Data Analysis and Interpretation

CCL Project A: -

Capital expenditure

Land & Resources 20cr

Plant & Machinery 13cr
R&R 18cr
HEMM Spares 10cr
Others 20cr
TOTAL 81cr

Expenses/year

Salary & Wages 08cr

Spares 03cr
Contractual Expenses 12cr
Power & Fuel Expenses 12cr
Others 10cr
Administrative Expense 52/Ton
Transportation 15.5/Ton

Life of Project: - 20 Years

Total Production: - 300 Million Tons

Year Production
1st Nil
2nd – 5th 2 Million Tons/year
6th – 17th Equal
18th 3 Million Tons/year
19th 2 Million Tons/year
20th 2 Million Tons/year
 Coal Grade Production % Non Power % Power %
G9 50 60 40
G10 50 60 40

Grade of coal prices: -

Coal Grade Power (Rs./Tonne) Non Power (Rs./Tonne)

G1 0 0
G2 3450 3450
G3 3210 3210
G4 3000 3000
G5 2750 2750
G6 1900 2280
G7 1600 1920
G8 1420 1700
G9 1100 1320
G10 980 1180
G11 810 970
G12 760 910

Evaluation of the project by using different techniques of Capital Budgeting: -

In Central Coalfields Limited the Techniques of Capital Budgeting used are: -

 Net Present value

 Internal rate of return
 Payback Period
 Profitability ratio

Analysis of the project by using Net Present Value: -

STEPS: -

 Computation of Net cash Outflow using discount rate.

 Computation of Net cash Inflow Using discount rate.
 Net Present Value= Present value of cash inflow – Present value of Cash outflow of
the project

Total Production (Cr. ton) 30

Discount Rate: - 6%
Capital Expense (Rs. Cr) 81
 Step 1: - Calculating Net present Cash Outflow of the Project

Capital Present
Year exp S & W Spares Contractor P&F Admin exp Transportation Others TOTAL PV @ 6% value
1 81 8 3 12 12 0 0 10 126 0.94340 118.8679
2 0 8 3 12 12 3.1 10.4 10 58.5 0.89000 52.0648
3 0 8 3 12 12 3.1 10.4 10 58.5 0.83962 49.1177
4 0 8 3 12 12 3.1 10.4 10 58.5 0.79209 46.3375
5 0 8 3 12 12 3.1 10.4 10 58.5 0.74726 43.7146
6 0 8 3 12 12 36.8125 123.5 10 205.3125 0.70496 144.7372
7 0 8 3 12 12 36.8125 123.5 10 205.3125 0.66506 136.5445
8 0 8 3 12 12 36.8125 123.5 10 205.3125 0.62741 128.8156
9 0 8 3 12 12 36.8125 123.5 10 205.3125 0.59190 121.5242
10 0 8 3 12 12 36.8125 123.5 10 205.3125 0.55839 114.6454
11 0 8 3 12 12 36.8125 123.5 10 205.3125 0.52679 108.1561
12 0 8 3 12 12 36.8125 123.5 10 205.3125 0.49697 102.0340
13 0 8 3 12 12 36.8125 123.5 10 205.3125 0.46884 96.2585
14 0 8 3 12 12 36.8125 123.5 10 205.3125 0.44230 90.8099
15 0 8 3 12 12 36.8125 123.5 10 205.3125 0.41727 85.6697
16 0 8 3 12 12 36.8125 123.5 10 205.3125 0.39365 80.8205
17 0 8 3 12 12 36.8125 123.5 10 205.3125 0.37136 76.2458
18 0 8 3 12 12 4.65 15.6 10 65.25 0.35034 22.8599
19 0 8 3 12 12 3.1 10.4 10 58.5 0.33051 19.3350
20 0 8 3 12 12 3.1 10.4 10 58.5 0.31180 18.2406

Net present value of total cash outflow rs.(cr)

