A Project Report On

“CAPEX CASELET ”
Submitted in partial fulfilment of the requirement for the award of

POST GRADUATE DIPLOMA IN MANAGEMENT

NAMES : Tithi Prajapati – 257

Hirva Bhadeshia – 251
Yashi Suthar – 249
Cavin Macwan – 253
Meet Patel – 224

CLASS : Delta
SUBJECT : Financial Management

Under The Guidance Of

NAME : Prof. Tirthank Shah

DESIGNATION : Assistant Professor
Q1 Calculations

 Payback Period Method

= No. of years before full recovery + Uncovered cost before full recovery year
Total cashflow during the full recovery Year

Project A Project B
= 2 + 116/135 = 3 + 121/153
= 2.86 years = 3.8 years

 Accounting Rate of Return (ARR)

= Average annual profit / Initial Investment

Initial Investment = 256 CR

Project A Project B
Revenue 78 CR Revenue 61 CR

Expenses 41 CR Expenses 27 CR

Depreciation 3.35 CR Depreciation 6.78 CR

Profit 33.65 CR Profit 27.22 CR

ARR = 33.65/256 * 100 ARR = 27.22/256 * 100

= 13.14% = 10.63%
  Net present Value (NPV)

= Present value of cash-inflow – Initial Investment

Initial Investment = 256 CR

Project A
Year Cash-Inflow P.V @ 13.25%
1 55 48.56
2 85 66.15
3 135 92.97
4 188 114.28
5 213 114.33
Total 436.29

NPV = 436.29 – 256

= 180.29

Project B
Year Cash-Inflow P.V @ 13.25%
1 25 22.07
2 35 27.23
3 75 51.65
4 153 93
5 235 126.14
Total 320.09

NPV = 320.09 – 256

= 64.09
  Profitability Index (PI)

= Total present value of cash-inflow / Initial Investment

Initial Investment = 256 CR

Project A
Total P.V of cash-inflow = 436.29 (calculated from above question)
PI = 436.29/256
= 1.70

Project B
Total P.V of cash-inflow = 320.09 (calculated from above question)
PI = 320.09/256
= 1.25

Comparison Table

A B

Payback Period 2.86 years 3.8 years

Accounting Rate of Return 13.14 % 10.63 %

Net Present Value 180.29 64.09

Profitability Index 1.70 1.25

 We Can See That from All Calculations and Analysis Project A Is Better Than Project B
and Project A Gives Better Return in All Methods.
Q2 Analysis

Method Pros Cons

Ignores cash flows after payback

Simple to understand and calculate,
period, may not be suitable for
Payback good for short-term projects and
long-term projects or those with
Period those prioritizing quick return of
significant cash flows later in their
investment
lifespan

Does not consider the timing of

Considers the time value of money,
Annual Rate cash flows within each year, may
good for comparing projects with
of Return not be accurate for projects with
different lifespans
uneven cash flows

Discounts all future cash flows to

present value, considers both costs Requires accurate estimation of
Net Present
and benefits, comprehensive future cash flows, can be sensitive
Value (NPV)
assessment of project's overall to changes in assumptions
profitability

Provides a ratio of benefits to costs,

Profitability good for identifying the most Can be difficult to interpret for
Index (PI) profitable projects when capital is non-financial professionals
limited
The best approach will depend on a number of factors:

 Project lifespan: Long-term projects may not be as well-suited for a payback period.
 Risk tolerance: Because NPV considers all cash flows and the time value of money, it
is typically the preferred option for risk-averse decision-makers.
 Long-term benefits are important because the payback period may miss important
benefits that happen after the payback point.
 Availability of precise cash flow estimates: Trustworthy cash flow forecasts are
essential to NPV and PI calculations.
 Comprehending ease: Repayment period and annual percentage rate are frequently
easier for non-financial experts to understand.

Net present value (NPV) is regarded as the most thorough and dependable approach,
particularly for long-term projects with substantial cash flows in subsequent years. To choose
the best approach, you must, however, consider the unique context and priorities of every
project.

Other things to think about:

 Industry norms: Based on standard procedures, certain industries may have preferred
approaches.
 Several approaches: Combining different approaches can give a more thorough
understanding of a project's potential.
 Sensitivity analysis: Determining how results are affected by changes in assumptions
can improve decision-making.