A Project Report on

CAITAL BUDGETING
INDIA CEMENTS Ltd, Hyderabad,
A Project report submitted to JNTUK in partial fulfillment of the requirement for the award of the
degree of

MASTER OF BUSINESS ADMINISTRATION

By
B.SURYA
21MH1E0010

Under the guidance of

Dr.N.Visalakshi
Associate Professor

DEPARTMENT OF MANAGEMENT STUDIES

ADITYA COLLEGE OF ENGINEERING

(Approved by AICTE, Affiliated to JNTUK,
Aditya Nagar, ADB Road, Surampalem
2021-2023
 ADITYA COLLEGE OF ENGINEERING
(Approved by AICTE, Affiliated to JNTUK,
Aditya Nagar, ADB Road, Surampalem

DEPARTMENT OF MANAGEMENT STUDIES

CERTIFICATE

This is to certify that the project report entitled “capital budgeting” is a bonafide record of the project work done by
B.SURYA (21MH1E0010) under my supervision and guidance, in partial fulfillment of the requirements for the
award of Degree of Master of Business Administration from JNTU Kakinada.

Dr.N.Visalakshi M.GOVARDHAN REDDY

M.Com,MBA,B.Ed
Project Guide ,(Ph.D)

Head of the Department

Signature of the External Examiner

 DECLARATION
I hereby declare that the project “capital budgeting” has been carried out by me and this work has been
submitted to Aditya college of Engineering , Surampalem, affiliated to JAWAHARLAL NEHRU
TECHNOLOGICAL UNIVERSITY KAKINADA in partial fulfillment of the requirements for the award of degree
of Master of Business Administration.

I further declare that this project work has not been submitted in full or part for the award of any other degree
in any other educational institutions.

B.SURYA
(21MH1E0010)
 ACKNOWLEDGEMENTS

I am thankful to my guide Dr.N.Visalakshi, Associate Professor and HoD who has spared his valuable
time. I am indebted to him without whom I would not have successfully completed the project.
I also wish to convey my sincere thanks to Mr.M.Govardhan Reddy Associate Professor and HOD of
Management Studies Department for his support and valuable suggestions. I also wish to convey my sincere thanks
to all faculty of Management Studies Department for their support and valuable suggestions.
I am thankful to the Dr. A.RAMESH , Principal, Aditya college of Engineering for providing appropriate
environment required for this project and thankful to Faculty of Management Studies Department for this
encouragement and cooperation for this successful completion of the project.

B .SURYA
(21MH1E0010)
 CONTENTS

Chapter No. Title Page No.

1. INTRODUCTION OF THE STUDY

⮚ Introduction to the study 1-3

2. DESIGN OF THE STUDY 4-8

⮚ Objectives of the Study 4

⮚ Scope of the study 5
⮚ Need for the study 6
⮚ Research Methodology 7
⮚ Limitations of the study 8

3. PROFILES 10-70

⮚ Industry profile 10-38

⮚ Company profile 38-70

4. DATA ANALYSIS & INTERPRETATION 72-81

5. FINDINGS 83

6. SUGGESTIONS & CONCLUSION 84-85

BIBLOGRAPHY
86-87
 CHAPTER I
INTRODUCTION

1
 CAPITAL BUDGETING

MEANING:

Fixed/long-term assets are those that are in operation and provide a return
over an extended period of time, generally more than a year, and so fall within the
purview of capital budgeting. As a result of these monetary expenditures, there will be a
steady stream of projected benefits in the future.

Because they deal with permanent assets, capital budgets have an impact on
an organization's ability to compete. The firm's fixed assets are a genuine source of
revenue. They allow the company to produce completed items that can be marketed
for profit in the long run.

The company's future cost structure will be affected for a long time by the
choice to invest in capital expenditures. Because there may be no market for second-
hand plant and equipment and its conversion to other uses may be the most
financially feasible, a company's capital expenditure choice is difficult to reverse.
There is a cost to capital investment, and most companies are looking for financial
resources.

Factors Influencing Capital Budgeting Decisions:

Many financial and non-financial elements impact the choices made in the Budget.
The proposal's profitability is a critical consideration in determining whether or not to
make a capital investment. Other elements that must be taken into account include.

1. Urgency:
The survival of a company or the avoidance of substantial losses necessitates an
investment at times. It is impossible to properly evaluate a proposal based on
profitability criteria in these situations. Breakdowns in equipment, fires, and other
disasters are just a few instances of the kind of urgency I'm referring about.

2
2. Degree of Certainty:
As profit increases, so does the level of risk or uncertainty associated with it.
Because of the steady inflow of funds, a project with lesser profitability may be
chosen in certain cases.

3. Intangible Factors:
owing to emotional and intangible aspects such as worker safety, prestige project,
goodwill of the firm's name and the goodwill of the community, certain capital
expenditures are necessary.

4. Legal Factors:
Even if the project isn't lucrative, the investment must be done because of the law's
requirements.

5. Availability of Funds:
When it comes to capital planning, money are a major consideration because of the
size of capital expenditures. A project, no matter how lucrative, may not be pursued
owing to a lack of funding, and a less profitable project may be favoured because of
a shorter payback period.

6. Future Earnings:
In the short term, a project may not be more lucrative than another, but in the long
term, it may be. In certain instances, it may be preferable to raise revenue.

7. Obsolescence:
Certain projects are more prone to becoming outdated than others. A project with a
shorter payback time may be preferable to one that has a larger profit but a longer
payback period in the case of obsolescence-prone projects.

8. Research and Development Projects:

Investing in R&D projects, even if they don't seem to be lucrative, is essential for a
company's long-term survival.

3
 OBJECTIVES OF THE STUDY

The following goals guide the research of "capital budgeting in INDIA cement
Industry limited."

1. To investigate the value of capital budgeting in assessing projects for

project financing.
2. To conduct research on capital budgeting as a decision-making approach.
3. To determine the present worth of an investment in rupees.
4. To give recommendations on the company's financial status, if any.
5. To get a practical understanding of capital budgeting procedures.
6. To have an appreciation for the nature of risk and uncertainty.

4
 SCOPE OF THE STUDY

 Since long-term assets represent the most important financial function in

modern times, the efficient allocation of capital is considered to be the most
important financial function.

 It entails the decision to commit the firm's resources, which are of

considerable importance to the firm because they send to determine its value
and size by influencing its growth, probability, and growth

 The scope of the research is confined to gathering financial data from INDIA
Cement Industry Limited for the previous four years, as well as budgeted
numbers for each year of the period under consideration.

5
 NEED FOR THE STUDY
Capital Budgeting is a term that refers to the process of planning for capital assets.
Capital budgeting choices are critical to an organization's success, since they
entail the choice of:

 Whether or not money should be spent in long-term initiatives such as

industrial restructuring, the acquisition of equipment and machinery, and
so forth.
 Conduct an analysis of proposed expansions or capacity enhancements.
 To make decisions on the replacement of fixed assets such as buildings
and equipment.
 To conduct financial analyses of different capital investment ideas in order
to choose the best option from a pool of severalalternatives.

6
 METHODOLOGY

To accomplish the aforementioned purpose, the following technique was used. The
data for this study were gathered from primary and secondary sources.

PRIMARY SOURCES:
Additionally, it is referred to as first-hand information. The data is gathered through
observing the organisation and conducting interviews with officials. By posing
questions to the accounting and other finance department personnel.

SECONDARY SOURCES:
Secondary data were gathered from a variety of books, publications, and websites.

7
 LIMITAIONS OF THE STUDY

1. Time constraints are an issue.

2. Another constraint is the INDIA officials' hectic schedules.
3. The trial will last 30 days.
4. Inaccessibility of private financial information.
5. The research was done over a short period of time and was not exhaustive
in its coverage.
6. INDIA CEMENTS does not provide primary data.
7. As a result, only a few capital budgeting techniques could be explained.

8
 CHAPTER II
INDUSTRY PROFILE
&
COMPANY PROFILE

9
 INDUSTRY PROFILE
CEMENT INDUSTRY IN INDIA:-

On March 1, 1991, the pricing and distribution of cement were deregulated, and the
industry was delicensed on July 25, 1991. The infrastructure coordination committee
meets in the cabinet secretariat under the leadership of the secretary to get an inside
look at how well the sector is doing and what challenges it is encountering right
now. The infrastructure committee also assesses its performance. 17-02-2003's
equality decree mandates that the industry maintain quality requirements.

CEMENT INDUSTRY HISTORICAL PERSPECTIVE:

The contemporary Indian economy's cement industry is one of the country's most
important and longest-standing industrial sectors. In an indigenous sector, the firm
is well-equipped with raw resources, qualified workers, and cutting-edge machine
and equipment technology.

In order to create anything from bridges to dams to roads to hydroelectric projects to

seaports and airport, cement is needed. There can never be too much emphasis
placed on the significance of this industry to establishing a country's economy, since
it plays a critical role in that process. Mortar was first used by the Greek
civilizations, but it was refined further by the Romans. Cement was formerly
recognised as a combination of limestone and Pozzoland of volcanic soil until the
19th century, when Portland cement was invented in England. New Zealand's first
cement plant was founded in 1884, whereas the first cement factory in Canada and
Australia was established in 1890.

10
The cement industry is the 8th biggest in the world, directly employing around
millions of people, and it dominates not just as a development infrastructure.

CEMENT INDUSTRY IN INDIA:

It began to take root in India around the turn of the twentieth century. South India
Industry Ltd., a firm that was founded in 1879, started India's first cement
production at WASHERMANPET in 1904. Due to technical flaws and a lack of raw
material supply, the facility was unable to run profitably, and it eventually went out
of business. India is the fourth-largest cement producer in the world, behind China,
Japan, and the United States. India's cement usage, on the other hand, is around 70
to 80 kilogrammes per capita versus the global average of 220 kilogrammes.