1656.7995
 Step 2: - Calculating Net present Cash Inflow of the project

Production 50% 50% Discount rate: 6%

G9 G10
Production power
Year cr. tonne G9 G10 N.P 60% 40% N.P 60% Power 40% TOTAL Cr.rs PV @ 6% Present value
1 0 0 0 0 0 0 0 0 0.94340 0
2 0.2 0.1 0.1 79.2 44 70.8 39.2 233.2 0.89000 207.54717
3 0.2 0.1 0.1 79.2 44 70.8 39.2 233.2 0.83962 195.79922
4 0.2 0.1 0.1 79.2 44 70.8 39.2 233.2 0.79209 184.71624
5 0.2 0.1 0.1 79.2 44 70.8 39.2 233.2 0.74726 174.26061
6 2.375 1.1875 1.188 940.5 522.5 840.75 465.5 2769.25 0.70496 1952.21198
7 2.375 1.1875 1.188 940.5 522.5 840.75 465.5 2769.25 0.66506 1841.70941
8 2.375 1.1875 1.188 940.5 522.5 840.75 465.5 2769.25 0.62741 1737.46171
9 2.375 1.1875 1.188 940.5 522.5 840.75 465.5 2769.25 0.59190 1639.11482
10 2.375 1.1875 1.188 940.5 522.5 840.75 465.5 2769.25 0.55839 1546.33474
11 2.375 1.1875 1.188 940.5 522.5 840.75 465.5 2769.25 0.52679 1458.80635
12 2.375 1.1875 1.188 940.5 522.5 840.75 465.5 2769.25 0.49697 1376.23241
13 2.375 1.1875 1.188 940.5 522.5 840.75 465.5 2769.25 0.46884 1298.33246
14 2.375 1.1875 1.188 940.5 522.5 840.75 465.5 2769.25 0.44230 1224.84195
15 2.375 1.1875 1.188 940.5 522.5 840.75 465.5 2769.25 0.41727 1155.51127
16 2.375 1.1875 1.188 940.5 522.5 840.75 465.5 2769.25 0.39365 1090.10497
17 2.375 1.1875 1.188 940.5 522.5 840.75 465.5 2769.25 0.37136 1028.40092
18 0.3 0.15 0.15 118.8 66 106.2 58.8 349.8 0.35034 122.55026
19 0.2 0.1 0.1 79.2 44 70.8 39.2 233.2 0.33051 77.07563
20 0.2 0.1 0.1 79.2 44 70.8 39.2 233.2 0.31180 72.71286

NPV of total cash inflow Rs.(cr)

18383.725
Step 3:- Calculation of Net Present value of the Project
Net Present Value = Present value of cash Inflow – Present value of cash outflow

NPV of total cash inflow NPV of total cash Outflow Net Present Value Rs.(cr)
18383.725 1656.7995 16726.925

Analysis of the project by using Internal rate of Return:-

Internal rate of return is the discount rate at which the total cash inflow is equal to the total
cash outflow.

Internal rate of return is calculated on the basis of trail and errors. By taking various
discounting factor, so that the appropriate percentage of internal rate of return can be judged
out.

At 39.02% Total cash inflow is equal to total cash outflow.

Year Cash Outflow Cash Inflow Cash Inflow @

39.02%
1 118.8679 0 0
2 52.0648 207.5471698 120.6586212
3 49.1177 195.7992168 86.79071456
4 46.3375 184.7162423 62.42925754
5 43.7146 174.2606059 44.90586598
6 144.7372 1952.211977 383.5761539
7 136.5445 1841.709412 275.909406
8 128.8156 1737.461709 198.4638501
9 121.5242 1639.11482 142.7566402
10 114.6454 1546.334736 102.685997
11 108.1561 1458.806355 73.86286176
12 102.0340 1376.23241 53.13014926
13 96.2585 1298.332462 38.21694277
14 90.8099 1224.841946 27.48975365
15 85.6697 1155.511269 19.77360043
16 80.8205 1090.104971 14.22330948
17 76.2458 1028.400916 10.23094066
DISCOUNT RATE
18 22.8599 122.5502581 0.929582871
19 19.3350 77.07563405 0.445770946 INTERNAL RATE OF
20 18.2406 72.71286231 0.320646619 RETURN
TOTAL
Rs. Cr
1656.80 18383.72 1656.80 39.02%
Analysis of the project by using payback period method:-
Payback period is the numbers of years at which project repays its total coast of investment
through cash inflows. Payback of the project starts from the initial year of the project cash
inflow.

Suggestions: Any project which has a payback period of 3 to 5 years is considered as a good
project.

Cash Outflow for calculating Payback period of the project is 1656.7994 Rupees (crores).

Cumulative Cash flow of the payback is the subtraction of all the cash inflow from the cash
Outflow in a row one by one.

