498896
= ---------- = 0.95
525000
59
GRAPH 2 :
10,000,000.00
8,000,000.00
6,000,000.00
Investments (In Lakhs)
4,000,000.00
2,000,000.00
0.00
2010-11 2012-13 2014-15 2016-17 2018--19
Interpretation:
a) The profitability index of present value of cash inflows and cash out flows is
fluctuation from year to year in the year 2010-11 the present value of cash inflows
is 18180 were as in the year 2018-19 has been increased with 61323.
b) The highest cash inflows has been recorded in 2015-2016 as 161290 and lowest
has been recorded as 18180 in the year 1999-00.
Year Investments (In Lakhs) Cash inflows(P.V.) Cash Out Flows (Initial)
2008-09 40,000.00 8000 20000
2009-10 60,000.00 1600 30000
60
2010-11 70,000.00 2200 60000
2011-12 20,000.00 4500 80000
2012-13 10,000.00 4000 30000
2013-14 66,000.00 3000 22000
2014-15 25,000.00 2900 33000
2015-16 12,000.00 1100 70000
2016-17 90,000.00 1600 40000
2017-18 30,000.00 1200 80000
2018-19 50,000.00 1800 60000
Total: 473,000.00 31900 525000
Initial Investments
Pay Back Period = ---------------------------
Annual Cash inflows
40,000
= --------- 5 Years
8000
GRAPH 3:
100,000.00
80,000.00
60,000.00
Investments (In Lakhs)
40,000.00
20,000.00
0.00
61
Interpretation:
a) In the Pay Back method the Investment and the case inflows are fluctuating from
year to year where as in the year 2013-14 it is 40000 and in the year 2018-19 is
50000.
b) Cash inflows are in the order of increasing to decreasing from 2013-14 and 2018-
18
AVERAGE RATE OF RETURN:
Year Investments (Lakhs) Average Income Cash Flows after Taxes
(Thousands)
2008-09 400,000.00 20000 100000
2009-10 480,000.00 15000 260000
2010-11 280,000.00 28000 440000
2011-12 240,000.00 85000 750000
2012-13 150,000.00 75000 160000
2013-14 260,000.00 64000 200000
2014-15 600,000.00 78000 300000
2015-16 100,000.00 25000 600000
2016-17 250,000.00 18000 800000
2017-18 520,000.00 22000 750000
2018-19 550,000.00 21000 810000
Total 3,280,000.00 430000 4360000
Average Income
Average Rate of Return = ----------------------
Average Investments
20000
= --------- = 0.06%
400000
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GRAPH 4:
Investments (Lakhs)
800,000.00
600,000.00
400,000.00 Investments (Lakhs)
200,000.00
0.00
Interpretation:
a) Average rate of return is calculated based on Average income and Average investment
where as Average income in the year 2013-14 is 20000 and investments in the year 2018-
19 is 400000.
b) The value from 2013-14 and 2018-19 are fluctuating from year to year.
Fuel
Generation
Administration
& Other Reatined earnings
Interest &Expenses
Depreciation
8% 2%
Finance
Charges Dividends
14% Fuel
Tax 51%
3% 63 Tax
Dividends
5%
Interest & Finance
Reatined Charges
earnings
Interpretations:
a) In the year 2013-14 the revenue is distributed in the from of fuel retained earning,
dividends is latest finance change, depreciation and for employees.
b) Where as in the year 2013-14 it is been fluctuated the rates compare to the year 2018-
19.
TABLE 7:
FY YEAR NET BLOCK (IN LAKS)
2013-14 284738
2014-15 323083
2015-16 328916
2016-17 386106
2017-18 400381
2018-19 520861
600000
520761
500000
400000 400281
366106
323073 328916
300000 284738 Series1
200000
100000
0
2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
64
Interpretations:
a) From 2013-2014 the net block and gross fixed assets is 328916.
b) Where as the Net Block and gross fixed asset is been increased in the
year 2018-19.
TABLE 8:
500000
450000 440201
400000
350000 355501
315040
300000 286453
250000 258117 Series1
229045
200000
150000
100000
50000
0
13-14 14-15 15-16 16-17 17-18 18-19
Interpretations:
65
a) Net worth and net assets has been increasing from year to year from
2016-17 it is 229055 and compare to 2018-19 it has been increased to
440302.
b) By observing the chat we can say the net worth and net assets has been
increasing from 2017-18 to 2018-2019
TABLE 9 :
FY YEAR PROFIT AFTER TAX
2013-14 34245
2014-15 37338
2015-16 35396
2016-17 36085
2017-18 52609
2018-19 72032
80000 72022
70000
60000 52608
50000
37338 35396 36075
40000 34245 Series1
30000
20000
10000
0
2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
66
Interpretations:
a) The chart show the increase value after the deduction of tax in the year
2019-20.
b)The Profit is changing from year to year in the year 2016-17 it is 34245 where
as increasing value in the year 2016-2017 and decreased, in the year 2018-19
the value is increased.
b) TABLE 10 :
25000
19790 19237
20000
15000
10823 Series1
10000
7470 7070 7080
5000
0 67
2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
GENERATION IN MUS – SALES IN MILLIONS:
Interpretations:
a) On the X – airs year are been shown from 2013-14 to 2018-19 and the value
has been increasing from year to year.
b) In the year 2003-14 the generation and sale has been 7470 and the value has
been increasing year to year but 2018-2019 the value is decreasing.
68
CHAPTER -5
CONCLUSIONS
BIBLIOGRAPHY
69
FINDINGS AND SUGESSTIONS
The SRPB Corporate challenge is to deliver increasingly large quantities of reliable and
quality electricity. The company will lead the process of rapidly developing the
electricity industry through the expeditious economic and efficient planning,
implementation and operation of power stations.
As in project implementation, the station continued to excel in power generation with the
power station having reached its first goal of total capacity installation. Ramagundam is
generating power at consistently high plant load factor.
The special budgets are rarely used in the organization like long-term budgets, research &
development budget and budget and budget for constancy.
From the 2000-2003 revenue budget, it becomes apparent that the current sales (ref.
168552.50 deficiencies) were more than those budgeted or estimated (ref. 164208.54
deficiencies). It is a positive indicator that the budget's net revenue is high over expected.
Fuel utilization is perfectly carry out in RSTPS. And Cash from Ash effectively carry out
the job.
70
New projects acceptance consider on the basis of Return Benefits. Risk is evaluated while
considering the new projects.
CONCLUSIONS
Each organization has a set of objectives and goals, but it only has the
economic planning and execution of these goals and objectives to achieve
them.
71
BIBLIOGRAPHY
References :
Accounting of finance
Accounting of finance
Management Accounting
Websites :
www.google.com
www.ramadaspaper.com
www.yahoofinance,com
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