The Indian cement business has been around for eight decades. It has, however,
grown at a slower rate than it did during its first few years of existence. The
industry's expansion has been stifled for decades due to government regulation. At
1942, India Cement Limited constructed a tiny facility in Kaythiwar, Porbandar, to
provide the groundwork for the current business. In 1914, this facility began
producing at a daily rate of 199 metric tonnes. It was decided to use a "dry
technique" by this business. Porbandar's lime stone quarry were within close reach of
this factory. It's possible that the first factory's failure will cause a chain reaction of
failures. In Kanthi (MP), and in Lakhier (MP) (Rajasthan). After the Second World
War, the government relinquished control of the industry, and a golden age began.
Because of its wide range of applications, such as dams, roads, bridges, and other
infrastructure projects, cement demand has been constantly rising.

11
CEMENT INDUSTRY IN ANDHRA PRADESH:

Cement was 1st manufactured in America in the year 1875. In India, in 1914 the
India cements company Limited was established a cement factory at Portland.
Andhra Pradesh in the 2nd largest cement production state in India, one third of the
limestone (138crore tones) is available in A.P.I.A.P. The cement was started in 1936
with two factories. Of these two factories one is Andhra Cement Company limited
and another in Krishna Cement Factory. One is on the side of Krishna Cement
Factory. One is on the side of Krishna Rivers and another is between Krishna and
Gunter districts respectively.

In 1955, one more factory was factory was established at pan yam in Kurnool Dist,
named as Pan Yam cement and mineral industries. At the same time one more
factory has been established at Maacherla in Gunter district.

Raw Materials:

Limestone is the primary ingredient in the production of cement. limestone, iron ore,
bauxite, and other raw materials in the right quantities are fed into a grinding mill
where they are ground down to a very fine powder that is used in compressed air
compressors. The rotary kiln uses storing rib power to heat the material to roughly
1500 degrees Celsius. cement compounds such tri calcium silicate (about 24
percent), decalcium silicate (about 20 percent), tri aluminate (about 7 to 10 percent),

12
tetra

13
calcium anlumino ferrite (about 7 to 10 percent) were formed by the chemical
interaction between the different ingredients (about 10 to 12 percent ).

Capacity & Production:

Over 300 small cement facilities with an estimated capacity of 11.10 million tonnes
per year form the cement sector. In India, the cement company, a government-
owned enterprise, there are ten factories. A total of ten big cement factories owned
by different states are in operation.

In keeping with the industry's recent growth trends, a 126 million tonne output goal
has been set for 2003-04. A total of 31.30 million tonnes were produced between
April and June in 2003. During this time, the industry has grown at a 4.86 percent
annual pace.

Exports:

Cement and clinker are also exported by the business. Cement exports were 5.14
million tonnes in 2001 and 6.92 million tonnes in 2004. Gujarat Ambuja Cement
Limited and Ultratech were the two largest exporters in April and May 2003, each
shipping 1.35 tonnes of cement overseas.

GOVERNMENT INITIATIVES
The cement industry is promoting the use of cement in the building of highways and
roads. Infrastructure projects of us$ 354 billion will be funded by the ministry of
road transport and highways by 2012. The construction of new homes and
infrastructure, as well as the emerging trend of concrete roadways, will all contribute
to an increased demand for cement. Investing more in infrastructure has been a
major priority. Infrastructure spending was allocated $37.4 billion in the 2010-11
federal budget.
A total of $4.3 billion has been added to the government's budget for road
construction, an increase of 13%. In the next three to five years, Gujarat intends to
double its cement manufacturing capacity. Acc, Abg, Ambuja Cement, Emami
Cement, Indiabulls Cement, Adani Group Cement and INDIAand L&T Cement are
among the cement firms asked to submit proposals, and the state intends to increase

14
its annual capacity from 20 million tonnes to 70 million tonnes. Cement industry
investment proposals totalling us$ 13.2 billion are expected during the annual
dynamic Gujarat global summit that will be held in january 2011.
USD = INR 45.42 at the time of writing (as of December 2010)
The cement industry is an essential part of a country's economic growth. Economic
growth is measured by the amount of cement consumed in a given year.
An essential raw material for infrastructure building, cement is particularly
important to the government's long-term economic and social development goals for
the country's infrastructure.

15
BEFORE INDEPENDENCE
Cement was initially made in 1889 by a Calcutta-based firm using argillaceous sand
as a raw material (kankar).
Nonetheless, the first concerted effort to produce cement was made in the city of
Madras. A failed attempt in 1904 by South India Industries Limited to produce
Portland cement resulted in a stop to manufacturing.
With a capacity of 10,000 tonnes and 1000 installed, India cement business ltd.
established its first permitted cement manufacturing plant at porbandar, Gujarat, in
1914. It was during the First World War that cement production was given a major
boost. In the ensuing decade, manufacturing units, installed capacity, and output
grew at a rapid pace. The Indian cement industry is still in its infancy at this period,
which is also known as the nascent stage.

AFTER INDEPENDENCE
In the post-independence era, the expansion of cement was slowed by issues such as
low prices, a lack of new capacity, and growing costs. Increasing pricing and giving
financial incentives were among the many government measures used to stimulate
the business. Nonetheless, it had minimal effect on the business.
It was established in 1956 to guarantee that producers and consumers throughout
the nation received fair pricing and that regional imbalances were reduced in order
to achieve self-sufficiency.

PERIOD OF RESTRICTION (1969-1982)

During this time, the Indian government imposed harsh restrictions on the country's
cement sector. There was both direct and indirect government control over the
industry. Cement production, capacity, and distribution were all regulated directly
by the government, and prices were also regulated indirectly.
Increased pricing for cement produced by new units or capacity expansion at
existing plants were approved by the government for the first time in 1977 Growth
was still below expectations, though.
The government instituted a three-tiered pricing structure in 1979. Cement from
low-, medium-, and high-cost facilities have varying prices.

16
Price controls, on the other hand, didn't have the intended impact. Because of rising
input costs and narrowing profit margins, firms were unable to invest in expanding
capacity.

PARTIAL CONTROL (1982-1989)

In 1982, the government of India implemented a quota system to boost the cement
sector.
For sales to government and small real estate developers, a quota of 66.60 percent was
set. 50 percent of new and ill units were affected by this change. As a result, the
remaining 33.40% was authorised to be sold on the open market.
The industry responded well to these adjustments. The rise in input costs was a
worry for the producers, notwithstanding the increase in profitability.

AFTER LIBERALIZATION
The imminent liberalisation strategy gave the cement sector entire autonomy in
1989, allowing it to prepare for the rigours of free market competition. De-licensing
took place in this business in 1991.
In turn, this increased the industry's expansion and made state-of-the-art technology
available for upgrading. Capacity expansion was a primary priority for the main
players.
The industry shifted its attention to exporting in order to take advantage of the
worldwide market. The government's contribution to the industry's expansion has
been critical.

FUTURE TRENDS

 A further 50 million tonnes of capacity will be added to the cement industry

in 2009-2010, in spite of the crisis and a decline in housing sector demand.
 Given that India's GDP is expected to increase at 7% this year, analystsexpect
the sector to develop at a rate of 9 to 10% this year.
 Second only to China, India produces cement.
 In India, the biggest cement producers include: Acc, Grazim Industries,
Ambuja Cements, JK Cement, and Madras Cement Ltd.

17
  An increase in production capacity has boosted the industry's outlook in recent
months, indicating that things are looking up.
 More than half of all cement demand is generated by the construction industry,
and this trend is projected to continue in the foreseeable future.
 A surge in construction projects, both government and private, has pushed
up demand for cement in India.
 The building sector relies heavily on it. Larger corporations have also been
heavily affected, leading them to enter this expanding market.
 There are at least 125 large-scale facilities in India, as well as around 300
smaller-scale units, to meet the expanding need for cement. To the country's
socioeconomic progress, cement is a necessary component of the nation's
economy. Using cement as a measure of a country's economic progress is a
good indicator..

In 1889, Calcutta's first cement factory was established. Cement made from
argillaceous at the time was the norm at that time. Cement production began in
Madras, India, in 1904, with the establishment of the south India industries limited
company. In Porbandar, Gujarat, a new cement production plant was built in 1914,
although this one had a permit. Cement demand peaked in the early years of that
period, but only after a few years did the sector experience a serious decline. The
concrete association of India was created in 1927 in order to deal with the increasing
situation. The organization's primary objectives were to raise public knowledge
about the benefits of cement and to promote its use.
A slow expansion of the cement sector continued even after the country gained its
independence. Indian producers and consumers were given a sense of self-
sufficiency in 1956 when a distribution control system was formed. India's
government subsequently put in place a quota system, which mandated that the
government or small real estate developers take 66% of the sales. The cement industry
in India saw a surge in growth and profitability with the adoption of quotas. The
cement business was de-licensed by the government in 1991. Most of the
industrialists invested extensively in the industry as a result of their newly granted
independence. Exporting has been a major priority for the sector as a way to expand
its reach on the world stage. Cement exports from India are now among the country's
most important economic activities.

18
In spite of the crisis and the fall in the demand for homes, cement demand is predicted
to rise by 50 million tonnes in 2009-2010. Experts predict that the cement industry
would rise by 9 to 10 percent this year, compared to India's 7% GDP growth. In the
recent several months, major Indian cement producers and exporters have all made
large expenditures to improve their production capacity This bodes well for the
future of the cement business. Almost half of the cement used in India is used in the
construction of homes. Demand is projected to persist. Cement producers and
exporters in India have worked tirelessly to elevate India to the position of world's
second-largest cement producer. Cement firms like Madras Cement Ltd., affiliated
Cement Company ltd. (acc), Ambuja Cements ltd, Grasim Industries ltd., and JK
Cement Ltd. are some of the most well-known in India.
Generally speaking, cement is a binding agent that sets and hardens on its own and
may be used to bond different materials together. To describe this kind of masonry,
Romans used the phrase "opus caementicium," which means "cement-like
masonry," and was composed of crushed rock and burned lime as a binder. Cemented,
cemented, cement and cement were subsequently used to describe the volcanic ash
and pulverised brick additives applied to the burned lime to create a hydraulic
binder. Hydraulic and non-hydraulic cements are employed in building, and each
has a specific purpose.