Payback period of the project is 5.55 years

Cumulative CF of Payback Period(yr)

YEAR CASH FLOWS payback
0 1656.799487 1656.799487
1 0 1656.799487 1
2 207.5471698 1449.252317 1
3 195.7992168 1253.453101 1
4 184.7162423 1068.736858 1
5 174.2606059 894.4762523 1
6 1952.211977 -1057.735724 0.549823234
7 1841.709412 -2899.445136 5.550
8 1737.461709 -4636.906846
9 1639.11482
10 1546.334736
11 1458.806355
12 1376.23241
13 1298.332462
14 1224.841946
15 1155.511269
16 1090.104971
17 1028.400916
18 122.5502581
19 77.07563405
20 72.71286231
Analysis of the project by using Profitability Index Ratio:-
Profitability Ratio is the ratio of total cash Inflow by total cash outflow of the project.

Year Cash Outflow Cash Inflow

1 118.8679 0
2 52.0648 207.5472
3 49.1177 195.7992
4 46.3375 184.7162
5 43.7146 174.2606
6 144.7372 1952.2120
7 136.5445 1841.7094
8 128.8156 1737.4617
9 121.5242 1639.1148
10 114.6454 1546.3347
11 108.1561 1458.8064
12 102.0340 1376.2324
13 96.2585 1298.3325
14 90.8099 1224.8419
15 85.6697 1155.5113
16 80.8205 1090.1050
17 76.2458 1028.4009
18
Profitability Index
22.8599 122.5503
19 19.3350 77.0756 Total Cash
20 Inflow/Total cash
18.2406 72.7129 outflow
TOTAL
Rs.Cr
1656.799 18383.725 11.0959

Total Cash outflow of the project is 1656.799

Total Cash Inflow of the project is 18383.725

Profitability index of the project is 11.0959

CCL Project B

Capital expenditure

Land & Resources 15cr

Plant & Machinery 20cr

YEAR HEMM Spares

1 5cr
2 3cr
3 1cr

Revenue expenditure/year

Salary & Wages 3cr

Petroleum, oil & Lubricants 0.50Lakh
Contractor 2cr
Electricity 0.50Lakh
Transportation 10cr
Others 10cr

Life of Project: - 15 Years

Total Production: - 25 Million Tons

Year Production
1st Nil
2nd – 6th 1 Million Tons/year
6th – 15th Equal

Coal Grade Production % Non Power % Power %

G9 60 100 0
G10 40 100 0
Grade of coal prices: -

Coal Grade Power (Rs./Tonne) Non Power (Rs./Tonne)

G1 0 0
G2 3450 3450
G3 3210 3210
G4 3000 3000
G5 2750 2750
G6 1900 2280
G7 1600 1920
G8 1420 1700
G9 1100 1320
G10 980 1180
G11 810 970
G12 760 910

Analysis of the project by using Net Present Value:

STEPS: -

 Computation of Net cash Outflow using discount rate.

 Computation of Net cash Inflow Using discount rate.
 Net Present Value= Present value of cash inflow – Present value of Cash outflow of the
project

Total Production (Million Tons) 25

Discount Rate: - 6%
Capital Expense (Rs. Cr) 35
 Step 1: - Calculating Net present Cash Outflow of the Project

Present
Year L & R P&M HEMM Wages POL Contractor Electricity Transportation Others TOTAL DF @ 6 % value
1 15 20 5 3 0.005 2 0.005 5 10 60.01 0.9434 56.6132075
2 3 3 0.005 2 0.005 5 10 23.01 0.8900 20.4788181
3 1 3 0.005 2 0.005 5 10 21.01 0.8396 17.6404011
4 3 0.005 2 0.005 5 10 20.01 0.7921 15.8497942
5 3 0.005 2 0.005 5 10 20.01 0.7473 14.952636
6 3 0.005 2 0.005 5 10 20.01 0.7050 14.1062604
7 3 0.005 2 0.005 5 10 20.01 0.6651 13.3077928
8 3 0.005 2 0.005 5 10 20.01 0.6274 12.5545216
9 3 0.005 2 0.005 5 10 20.01 0.5919 11.8438883
10 3 0.005 2 0.005 5 10 20.01 0.5584 11.1734795
11 3 0.005 2 0.005 5 10 20.01 0.5268 10.5410184
12 3 0.005 2 0.005 5 10 20.01 0.4970 9.94435697
13 3 0.005 2 0.005 5 10 20.01 0.4688 9.38146884
14 3 0.005 2 0.005 5 10 20.01 0.4423 8.8504423
15 3 0.005 2 0.005 5 10 20.01 0.4173 8.34947387

