CASE STUDY ON CAPITAL

BUDGETING
Submitted By:
Harsh Gautam 090
Kavi Sharma 112
Chetna Kakde 069
Jitendra Kumar 105
Anjali Mate 035
INTRODUCTION

• This case study, Tech Solutions Inc., is a growing technology

company facing capital rationing, meaning it has limited
financial resources for expansion. The company has identified 4
potential projects as: -
1. Project AI
2. Project IoT
3. Project Cloud
4. Project Blockchain
CALCULATION
PROJECT: AI
YEAR CASHFLOW DISCOUNTED FACTOR DCF
1 30,00,000 0.926 27,78,000
2 40,00,000 0.857 34,28,000
3 50,00,000 0.794 39,70,000
4 60,00,000 0.735 44,10,000
5 70,00,000 0.686 48,02,000

Total Cash outflow:-19388,000

So, NPV=cash outflow- initial investment

= 19,388,000-12,000,000
=73,88,000
FACTS
PROJECT: IoT
YEAR CASHFLOW DISCOUNTED FACTOR DCF
1 20,00,000 0.926 18,52,000
2 30,00,000 0.857 25,71,000
3 40,00,000 0.794 31,76,000
4 50,00,000 0.735 36,75,000
5 60,00,000 0.686 41,16,000

Total Cash outflow:-15390,000

So, NPV=cash outflow- initial investment

= 15390,000-80,00,000
=7390,000
FACTS
PROJECT: Cloud
YEAR CASHFLOW DISCOUNTED FACTOR DCF
1 50,00,000 0.926 3704,000
2 60,00,000 0.857 4285,000
3 50,00,000 0.794 4764,000
4 50,00,000 0.735 3675,000
5 40,00,000 0.686 2744,000

Total Cash Outflow:-1972,000

So, NPV=cash outflow- initial investment

= 19,72,000-150,00,000
=41,72,000
FACTS
PROJECT: Blockchain
YEAR CASHFLOW DISCOUNTED FACTOR DCF
1 20,00,000 0.926 1852,000
2 30,00,000 0.857 2571,000
3 40,00,000 0.794 3176,000
4 40,00,000 0.735 2940,000
5 50,00,000 0.686 3430,000

Total Cash outflow:-13969,000

So, NPV=cash outflow- initial investment

= 13969,000-60,00,000
=7969,000
SOLUTION
• According to our analysis, the best project is the combination of
Project IoT and Project Blockchain which gives value as: -

• 7390000+7969000=15359000
CONCLUSION
• The company is experiencing rapid growth and is considering
several expansion projects to capitalize on market opportunities.
However, due to limited financial resources and constraints on
external financing, Tech Solutions faces capital rationing.
• The challenge is to prioritize and select the most financially
viable projects that align with the company's strategic goals and
budget limitations Project Details: Tech Solutions Inc. has
identified four potential expansion projects in different technology
sectors, each requiring a different level of investment and offering
varying expected cash flows over the project's lifespan
.

Year cashflow Df DCF

1 24,00,000 0.926 22,22,400

2 32,00,000 0.854 27,32,800

3 40,00,000 0.794 31,76,000

4 48,00,000 0.735 35,28,000

5 56,00,000 0.686 38,41,600

Year cashflow Df DCF
1 30,00,000 0.926 2778,000

2 37,50,000 0.854 3202,500

3 45,00,000 0.794 3573,000

4 37,50,000 0.735 27,56,250

5 30,00,000 0.686 2040,000