Cement is primarily used in the manufacture of mortar and concrete, which is a

strong, long-lasting construction material that can withstand exposure to theelements.

Concrete is not to be confused with cement, which refers primarily to the powdered
ingredient used to bind the aggregate elements together in the construction of
concrete. If aggregates or water are added to the cement mixture, it is then referred
to as "concrete".

No one knows where the first time a pozzolanic reaction with hydrated non-
hydraulic lime produced a hydraulic mix (see also: pozzolanic reaction) was found,
but engineers were the first to employ substantial amounts of concrete built from this
kind of mix. These concretes included both natural and manufactured pozzolans
(such as trass or pumice). The immense monolithic dome of the Pantheon in Rome
and the gigantic baths of Caracalla are two good examples of constructions created

19
from these

20
concretes that are still standing today. Hydraulic cement was also extensively used
in the massive Roman aqueduct system. Weak pozzolanic concretes were employed
as core fills in stone walls and columns in mediaeval Europe in place of structural
concrete.

MODERN CEMENT
Modern hydraulic cements were first produced about 1800, motivated by the
following three factors:
Finishing brick structures using hydraulic renders in wet regions
Construction of port works and other seaside structures using hydraulic mortars.

DEVELOPMENT OF STRONG CONCRETES

Stucco was a popular finish for luxury structures in Britain during a time of rapid
expansion, when high-quality building stone became more costly due to a lack of
supply. While hydraulic limes were used, new cements were developed because of
the necessity for a quick set time. One of the most well-known was James Parker's
"roman cement," created in the 1780s and eventually patented in 1796. For the
Romans, it wasn't anything like the "natural cement" created by burning septaria -
nodules that may be found in clay deposits that include both clay minerals and
calcium carbonate. The charred remains of the nodules were reduced to a powder by
grinding. This substance sets in 5–15 minutes when mixed with sand in a mortar.
The popularity of "roman cement" sparked the development of competing goods that
were made by burning clay and chalk in a kiln.
During the building of a lighthouse in the English Channel, John Seaton made a
significant contribution to the development of cements. During the twelve-hour
interval between high tides, he required a hydraulic mortar that would set and gain
some strength. The amount of "hydraulicity" a hydraulic lime has is closely connected
to the amount of clay it contains in the limestone it is derived from, according to his
thorough market study. It wasn't until Seaton was a civil engineer that he decided to
pursue the notion. Seaton's study seems to have had little impact on Louis Vicat's
discovery in the first decade of the 19th Century of the same idea. In 1817, Vicat
created "artificial cement" by blending chalk and clay into an intimate combination
and burning it. Around the same time, James Frost, working in Britain, created what

21
he dubbed "British cement," although he didn't get a patent until 1822 after doing so
in a similar fashion. In 1824, Joseph Aspdin developed a comparable substance that
he named Portland cement after the famed Portland stone, since the render formed
from it had a similar hue.
A lack of time for installation and inadequate early strengths made these products
unable to compete with lime/pozzolan concretes (requiring a delay of many weeks
before formwork could be removed). Strength is derived from the belite
concentration in hydraulic limes, so-called "natural" cements, and "artificial"
cements alike. Belite gains strength with time. Due of their low burning temperature
(under 1250°c), they did not contain alite, which is what gives contemporary
concrete its early strength. Joseph Aspdin's son William created the first cement that
included alite regularly in the early 1840s. Portland cement that we use today is
referred regarded as "modern" cement. Others (e.g. Vicat and i.c. johnson) have
claimed primacy in this innovation because of the mystique surrounding
williamaspdin's product, but modern examination of both his concrete and raw
cement has proven that williamaspdin's product created in north fleet, Kent was a
real alite-based cement.. Cement's chemical base was first identified by vicat, and its
kiln sintering relevance was proven by Johnson. However, Aspdin used "rule-of-
thumb" approaches in his experiments.

"Artificial cement" manufacturers had a difficult time implementing William

aspdin's innovation, which was counter-intuitive because it required a higher kiln
temperature (and therefore more fuel), more lime in the mix, and because the
resulting clinker was so tough that millstones, the only available grinding
technology at the time, quickly wore down. As a result, the cost of production was
much greater, but the product set slowly and gained strength fast, opening up a
market for its usage in concrete. There has been a dramatic increase in concrete
usage in building since about 1850, when it was first introduced. As a result,
portland cement took on a prominent position in the construction industry. Water
and sand are used to create it.

TYPES OF MODERN CEMENT

• PORTLAND CEMENT

22
Limestone (calcium carbonate) is heated to 1450°C in a kiln with tiny amounts of
other materials (such as clay) to generate calcium oxide, or lime, which is then mixed

23
with the other elements that have been included in the mix. Cement clinker is then
crushed with a tiny quantity of gypsum to produce 'ordinary portland cement', the
most common form of cement (often referred to as opc).

Concrete, mortar, and most non-specialty grout all use Portland cement as a primary
constituent. Concrete is the most prevalent end-product of portland cement's
utilisation. Aggregate (sand and gravel), cement, and water combine to form concrete.
If you're looking for a building material that can be used to create practically any
form you can imagine once set, concrete is the answer. Gray or white Portland
cement is possible.

• PORTLAND CEMENT BLENDS

These may be purchased as inter-ground mixes from cement manufacturers, but they
can also be mixed from the ground components at a concrete factory.

Grass-fed blast furnace slag makes up as much as 70% of Portland blast furnace
cement's composition, with the balance being Portland clinker and a trace amount of
gypsum. The ultimate strength of all compositions is strong, but the early strength
decreases as slag concentration rises, whereas sulphate resistance increases and heat
evolution decreases as slag content rises. Alternative to Portland Sulfate Resisting
and Low-Heat Cements in terms of both cost and performance

Fly ash makes up 30 percent or more of Portland flash cement. Because the fly ash
is pozzolanic, it maintains its maximum strength. Adding fly ash to the mix allows
for a reduced water content in the concrete, which results in better early strength.
Fly ash may be a cost-effective substitute for Portland cement in areas where the
material is readily accessible.
When it comes to Portland pozzolan, fly ash, and other natural and manufactured
pozzolans are all included in this category. Cements made from volcanic ash are
widespread in nations like Italy, Chile, Mexico, and the Philippines.
a cement containing Portland silica fumes. Cements containing 5-20 percent silica
fume have been made in the past using this method to achieve very high strengths.

24
However, it is more common for silica fume to be added to Portland cement during
the mixing process.
Masonry cements are used to make bricklaying mortars and stuccos, however they
cannot be utilised in concrete. Complex proprietary formulas using portland clinker
and a variety of additional components, such as limestone, hydrated lime, air
entertainers, retarders, water-proofers, and colouring agents, are commonplace in
these products. Workable mortars enable for fast and uniform masonry construction
because to their formulation. Plastic cements and stucco cements are two minor
variants of American masonry cement. They're meant to be used with masonry
blocks to create a precise connection.

To counteract the drying shrinkage that is common in hydraulic cements, expansive

cements incorporate expansive clinkers in addition to portland clinker (typically
sulfoaluminate clinker). Large floor slabs (up to 60 square metres) may be
manufactured without contraction joints thanks to this technology.
With white clinker and white additional components such as high-purity metkaolin,
white mixed cements may be created.

It's common to see coloured cements used for ornamental reasons. Colored portland
cement may be made by mixing pigments into the cement, according to certain
industry requirements. Colored portland cements are offered as "blended hydraulic
cements" under other standards (e.g. Astm), which prohibit the use of pigments.

Cement containing sand, slag, or other pozzolan-type minerals is crushed to an

incredibly fine powder to create ultrafine-grained cements. Because of the increased
surface area for the chemical reaction, these cements may have the same physical
properties as standard cement yet need half as much cement. Because of their low
energy consumption, they may even be made with a high degree of grinding.

NON-PORTLAND HYDRAULIC CEMENTS

Pozzolan-lime based cements.. Cements made from pulverisedpozzolan and lime by
the Romans may still be found in ancient constructions (e.g. The Pantheon in
Rome). They take time to build up their strength, but it may be incredibly powerful.
The

25
strength-producing hydration products are very identical to those found in Portland
cement.

Cements made from a mixture of slag and lime. An alkali, such as lime, must be
added to ground granulated blast furnace slag in order for it to function as a
hydraulic fluid. They have several characteristics with pozzolan lime cements. Only
water- quenched, glassy slag granules are suitable for use in cement.

Extremely sulfur-rich concrete. Ground granulated blast furnace slag, 15% gypsum
or anhydrite, and a little amount of Portland clinker or lime as an activator make up
around 80% of this product's composition. They make ettringite, which has a
gradual Portland cement-like strength increase. They are resistant to sulphate and
other harsh chemicals.
There are two types of calcium-aluminate cements: hydraulic and non-hydraulic.
Mayenite Ca12Al14O33 (C12A7 in CCN) and caal2o4 (cao Al2O3 or CA in
Cement chemist notation, CCN) are the active components. Hydration to calcium
aluminates hydrates creates strength. Refractory (high-temperature resistant)
concretes, such as furnace linings, are an excellent fit for their application.
It is possible to make caustic cements from clinkers by adding ye'elimite (in the
cement chemist's notation, Ca4(alo2)6SO4 or C4A3) to the primary phase.
Expanding cements, ultra-high early strength cements, and "low energy" cements all
utilisethem.