Net Present value of an outflow Rs.Cr 235.5876

 Step 2: - Calculating Net present Cash Inflow of the project

60% 40% Discount rate: 6%

Year Production G9 G11 G9 G11 TOTAL DF @ Present
6% value
1 0 0 0 0 0 0 0.9434 0
2 0.1 0.06 0.04 79.2 38.8 118 0.8900 105.0195799
3 0.1 0.06 0.04 79.2 38.8 118 0.8396 99.0750754
4 0.1 0.06 0.04 79.2 38.8 118 0.7921 93.46705226
5 0.1 0.06 0.04 79.2 38.8 118 0.7473 88.1764644
6 0.1 0.06 0.04 79.2 38.8 118 0.7050 83.18534377
7 0.222 0.1333 0.0889 176 86.222 262.22222 0.6651 174.3927542
8 0.222 0.1333 0.0889 176 86.222 262.22222 0.6274 164.5214663
9 0.222 0.1333 0.0889 176 86.222 262.22222 0.5919 155.2089304
10 0.222 0.1333 0.0889 176 86.222 262.22222 0.5584 146.4235193
11 0.222 0.1333 0.0889 176 86.222 262.22222 0.5268 138.1353955
12 0.222 0.1333 0.0889 176 86.222 262.22222 0.4970 130.3164109
13 0.222 0.1333 0.0889 176 86.222 262.22222 0.4688 122.9400103
14 0.222 0.1333 0.0889 176 86.222 262.22222 0.4423 115.9811418
15 0.222 0.1333 0.0889 176 86.222 262.22222 0.4173 109.4161715

Net Present value of an Inflow Rs.Cr 1726.2593

Discount rate 6% is taken to calculate the present value of cash inflow per year of the project
Step 3:- Calculation of Net Present value of the Project
Net Present Value = Present value of cash Inflow – Present value of cash outflow

NPV of total cash inflow NPV of total cash Outflow Net Present Value Rs.(cr)
1726.2593 235.5876 1490.6718

Analysis of the project by using Internal rate of Return:-

YEAR Cash Outflow Cash Inflow Cash Inflow @ 42%

DF
1 56.61321 0 0
2 20.47882 105.01958 58.4378814
3 17.64040 99.07508 41.12450565
4 15.84979 93.46705 28.94055918
5 14.95264 88.17646 20.36634732
6 14.10626 83.18534 14.33241496
7 13.30779 174.39275 22.41367588
8 12.55452 164.52147 15.77318202
9 11.84389 155.20893 11.10006553
10 11.17348 146.42352 7.811452037
11 10.54102 138.13540 5.497155197
12 9.94436 130.31641 3.868514472
DISCOUNT RATE
13 9.38147 122.94001 2.722390707
14 8.85044 115.98114 1.915828728 INTERNAL RATE
15 8.34947 109.41617 1.348226655 OF RETURN
Total
Rs.cr
235.588 1726.259 235.652 42%

Total Cash outflow of the project is 235.588

Total Cash Inflow at 6% discount rate is 1726.259

By Trial and Error method, at 42.09% discount factor the Total cash inflow is equal to total
cash outflow of the project.
Analysis of the project by using Payback period method:-

YEAR Cash Flows Cumulative CF of payback Payback Period(year)

0 235.5875599 235.5875599
1 0 235.5875599 1
2 105.0195799 130.56798 1
3 99.0750754 31.49290458 1
4 93.46705226 -61.97414768 0.40433
5 88.1764644 -150.1506121
3.40433
6 83.18534377 -233.3359558
7 174.3927542 -407.7287101
8 164.5214663
9 155.2089304
10 146.4235193
11 138.1353955
12 130.3164109
13 122.9400103
14 115.9811418
15 109.4161715

The total cash outflow of the project is 235.5875599 Crore rupees.

Cumulative cash flow of Payback is calculates by subtracting the cash outflow from the cash
Inflow one by one in a column until cash inflow reaches negative in number.

Payback period is calculated by adding all the years of payback period year column.