FUTURE TRENDS:
 Despite the crisis and decline in demand from the housing sector, the cement
industry is forecast to develop healthily and boost capacity by another 50
million tonnes between 2017 and 2015.
 For this financial year, analysts estimate that the sector would increase
between 9 and 13 percent if India's GDP develops at a rate of 7 percent.
 Indian cement firms include Associated Cement Company Ltd (ACC), Grasim
Industries Ltd, Ambuja Cements Ltd, J.K Cement Ltd and Madras Cement
Ltd (the latter of which is a subsidiary of J.K.Cement).

26
  An increase in production capacity has boosted the industry's outlook in recent
months, indicating that things are looking up.
 For the foreseeable future, the housing industry is estimated to contribute for
50 percent of cement demand.
 A surge in construction projects, both government and private, has pushed up
demand for cement in India. The building sector relies heavily on it. It has also
had a significant impact on the larger corporations' decision to engage in the
sector's rapid growth.

In 1889, Calcutta's first cement factory was established. Argillaceous was the raw
material utilised to make cement at the time. In 1904, South India Industries Limited
was established in Madras as the first organised set-up to produce cement in the city.
In Porbandar, Gujarat, a new cement production plant was built in 1917, although
this one had a permit.

Cement demand peaked in the early years of that period, but only after a few years did
the sector experience a serious decline. The Concrete Association of India was
established in 1927 in order to combat the increasing condition. The organization's
primary objectives were to raise public knowledge about the benefits of cement and
to promote its use.

A slow expansion of the cement sector continued even after the country gained its
independence. India's manufacturing and consumer self-sufficiency was a goal of the
Distribution Control System created in 1956. India's government subsequently put in
place a quota system, which mandated that the government or small real estate
developers take 66% of the sales. The cement industry in India saw a surge in
growth and profitability with the adoption of quotas. The cement business was de-
licensed by the government in 1991. Most of the industrialists invested extensively in
the industry as a result of their newly granted independence. Exporting has been a
major priorit y for the sector as a way to expand its reach on the world stage. Today,
India's cement producers have become the world's biggest exporters of the product.

27
 INDIA CEMENT INDUSTRY

India Cements Limited is a cement manufacturing company in India. The company is

headed by former International Cricket Council chairman N. Srinivasan . It was
established in 1946 by S. N. N. Sankaralinga Iyer and the first plant was set up at
Thalaiyuthu in Tamil Nadu in 1949.

HISTORY

India cements Ltd was founded in India the year 1946 by two men, Shri S N N
Sankaralinga Iyer and Sri T S Narayanaswami. They had the vision to inspire dreams for
an industrial India, the ability to translate those dreams into reality and the ability to
build enduring relationships and the future.

Sri T S Narayanaswami, the banker turned industrialist, was the catalyst who saw the
project cross through numerous hurdles and emerge as a viable and marketable
proposition. He looked beyond cement and ventured into aluminium, chemicals, plastics
and shipping. A pioneer industrialist and visionary, Sri T S Narayanaswami played a
dynamic role in the resurgence of industrialisation in free India.

India Cements celebrated the Birth Centenary of Sri T S Narayanaswami on November

11, 2011. The Indian Postal Department released a Commemorative Postage Stamp in
Honour of Sri T S Narayanaswami on November 11, 2012.
From a two plant company having a capacity of just 1.3 million tonnes in 1989, India
Cements has robustly grown in the last two decades to a total capacity of 15.5 million
tonnes per annum. After the approval of a Scheme of Amalgamation and arrangement
between Trinetra Cement Ltd and Trishul Concrete Products Ltd with The India
Cements Ltd, all the cement assets have come under one roof - India Cements. India
Cements has now 8 integrated cement plants in Tamil Nadu, Telangana, Andhra Pradesh
and Rajasthan and two grinding units, one each in Tamil Nadu and Maharashtra.

While retaining cement over the years as its mainstay, India Cements has ventured into
related fields like shipping, captive power and coal mining that have purposeful synergy
to the core business. This also stemmed from the company’s strategy of emerging as an
integrated pan India player to combat uncertainties in securing energy and other inputs in
the supply chain at competitive costs.

28
VISION

Achieve performance excellence and create standards

MISSION

 Ensure the reliability of services

 To adapt to changing market conditions
 To contribute social value while maintaining a high standard of quality
 To foster consumer comfort and long-term connections

OBJECTIVES

 Industry's primary purpose is to contribute to the nation's quality.

 One additional purpose is to increase support for home development projects.
 The industry's future goal is to increase the use of ready mix concrete in
significant infrastructure projects.
 The primary purpose is to monitor the industry's performance, andcement
prices are reviewed on a regular basis.
 The factory adheres to stringent safety regulations, and excellent housekeeping
practises are also a priority.
 INDIA cement aspires to win several major prizes, including nationalones for
productivity, technology, and conservation.

29
Name (connections) Type of board member
Sri N. Srinivasan chairman of the board

Smt. Rupa Gurunath

Smt. Chitra Srinivasan

SrLS.Christopher Jebakumar

Sri Krishna Prasad Nair member of the board of directors

Smt. Lakshmi Aparna

Sreekumar

Sri.K Skandan

Sri. S Balasubramanian
Adityan
Smt. Sandhya Rajan

Sri. Basavaraju

During the year, the plant's output capacity was increased by 19 mt per day, totaling
271 mt per day. During the financial year 2008-09, the greenfield project with a
capacity of 257 mt per day in the state of Uttarakhand began commercial production
in stages. 37.1 million tyres, 2.95 million tubes, and 1.53 million flaps per year were
manufactured at the company's factories as of 31.3.2009, including the
uttarakhandplant.
In the West Bengal state of Kharda, it also has limited chemical production
capacity. It produces 12,410 mtpa of caustic soda lye, 5,045 mtpa of liquid chlorine,
and 6,205 mtpa of sodium hypochlorite per year.
The firm is currently listed on three main Indian stock markets, namely Bombay
Stock Exchange Ltd., Mumbai, Calcutta Stock Exchange Association Ltd., Kolkata,

30
and the National Stock Exchange of India Ltd., Mumbai, as well as the Societe de la
Bourse de Luxembourg in Luxembourg.
Vasavadatta cement in Sedam in Karnataka is now expanding to produce up to 1.65
million tonnes of cement annually as unit iv, with a 17.5 MW captive power plant, at
a cost of around rs 783.50 crores (including the cost of captive power plant).
in june 2009, the commercial manufacturing of cement in unit iv began.
Tyre production in Uttarakhand is being expanded to include radial and bias tyres,
which would need an estimated total capital investment of around 840 crores,
according to the company. The board has also given the go-ahead for an rs.190 crore
motor cycle tyre project with a daily capacity of 70 metric tonnes at the same
location. Both projects' civil construction is in full swing. Both projects are expected
to begin commercial production in late 2009 or early 2010. It is
birlasupreme'sbasantnagar facility in ap that produces the popular brand of INDIA
cement, which has an excellent track record. during the last two and a half decades,
in terms of both performance and production. Its distinction has been shown by a
slew of national honours. It also has the distinction of being able to use the
maximum amount of resources possible.
Partitioned cement from INDIA may be used in light or heavy building projects, as
well as other related tasks. Every aspect of a company's operations contributes to
quality. To begin with, the layout of the factory is logical. The calcium carbonate
content of the limestone is an important aspect in determining the end product's
quality. The most recent computerised monitoring of the production process is used
by the day process technology. Samples are forwarded to the Indian Standards Bureau
on a regular basis. Certification of derived quality criteria by the National Council of
Construction and Building Material.
Various promotional tactics, such as newspaper ads, magazines, billboards, and
other mediums, have been used by the corporation to help market its goods.
Among the cement companies in India, INDIA cement plant was the only one to win
the national productivity award for two consecutive years, 1985-1987. INDIA
CEMENT was also awarded a certificate by the Federation of Andhrapradesh
Chamber of Commerce and Industries (fapcci). An honour given to the state's
outstanding industrial growth promotion activities in 1984. Additionally, during the
years 1987-1988, INDIA was recognised with the fapcci award for "best family
planning efforts in the state.".

31
One of the country's current industrial behemoths, supporting the nation's needs on a
variety of fronts. Founded in the 1920s by the Birla family, INDIA industries ltd.
has a long and illustrious history. After starting off as a textile factory in 1924, it
quickly expanded into other goods including rayon, translucent paper, pipes,
refractors, and tyres.

De-licensing the cement sector in 1966 with a review was done by the government
of India because of the vast disparity between demand and supply of a key
commodity, cement, which plays an essential part in national construction activities.
A few cement factories were established in the nation by INDIA, which rose to the
occasion.
Andhra Pradesh, Karnataka, Tamilnadu, Kerala, Maharashtra, and Gujarat are the
states where INDIA cement is doing substantial marketing initiatives. As part of the
sales departments of a.p., they are spread all over the state of Andhra Pradesh. Around
ten depots have been established in various states.
INDIA cement's share of the ap market is 7.05 percent. The company's market share in
different states is indicated to be below zero percent.

States market share

Karnataka 4.09%
Tamilnadu 0.94%
Kerala 0.29%
Maharashtra 2.81%

PROCESS AND QUALITY CONTROL

When it comes to plant technology, INDIA has worked hard to make sure it is up to
date with the most cutting-edge solutions available.

X-RAY ANALYSIS

xrf and xrd x-ray analyzers, which are fully automated, maintain a continual watch on
quality 24 hours a day.

32
D.C. SYSTEM

The production of clinker is a critical stage in the manufacture of cement. The clinker-
making process for birla supreme/gold is completely computerized. control.
Monitoring and efficiency are maintained through the distributed control system
(dcs). guarantees that clinker quality remains consistent and removes any potential
for error.

PHYSICAL CHARACTERISTICS

birla supreme birla supreme ope 43 ope 53 gr

Characteristics 43 grade gold 53 gr is 8 112-89 is 12269-87

setting time 120-180 130-170 min30 min 30

fincncssm 2/kg 1.0-2.0 0.5-1.0 max 10 max 10

a. initial (mats) 180-240 170-220 max 600 max 600
Soundness 0.04-0.08 0.04-0.2 max 0.8 max 0.080.
b. final (mats) 270-280 300-320 min 225 . min 225
a. le-chart (mm)
b. autoclave (%)

33
PHYSICAL CHARACTERISTICS

birla supreme birla supreme ope 43 ope 53 gr

Characteristics 43 grade gold 53 gr is 8 112-89 is 12269-87

setting time 120-180 130-170 min30 min 30

fincncssm 2/kg 1.0-2.0 0.5-1.0 max 10 max 10

a. initial (mats) 180-240 170-220 max 600 max 600
Soundness 0.04-0.08 0.04-0.2 max 0.8 max 0.080.
b. final (mats) 270-280 300-320 min 225 . min 225
a. le-chart (mm)
b. autoclave (%)

SUPREME EXPERTISE

In order to produce birla supreme/gold of rock strength, the facility is manned and
monitored by the finest technical personnel available only to INDIA.

18 MILLION TONES OF SOLID FOUNDATION

A quarter-century at the top is no less impressive than a quarter-century at the top.

For the last 28 years, INDIA has been linked with As a member of the nation's
infrastructure, INDIA has sent 18 million tonnes of cement to every part of the
country. This honour has never been held by anybody else in Andhrapradesh.
INDIA cement was used only in the ramagundam super thermal power project of
ntpc and the mannair dam of the pochampad project in the ap arc of the global bank:
to provide an illustration.

34
CHEMICAL CHARACTERISTICS

ope 53 gr birla birla opc 43 gr

Characteristics is 12269- supreme supreme is 81 132-
87 43 grade gold 53 989
gr.
alkalis chlorides max 0.05 max 0.01 max 0.4 max 0.05

magnesium oxide % max 6.0 < 1.3 < 1.3 max 6.0

insoluble residue % max 2.0 <0.8 < 0.6 max 2.0

loss on inflection % max 4.0 <1.6 <1.5 max 5

lime saturation factor 0.8-1.02 0.8-0.9 0.88-0.9 0.66-1.02

sulfuric anhydride % max 2. 5/3 1.6-2.0 1.6-2.0 max 2.5/3

alumna: iron ratio mino.66 1.5-1.7 1.5-1.7 mino.66

INDIA CEMENT - ADVANTAGES

 Assists in creating leaner, more attractive designs. Structures that allow for
more design idea freedom.
 Due to its superior quality, superfine construction is possible.
 It provides greatest strength with the least amount of cement in the water
cement ratio, particularly the 53 grade. supreme-gold birlas.

FEATHERS IN INDIA'S CAP

INDIA has an exceptional track record of maximising capacity utilisation,
productivity, and energy reduction. It has established its reputation by winning several
national and state prizes, the most notable of which is.

35
NATIONAL

 National award for mines safety for 1985-86

 National productivity award for 1986-87
 National productivity award for 1985-86

STATE

 State award for best industrial management 1988-89.

 Fapcci award for the workers welfare, 1995-96.
 Best industrial productivity award of fapcci (federation of a.p. Chamber of
commerce and industry), 1991
 A.P. State productivity award for 1988
 Best management award of the state govt. 1993

I.S.O. 9002
International Standards Organization (ISO) 9001 and 1.s. 4002 certifications
confirm the widespread acceptability of INDIA goods. The product's quality
systems have been approved by b.i.s. under iso 9002/1s 14002 by b.i.s.
A 2.5-lakh tpa (tones per year) facility was established in Basanthnagar in 1969,
with simple management and a warmed system.
In 1971, a second plant, with a capacity of 2 lakhs tpain, was built to complement
the first.
An additional 2.5 lakh tonnes of capacity was added in August 1978, followed by
1.13 lakh tonnes in January 1981 and a further 0.87 lakh tonnes in September 1981,
bringing the total capacity of the facility to 9 lakh tonnes.
Coal is provided by Singarein collieries, while electricity is provided by aptransco.
The plant uses roughly 21 mw of electricity. In 1987, two diesel generator seats
rated at 4 MW each were erected in INDIA.
With a 15mwcaptive power plant, INDIA cement can now provide continuous
power supply for cement production.

36
PERFORMANCE
The success of the INDIA cement business has been exceptional, despite several
obstacles, such as power outages and a 40% waste rate owing to a lack of waggons.
As a continuous process industry, the firm is always working and has a high capacity
utilisation rate of above 1005. Since its inception, INDIA has always maintained a
strong focus on both technological advancement and industrial efficiency. For the
last 27 years, the firm maintained a stellar reputation in the market.

TECHNOLOGY

The manufacturing facility for INDIA cement is fully computerised. The factory is run
by a group of hardworking and knowledgeable professionals.
The quality is well above the norms set by the Indian Bureau of Standards.
Cement is made from a variety of different basic ingredients:
 bauxite
 gypsum
 lime stone
 hematite

ENVIRONMENTAL AND SOCIAL OBLIGATIONS

This division has planted approximately two lakh trees in support of environmental
awareness and to maintain the ecological balance.
In order to fulfil its social responsibility, this sector has adopted ten or so villages,
organised family welfare campuses and other social welfare programmes such as
blood donation camps, children vaccination camps, seeds, and training for farmers,
among other things.

37
 WELFARE AND RECREATION FACILITIES

Two auditoriums were made available for cultural events and activities such as
plays, concerts, and dances as part of the leisure facilities. Libraries and reading
rooms have been set up by the industry. The library's collection numbers in the
thousands. There are a wide variety of newspapers and publications to choose from.
Catering to the requirements of the workers, a canteen is available to give snacks,
tea, coffee, and meals.
English and telugu medium schools are available to satisfy the needs of the students.
For the benefit of its workers, the corporation has set up a dispenser with a medical
office and paramedical personnel. Employees who are insured by the esiprogramme
must use the esi hospital's medical services.
Every year on August 15th, Independence Day, and January 26th, Republic Day,
the employees compete in sports and games.

ELECTRICITY
Since the installation of different energy saving measures, the power consumption
per tonne of cement has dropped to 108 units, down from 113 units in 2013. This
section's captive power plant continues to provide good results. During the year, 84
million units of electricity were generated. One of the most important factors in
keeping electricity prices affordable is the use of this in-house facility.
The company's leadership has implemented several human resources development
(hrd) initiatives aimed at improving staff productivity. Environmental management
systems are being implemented in the section, which has suitable air pollution
control systems and equipment, and is ISO14001 certified.

PRODUCTS OF THE
ORGANIZATION

38
PRODUCT PROFILE

To ensure quality control, INDIA Cements produces and distributes only its own
line of cement. Strategic integration of operations is the technique we use to
optimise production across all of our markets and provide a full solution for
customers' demands at the lowest feasible cost. Limestone and clay make up the
majority of the ingredients in cement. The "raw meal," a pale flour-like powder, is
made by crushing and grinding these. In rotating kilns, the "meal" is heated to roughly
1450° c (2642°
F) where it undergoes complicated chemical transformations and becomes clinker.
Cement is made by fine-grinding clinker with a tiny amount of gypsum. Adding
additional ingredients at this step provides cements for specific applications.

39
QUALITY
The optimal cement is 43, 53 grade, ultra fine, premium, and shakti, all of which have
six great advantages.

 Increased compressive strength

 Increased structural integrity.
 Cement usage is reduced for concrete grades m-20 and above.
 Formwork de-shuttering is completed more quickly.
 Decreased construction time INDIA cements is a powerful participant in the
cement industry, with a superb and diverse variety of cement that caters to
every conceivable building demand.

Here just a few reasons why INDIA cements chosen by millions of India.

 Ideal raw material

 Low lime and magnesia content and high proportion of silicates.
 Greater fineness.

40
 COMPANY SWOT ANALYSIS
Swot analysis is a strategic planning tool developed by INDIA Cement Company to
analyse a business venture's Strengths, Weaknesses, Opportunities, and Threats. An
analysis of the business venture's goal and the elements that are favourable and
unfavourable to achieving it is the focus of this process.

STRENGTHS
 Strong financial backing
 Better quality
 Proper research and development
 Long relationship with customer
 Large distribution network
 Maintained a world class infrastructure
 Market share

WEAKNESSES
 Insufficient man power
 Delay in supply
 Inconsistency of supply

OPPORTUNITIES
 Maintain the position of competition in market
 Develop new marketing areas
 Sign more MOUs with government regarding supply of cementfor
government work

THREATS

 Input costs for materials like as limestone, gypsum, and mart are increasing.
Due to the high duty and the high expense ofmining.
 India's competition authority has threatened to prosecute cartel members.
 Threats from new entrants owing to the market's size.

41
 CHAPTER III

THEORETICAL FRAME WORK

42
 THEORETICAL FRAME WORK

Capital BudgetingDefinition:
When making capital budgeting investment decisions, it is necessary to examine the
following criteria or features.

• The size of the investment

• Requirement for a minimum rate of return on investment (k)
• The anticipated return on investment. (R)
• Classification of investment proposals and
• Raking is rated based on profitability. That is, the anticipated rate of
return on investment.

RISK AND UNCERTANITY IN CAPITAL BUDGETING:

All capital budgeting approaches need the forecast of future financial inflowsand
outflows. The following variables are used to forecast future cash inflows.