For the 15 year project the payback period is 3.40 year which means that all the initial cash
outlay can be recovered with the payback time period. So the project is viable for the
Organization.
Analysis of the project by using Profitability Index Ratio:-

YEAR Cash Outflow Cash Inflow

1 56.61320755 0
2 20.47881808 105.0195799
3 17.64040114 99.0750754
4 15.8497942 93.46705226
5 14.95263604 88.1764644
6 14.10626041 83.18534377
7 13.30779284 174.3927542
8 12.55452155 164.5214663
9 11.84388826 155.2089304
10 11.17347949 146.4235193
11 10.54101838 138.1353955
12 9.944356965 130.3164109
Profitability Index
13 9.381468835 122.9400103
14 8.850442297 115.9811418 Total Cash Inflow/Total
15 8.349473865 109.4161715 Cash outflow
Total
235.58756 1726.2593 7.3275
Rs.Cr

Total Cash outflow of the project is 235.58756

Total Cash Inflow of the project is 1726.2593

Profitability index for the project is 7.3275 which is obtained by dividing total cash inflow into
total cash Outflow.
 FINDINGS & SUGGESTIONS

Findings:-
CCL Project A
 The total cash Outflow for the project of 20 years is 1656.7995 Crore Rupees.
 The total cash Inflow for the project of 20 years is 18383.725 Crore rupees.
 The Net Present value of the project is 16726.925 Crore Rupees which is positive in
number so the project is financially viable for the organization.
 The Internal rate of return or opportunity cost of capital for the project is 39.02%
which is much higher than the company required rate of return which is 12% so this
also ensures a profitable investment in project.
 The profitability Index of the investment is 11.0959 and accepted if ratio is (PI > 1).
 It has been found that the Payback Period of the investment 5.5 years.
 The Payback Period shows that the initial investment can be recovered within a short
period of time.
 The investment is ideal because for 20 year project an investment should be
recovered within 8-10 years.

CCL Project B
 The total cash Outflow for the project of 15 years is 235.5876 Crore Rupees.
 The total cash Inflow for the project of 15 years is 1726.2593 Crore Rupees.
 The Net Present value of the project is 1490.6718 Crore Rupees
 Positive value of Net present value determines the greater feasibility of the project so
the investment can be done by the company.
 The Internal rate of return or opportunity cost of capital for the project is 42% which
is much higher than the company required rate of return which is 12% so this also
ensures a profitable investment in project.
 The Profitability Index ratio of the investment is 7.3275
 For acceptance of the project the Profitability Index should be greater than 1 and the
ratio of investment is much higher than the accepted standards so it is a valuable
investment.
 The Payback Period of the investment 3.4 years.
 Since the capital invested in a project of 15 years are recovered within a short period
of 3.4 years so the proposal is viable for the company.
 SUGGESTIONS

 The company cash inflow is much higher than the cash outflow in all the years expect
in 1st year which is nil, so company can increase its profitability by focusing on 1st year.
 The company can use its opportunity cost of capital for expanding their business by
investing in other future projects.
 The company may plan and control its capital expenditure.
 The company can use other capital budgeting techniques such as Profitability index,
Accounting rate of return and discounting payback period method for evaluation of
their investment.
 The company cash inflow of the investment is lower in certain year so they can
maintain constant inflow by increasing their coal production.
 Both the investments are valuable for the company and they can generate huge profits
in the future so the investment should be accepted by the organization.
 The company should reduce the year of the project because long term projects more
than 10 years have higher unpredictability rate and chances of uncertainty of accurate
cash Inflow in future.
 The company can increase its required rate of return which is now 12% to find out a
suitable investment with higher earnings.
 LIMITATIONS

 The period of the study is limited.

 Financial information are sensitive in nature, and difficult to acquire by an individual.
 Restrictions imposed by the management while acquiring the financial data of the
organization.
 Present data of cash inflows were secured by the company.
 The study was conducted on the basis of the data made available by the project report
Guide and analysis were made accordingly.
 Any limitations on data shall be equally applicable in the project.
 Data were made available for the future projects and analyzed accordingly.
 Certain data and information given in the research are assumed due to highly
confidential of such information.
 Assumptions have been taken regarding analysis and interpretations of project due to
lack of proper data.
 Data is collected only for two projects which is limited.
 Data used for this study are confined to Central coalfields Limited and not applicable
to any other company.