1. Rate of Taxation
2. Expected economic life of the project.
3. Depreciation rate.
4. Salvage value of the assets at the end of economic life.
5. Production cost.
6. Capacity of theproject.
7. Future demand of product,
8. Selling price of the productetc.

However, because of the lack of certainty about the future, demand, output, sales,
and selling prices cannot be accurately predicted. A product, for example, may be
rendered obsolete considerably sooner than projected as a result of unanticipated
technical advances. When making an investment choice, all of these aspects of

43
uncertainty must be factored in as potential risk. However, certain stipulations must
be made to account for the various aspects of risk.

The following strategies are offered for capital budgeting risk

accounting:-

Method of varying discount rate or Risk-Adjusted cut off rate:

In capital budgeting, a simple way to account for risk is to raise the discount rate or
cut-off rate by a particular amount. The more riskier initiatives, as well as those with
a wider range of predicted returns, should have a larger discount rate applied to them
than the less risky ventures.

This method's biggest flaw is that the premium rate cannot be accurately
determined, and furthermore, it is future cash flow, which is unpredictable and need
modification, rather than the discount rate.

Risk Adjusted Cut off Rate DecisionTree

Analysis

Certainty Equivalent Suggestions Co-Efficient of

Method Accounting risk Variation Method
In Capital Budgeting

Sensitivity Technique Standard Deviation

Method

Profitability Technique

44
2. Certainty Equivalent Method:
Another simple method of accounting for risk in capital budgeting is to reduce
expected cash flows by certain amounts. It can be employed by multiplying the
expected cash inflows certain cash outflows.

3. Sensitivity Technique:
Where the cash flow is highly dependent on a variety of factors, it may be necessary
to make many cash flow forecasts. These inflows might be categorised as
"Optimistic," "Most Likely," or "Pessimistic," respectively. Net present values may
be calculated for these three scenarios by discounting future cash inflows. A project
with significantly different net present values in each of the three scenarios indicates a
high degree of risk, and an investor's willingness and ability to take on that risk will
dictate whether or not he accepts the project.

4. Probability Technique:

A probability is a measure of how likely something is to happen in the future.

Calculating predicted monetary values may be done by multiplying cash inflow by the
probability given when future cash inflow estimations have varying probabilities.
The inflows' monetary values might be discounted further to get the current values.
Acceptance may be given to the project with the larger net present value.

5. Standard Deviation Method:

The standard deviations of the predicted cash inflows of two projects may be
estimated to compare the relative risk of the projects if their costs and net present
values are equal. When comparing two projects, the one with the bigger standard
deviation is considered to be the riskier one.

45
6. Coefficient of variation Method:

The coefficient of variation is a metric used to assess how widely distributed data is.
The coefficient of variation should be calculated if the projects have the same cost but
differing net present values in order to determine the relative risk involved. Here's
how to figure it out.

Coefficient of Variation = Standard Deviation X100

Mean

7. Decision Tree Analysis:

Today's corporate world is full of multi-step investment choices that must be made
over the course of time. Plotting decision trees may be used to manage such
consecutive choices. In a decision tree, the link between a current choice and
subsequent events, as well as future decisions and their effects, is shown
graphically. As a result, the study is known as decision tree analysis because the
sequences of events are mapped out in a style that resembles branches of a tree. A
decision tree analysis entails a series of processes.

1 Identifying the issue

2 Investigating alternates;
3 Displaying the decision tree with the choice points, chance occurrences, and
other pertinent dates highlighted;
4 Specification of cash inflow probability and monetary values;
5 Alternatives analysis.

LIMITATIONS OF CAPITAL BUDGETING:

1. Capital budgeting methods assume that all investment plans are mutually
exclusive, which may not be the case in certain specific situations.
2. Capital budgeting strategies need the prediction of future cash flows.
When it comes to the future, there is no such thing as absolute certainty.
Wrong data may obviously lead to bad outcomes.

46
 3. There are a number of elements that can't be accurately assessed but
nonetheless have a significant impact on the capital choice, such as staff
morale, the goodwill of the company, and so on.
4. A fourth barrier in the assessment of capital investment choices is the
urgency of the situation.
5. Capital budgeting strategies are severely hampered by the presence of
uncertainty and risk..

KINDS OF CAPITAL BUDGETING DECISIONS:-

The ultimate goal of capital budgeting is to increase a company's profit margins or
return on investment. It is possible to attain these goals by either boosting income
or decreasing expenditures. There are two major kinds of capital budgeting decisions.
1. Increase revenue.
2. Reduce costs.
An increase in the firm's production capacity or size, or a reduction in a new product
line, is likely to result in a rise in revenue. The second category comprises
judgments on the replacement of old, antiquated, or worn-out assets, which helps the
company generate more money. When this happens, a company must determine
whether to keep using the current asset or to replace it with a new one. The choice to
replace an asset is made by weighing the potential savings from doing so against the
monetary outlay required to do so. Fixed asset investments are included in both
categories of the above choice but the main distinction is that boosting revenue
investments are more unpredictable than cost-reducing expenditures.
In addition, capital budgeting choices may be categorised as follows, depending on
the proposed investment:

1. Accept Reject Decision:

Accept or reject judgments are made in relation to separate projects, but they do not
add up. The minimal return on investment (ROI) is the primary consideration in
making such judgments. Proposals with greater returns than the minimum needed
rate of return for capital are approved, while those with lower returns are rejected.
Investment is made in the project if it is approved, while the others are refused.
They invest in proposals when they are approved; companies do not invest when
they are rejected.

47
2. Mutually Exclusive Project Decision:
If one proposal is accepted, it immediately eliminates the approval of the other since
they are in competition. As a result, only one of the two ideas is chosen. For
example, a corporation may choose to purchase a piece of machinery.

Capital Rationing Decision:

A company may have a number of viable investment opportunities, but it has a
limited budget, so it needs to choose them. Proposals are ranked in decreasing order
of profitability, and the business chooses the combination that would bring in the
most money.

STEPS INVOLVED IN THE CAPITAL EXPENDITURE:

The various steps involved in the control of capital expenditure.
1. Capital expenditure planning.
2. Appropriate capital expenditure authorisation.
3. Expense tracking and management.
4. Evaluation of the project's performance.

OBJECTIVES OF CONTROL OF CAPITAL EXPENDITURE:

All of the major goals in the following section are related to controlling capital
expenditure: Making an estimate of capital expenditure and ensuring that the overall
cash spend does not exceed the enterprise's financial resources are two important
objectives.

1. To provide timely financial inflows for projects, ensuring that non-

availability of funds does not pose an issue during the project'sexecution.
2. To guarantee that all capital expenditures are approved in a timely manner.
3. To coordinate the different departments' tasks effectively.
4. To establish priorities for several projects and to assure their completion.

48
 5. To compare actual expenditures to anticipated expenditures on aperiodic
basis in order to minimise overspending.
6. To assess the project's performance.
7. To guarantee that capital expenditures are adequate to keep pace withfast
technological advancements.
8. To avoid hyperexpansion.

CAPITAL BUDGETING PROCESS:

Decisions on how to invest present finances for the benefit of the future are difficult
since the future is always unpredictable. This approach may be used in the capital
budgeting process, though.

Capital Budgeting Steps:

Identification of Investment Proposals:

The identification of investment projects is the first step in the capital budgeting
process. You may get an idea of prospective investment prospects from the CEO or
from a lower level employee in any department or from any officer in the company. If

49
a company is big enough, the CEP Committee, or the officers in charge of making
long-term investment choices, receives the department head's recommendations,
which he or she evaluates in light of the company's goals and corporate strategy.

Screening the Proposals:

The Committee for Budgetary Control examines all of the budgetary plans that come
in from the various departments. In order to make sure that these suggestions are in
line with the company's business strategy or selection criteria, the committee
examines them from a variety ofperspectives.

Evaluation of Various Proposals:

The evaluation of proposals' profitability is the next phase in the capital budgeting
process. Methods such as the payback period, rate of return, net present value, and
internal rate of return may all be utilised to this end. We've covered all of these
strategies for determining the profitability of capital investment projects.

Fixing Priorities:

The unprofitable or uneconomic solutions may be discarded immediately after a

thorough evaluation of the alternatives. However, the company may not be able to
invest immediately in all of the suitable offers because of a lack of finances. As a
result, it's critical to prioritise and assess distinct offers based on their importance,
risk, and profitability.

Final Approval and Preparation of Capital Expenditure Budget:

The capital expenditure budget has finally been authorised for proposals that fulfil
the evaluation and other requirements. Smaller investment ideas, on the other hand,
may

50
be decided at the lower levels in order to move quickly. Investments in fixed assets
are estimated in the budget period and are included in the capital expenditure plan.

Implementing Proposal:

Capital budgeting Spending planning and insertion of a specific proposal in the

budget does not imply that the project can be implemented. The capital expenditure
committee, which may be interested in reviving the project's profitability in light of
the new conditions, should be asked for permission to spend the funds.

In addition, to minimise needless delays and cost overruns, it is best to assign

responsibility for finishing the project within the stipulated time frame and cost limit
as it is being implemented. Control and monitoring of the project's execution may be
accomplished via the use of project management network methods such as Pert and
CPM.

Performance Review.

This is the last step in the capital budgeting process: assessing the project's success.
Through an audit once the project has been completed, the actual costs and the
projected returns are compared to see whether they are in line with expectations.
Unfavorable changes should be investigated and the underlying reasons should be
determined in order to prevent them in the future.

METHODS OF CAPITAL BUDGETING AND EVALUATION

TECHNIQUES:-
Time Adjusted Method or Discounted Method:
i) Internal Rate of Return
ii) Profitability Index.
iii) Net Present Value Method
iv) Net Terminal Value Method

51
Traditional Methods:
i) Pay-Back Period Method
ii) Average Rate of Return.

CAPITAL BUDGETING METHODS

TRADITIONAL MODERN
METHOD METHOD

PAY-BACK ACCOUNTING RATE

PERIOD OF RETURN

INTERNAL RATE OF RETURN

NET PRESENT VALUE

PROFITABILITY INDEX

TRADITIONAL METHODS:-
1. Average Rate of Return:
The average rate of return (ARR) approach of capital expenditure evaluation is
often referred to as the accounting rate of return method. It is calculated using
accounting data rather than financial flows. There is no agreement on how the rate
of return should be defined.

52
 Average annual profits after taxes
ARR= X100
Average investment over the life of the project

Each year's predicted after-tax profit is multiplied by the number of years in

the project's existence to arrive at the project's average profit after taxes. After tax
gains are equivalent to any year's profit in the case of annuity investments.

Divide the net investment in half to get the average investment. For this
averaging method, we assume the company is using straight-line depreciation, i.e., the
book value of the asset decreases at a consistent pace from its purchase price to zero
at the end of its depreciable life. Approximately half of a company's original
acquisition price will be recorded, on average. The depreciable cost (cost salvage
value) of the machine should only be divided by two to get the average net
investment if the equipment has salvage value. This is because the salvage money
will only be collected at the end of project life.

As a result, a sum equal to the salvage value is committed to the project for the
duration of its existence. As a result, there is no need to alter the total salvage value in
order to arrive at an average investment amount. Even if the project's first year
requires more net working capital that will be released at the conclusion of the
project's life. When calculating ARR, it is important to include all of the company's
working capital. Thus,
Average investment = Net Working Capital + Salvage Value + ½ (initial cost of
machine value).

Accept – Reject Value:

The financial maker may determine whether or not to accept or reject the investment
proposal with the aid of ARR. A predefined or minimum needed rate of return or
cutoff rate would be used as a criteria for accepting or rejecting an ARR. If the
actual ARR is greater than the anticipated ARR, a project is eligible for
consideration. Other than that, it's likely to be thrown out. As an alternative,
proposals might be ranked in decreasing order of ARR, beginning with the highest
ARR and ending with the
53
lowest. As a general rule, projects with a greater ARR would be preferable over
those with a lower ARR.

2. Pay Back Period:

The second classic approach of capital budgeting is known as the Payback method.
Capital expenditure choices may be assessed using the simplest and most generally
used quantitative technique. The question is answered using this technique. How
long would it take for the investment's cash flow to cover its initial cost, if salvage
value is ignored? CFAT's refusal to pay interest on cash benefits is an example of
this. Because of this, the payback technique is used to determine how long an
investment proposal's initial outlay will be recouped.
The payback time may be calculated in two ways. Using the first technique, you
may calculate CFAT for each year of a project's lifecycle using a consistent cash
flow stream. The original investment cost is divided by the yearly cash flow, which
is constant;
Initial Outflow of the Project
Constant Annual Cash Flow

For instance, a Rs. 40,000 investments in a machine is projected to generate Rs. 8,000
in CFAT over a ten-year period.

Rs.
40,000
PB =--------------- 5 years.

Rs. 8,000
The second option is employed when the cash flows from a project are not
consistent (mixed stream), but rather fluctuate from year to year. In this case, PB is
determined by cumulating cash flows until they match the initial investment
expenditure.

Accept Reject Criteria:It is possible to utilise the payback time as an investment

choice factor. This approach may be used to compare the actual return on
investment with a planned return, which is the return set up by management in
terms of the maximum duration during which the original investment will be returned.
It would be
54
allowed if the project's payback duration was smaller than the set payback. They
won't accept it if that's the case. As an alternative technique of ranking, the payback
may be utilised.
It is possible to rank projects that are mutually incompatible based on the duration of
the payback period. As a result, the project with the lowest return on investment
(ROI) may be given priority over the others, with the result that the project with the
highest ROI would be placed last. Shorter payback periods are obviously preferred
in project selection.

DISCOUNTED CASH FLOW/ TIME ADJESTED TECHNIQUES:

1. Net Present Value Method:
Modern investors use the net present value (NPV) to evaluate investment offers.
The time worth of money is taken into account in this technique, which seeks to
determine the return on investments. It acknowledges that today's rupee is worth
more than tomorrow's rupee. By discounting cash inflows and outflows based on
the firm's cost of capital or a predetermined rate, net present values for each year of
the project's life are calculated. Investment ideas are evaluated using the Net Present
Value (NPV) approach:

1) Determine a suitable rate of interest that should be used as the minimum

necessary rate of return, referred to as the "cut-off rate" of interest in the market and
on long- term loans, or it should represent the investor's opportunity cost of capital.
2) Calculate the present value of the whole investment expenditure, that is, cash
outflows at the discount rate chosen. If the whole investment is to be made in the
first year, the present value of the investment must be used to calculate the cost of
the investment.
3) Determine the present value of the whole investment proceeds, i.e., inflows
(profit before depreciation and after tax), using the discount rate previously
established.
4) Subtract the present value of cash inflows from the current value of cash
outflows for each project to arrive at the net present value.
5)If the net present value is positive or zero, the plan may be adopted if the present
value of cash inflows exceeds or equals the present value of cash outflows.
However,
55
if the proposal's present value of cash inflows is smaller than the present value of cash
outflows, it should be rejected.
6) To choose between mutually incompatible projects, they should be ordered
according to their net present values, with priority given to the project with the
highest net present value.
The present value of re.1 payable in any number of years may be calculated using
the mathematical method below:

NPV = Cash flow / (1 + i)t –

initial investment
In this case, i = required return or
discount rate and t = number of time
periods.
PV= 1/(1+r) n
Where,

N = number of years
R = rate of interest/ Discount
rate PV = present value

2. Internal Rate of Return:

The internal rate of return (IRR) is a second technique for evaluating capital
investment choices that uses discounted cash flow or time-adjusted cash flow.
Known as yield on investment, marginal efficiency of capital, marginal productivity
of capital, rate of return approach. The yield on investment, marginal efficiency of
capital, and marginal productivity of capital, rate of return, time-adjusted rate of
return, and so on are all examples of this approach.

In the case of the net present value method, the discount rate is the required rate

56
of return and is a predetermined rate, usually the cost of capital, so its determinants
are

57
external to the proposal under consideration, just like the present value method. The
IRR method also considers the time value of money. On the other hand, IRR is
based on facts that are unique to a certain set of recommendations. So, while
determining an appropriate rate of return for estimating current values, neither the
incoming nor the pending funds is taken into account. Nevertheless, the IRR is solely
dependent on the original investment and the cash revenues from the projects, which
are examined for approval or rejection before they are accepted. The term "internal
rate of return" is a more fitting name for it.

Return on investment (ROI) is often measured by the internal rate of return

(IRR). It's the discount rate (r) that compares the total present value of Net cash
inflows (CFAT) with the total present value of project cash outflows. Therefore,
that rate is what determines whether or not a project has a negative Net Present
Value.

Accept Reject Criteria:

The IRR is used as a criterion for approving capital investment choices. It is
calculated by comparing the actual IRR to the desired rate of return and then to the
cut-off or hurdle rate.
If the IRR (r) exceeds the cut-off rate, the project qualifies for acceptance.
(k). If the IRR and necessary rate of return are equal, the business has a choice
between accepting and rejecting the project.

58
3. Net Terminal Method:
The terminal value method (TV) even distinguishes between the time of cash
inflows and outflows, and this is significant. The TV strategy is predicated on the
idea that each cash inflow is re-invested in another asset at a fixed rate of return
from the time it is received until the project is completed.

Accept – Reject Criteria:

It is decided that if the present value of the sum total of compounded reinvested
cash inflows (PVTS) is larger than the present value of the outflows (PVO), the
proposed project is approved; otherwise, it is not accepted.
PVTS>PVO accept
PVTS<PVO reject.
If both valuations are equal, the company is indifferent. The net terminal value
approach is a variant of the terminal value method (TV) (NTV). NTV may be
expressed symbolically as (PVTS – PVO). Accept the project if the NTV is positive;
reject the proposal if the NTV is negative.

4. Profitability Index:
Profitability Index (P1) or Benefit Cost Ratio (B / C) are two methods for time-
adjusted capital planning. It is comparable to the NPV technique. The profitability
index technique calculates the present value of returns per rupee invested, while the
net present value approach calculates the difference between the present value of
future cash inflows and outflows. A significant weakness of the NPV technique is
that, as an absolute metric, it is insufficient for evaluating projects requiring varying
starting investments. The PI technique demonstrates that this kind of issue has a
solution. In other words, it is a relative metric. It is a ratio that is calculated by
dividing the present value of future cash inflows by the present value of current cash
inflows.

Present value of cash inflows Present

PI =
value of cash outflows
This approach is sometimes referred to as the B / C ratio, since the numerator
represents benefits and the denominator represents costs.

59
Accept Reject Criteria:
When using the B / C ratio or the PI, a project will qualify for admission if its PI is
more than one, according to the formula. When PI is equal to 1 (one), the company
has no interest in the project at all.
PI is defined as the ratio of one (one) to the sum of two (two) numbers. When PI is
more than, equal to, or less than one (one), the net present value is greater than,
equal to, or less than zero, respectively. Therefore, the NPV is positive when the PI
is more than one (one), and negative when the PI is less than one (zero). As a
consequence, when it comes to investment ideas, both the NPV and the PI
approaches provide the same outcomes.

Methods of Capital Budgeting

(1) Traditional methods:

Average rate return method
Pay back period

(2) Discount cash flow method

 Profitability index method
Initialratereturnmethod
Net present value method

Data collection:

Primary data: - The key data is that which is gathered via direct interviews with
the CEOs of the businesses in question. This is the information obtained directly from
the organisation.
Secondary data: - Secondary data is information gleaned from periodicals and
websites.

CAPITAL BUDGETING:

A capital expenditure is a monetary spend for a project that is projected to generate

cash inflows for a period longer than a year. Investments in property, plant, and
equipment, research and development, significant advertising campaigns, and any

60
other project that demands a capital outlay and creates future cash flow are all
examples of projects.

Because capital expenditures may be very big and have a considerable influence on
a business's financial success, careful project selection is critical. This is referred to
as capital budgeting.

KINDS OF CB DECISIONS:
There are three sorts of capital budgeting choices that a company may face: capital
budgeting decisions based on the generation, evaluation, selection, and follow-up of
capital expenditure options.

Accept reject decisions:

Decisions on capital expenditures are crucial to the process. If the proposal is
approved, the company invests; if the proposal is refused, the company does not
invest. Generally speaking, only those ideas that produce a higher rate of return or
cost of capital are accepted, while the remainder are discarded. All independent
initiatives were recognised under this criterion. An independent project is one in
which no other initiatives directly or indirectly compete for the attention of the
public's attention. The minimum investment requirement must be met for the
complete independent project to be executed under the accept-reject decision.

Mutually exclusive project decision:

There are initiatives that compete with one other in a manner that acceptance of one
excludes acceptance of other projects, mutually exclusive projects. Only one of the
options is open to consideration since they are mutually exclusive.

Capital Rationing Decision:

Capital rationing occurs when a company has more investment ideas than it can afford
to fund. It may be described as a circumstance in which the total amount of money
invested over a certain time period is restricted. Due to the budgetary restrictions,
the company is forced to choose a mix of investment plans that yields the greatest
net present value. In order to choose or reject the initiatives for this purpose, the
following actions must be taken:

61
 1) Projects are ranked according to their profitability index (PI) or
initial rate of return (IRR)(IRR).
2) Rejects are chosen based on their profitability within budget
constraints, while keeping in mind the purpose of maximising
business value.

NATURE OF INVESTMENT DECISSIONS:-

Capital expenditure choices, or capital budgeting decisions, are sometimes referred to
as the investment decisions of a company. A company's choice to spend its present
finances most effectively in long-term assets in anticipation of a projected flow of
benefits over a number of years may be regarded as a capital budgeting decision. A
company's long-term assets are those that have an impact on the company'soperations
for more than a year at a time. Expansion, acquisition, modernisation, and
replacement of long-term assets are all possible investment options for the company.
Investment decisions may also include the sale of a company's divisions or assets
(divestment). Changes in distribution systems, advertising campaigns, and R&D
programmes all have long-term effects on a company's costs and benefits, and as
such, they should be considered as long-term investments. Investing in long-term
assets requires a significant amount of money to be locked up in current assets like
inventory and receivables. This means that both fixed and current asset investments
are one and the same.

Features of Investment Decisions:-

The characteristics of investment choices are as follows:

 The transfer of present assets in return for future advantages.

 Investments are made in long-term assets.
 The future advantages will accrue to the business over time.

Importance of Investment Decisions:-

Investment decisions require special attention because of the following reasons.

 They have a long-term effect on the firm's development

 They have an effect on the firm'srisk
 They need big financialcommitment

62
  They are irreversible, or are reversible only at significant loss
 They are among the most difficult choices to make.

Growth:
The long-term ramifications of investment choices outweigh the short-term ones of
day-to-day running expenses. The pace and direction of a company's growth are
directly impacted by its choice to invest in long-term assets. The consequences of a
bad choice might be catastrophic for the long-term viability of the company;
unneeded or unproductive asset growth can lead to hefty operational expenditures.
But if the company doesn't put enough money into assets, it would struggle to finish
projects and keep its market dominance.

Risk:
The risk complexity of a company may also be affected by a long-term commitment
of finances. The business will become more risky if it adopts an investment that
boosts average gain but produces frequent volatility in its profitability. As a result, the
fundamental character of a company is shaped by investment choices.

Funding:
It is vital for a company to plan its investment programmes meticulously and make
ahead preparations for obtaining funds either internally or externally, since investment
choices often entail considerable sums of money.

Irreversibility:
There are few investing choices that can be reversed after they are made. Once
you've bought these big-ticket products, finding a buyer might be a real challenge.
If these assets are disposed of, the company will suffer significant losses.

Complexity:
One of the most difficult choices a company has to make is which investments to
make. Rather, they represent an educated guess about what may or may not transpire

63
in the future. The issue at hand is quite complicated. Uncertainty in cash flow
forecasts is caused by economic, political, social, and technical factors.

TYPES OF INVESTEMENT DECISIONS:

There are many ways to classify investments. One classification is as follows:

 Expansion of existing business

 Expansion of new business
 Replacement and modernization.

Expansion and Diversification:

A corporation may increase its current operations by increasing the capacity of its
present product lines. When it comes to urea production, the Gujarat State Fertilizer
Company (GSFC) is considering expanding its plant capacity. As an illustration of
linked diversification, let's have a look at this. A company may start a new line of
work. A new company's growth necessitates the purchase of new items and the
implementation of new manufacturing processes inside the business itself. An
investment in ball bearing production equipment by a package manufacturing
company might be seen as an extension of the company's core business or as a
completely separate diversification attempt. To increase its market share, a business
may make acquisitions of other businesses. Regardless of the outcome, the company
invests in the hope of bringing in more money. Revenue-expansion investments may
also be referred to as investments in current or new goods.

Replacement and Modernization:

Increasing performance and decreasing costs are the primary reasons for updating
and replacing equipment. Profits will rise as a result of the lower costs, but sales
may stay the same. As technology advances, assets become antiquated and no longer
useful. The company must determine whether or not to replace these assets with
newer, more efficient ones.
Changing from semi-automatic to automated drying equipment in a cement plant is
an example of both modernisation and replacement.

64
Replacement choices are also known as cost-cutting investments since they allow
for the introduction of more efficient and cost-effective assets. In contrast,
replacement options that include significant modernization and technology
advancements may both increase revenues and cut expenses.

Yet another useful way to classify investments is as follows:

 Independent investments
 Contingent investments
 Mutually exclusive investments

Mutually Exclusive Investments:

Investments that are mutually exclusive serve the same aim and compete
with one another. If one investment is made, others must be avoided. For
example, a business may choose to produce using a more labor-intensive,
semi-automatic machine or a more capital-intensive, fully automated
equipment. Acceptance of the highly automated machine is impossible if
the semi-automatic machine is chosen.

Independent Investments:
Independent investments have distinct objectives and are not in competition with
one another. For instance, a heavy engineering business may be contemplating
expanding its plant capacity to make extra excavators and establishing new
manufacturing facilities to produce a new product - light commercial vehicles. The
corporation may make either investment, depending on its profitability and available
finances.

Investments on a Contingent Basis:

Contingent investments are undertakings that are reliant on one another; choosing
one investment entails the implementation of one or more further investments. For
instance, if a business chooses to locate a plant in a rural, backward location, it may
need to spend in housing, roads, hospitals, and schools in order to recruit personnel.

65
Thus, the construction of a plant necessitates expenditures in employee amenities. The
aggregate spending will be considered a single investment.

Investment Evolution Criteria:

Three steps are involved in the evaluation of an investment:
 Cash flow forecasting
 Estimation of the needed rate of return (the opportunitycost ofcapital)
 Use of a decision rule in making the decision.

The first two phases, which are described in the following chapters, are presumed to
be in place. To keep things simple in this chapter, we are just going to talk about
step three. Here, we examine the advantages and disadvantages of a variety of
different decision rules.

Investment decision rule:

Capital budgeting strategies or investment criteria are other names for the
investment criterion. When evaluating an investment's economic value, a reliable
appraisal method must be used. A smart strategy should aim to maximise the wealth
of the company's shareholders. These additional properties of an effective
investment assessment criterion should be present as well: n.
• It should take into account all cash flows in order to establish the project's
genuine profitability.
• It should provide a method for categorising excellent and poor initiatives
objectively and unambiguously.
• It should assist in rating projects based on their genuine profitability.
• It should know that larger cash flows are preferable to smaller ones, and
that early cash flows are better to delayed cash flows.
• it should be a criteria that is independent of others and applicable to every
imaginable investment project.

66
Evaluation criteria:
In practise, a variety of investment criteria (or capital budgeting strategies) are used.
They may be classified into two types.
1. Discounted cash flow criteria
 Profitability index(PI)
 Internal rate return(IRR)
 Net present value(NPV)

2. Non discounted cash flowcriteria

 Accounting rate of return(ARR)
 Discounted payback period
 Payback period(PB)

Net Present Value:

Net investment is subtracted from discounted net cash flows in order to arrive at the
project's Net Present Value. The Net Present Value (NPV) is the resulting number
(NPV). For a corporation with a positive net present value, embracing this project
would increase its worth. It's up to the firm to decide whether they want to do that.
Even if the net present value of a project is merely $1, if they chose all projects that
add value to the organisation, they would choose all projects with positive net
present values. However, if they have a restricted budget, they will prioritise
projects based on their NPVs.

The company's cost of capital is the most often employed discount rate.

To calculate net present value (NPV) or net worth (NPW), a time series of cash
flows is multiplied by its total present value (PV). Time value of money is a basic
approach for valuing long-term investments. In the context of capital planning, it
assesses the surplus or deficit of cash flows in current value terms after financing
costs have been fulfilled.

One of the most important factors in this equation is the discount rate, which
determines how much future cash flows will be worth today. In many cases, the
weighted average cost of capital (after tax) is employed, however many individuals

67
think that it is reasonable to use higher discount rates to accommodate for risky
projects or other considerations. To represent the long-term debt yield curve premium,
a variable discount rate with higher rates applied to cash flows happening farther
down the time range could be utilised.

Internal Rate of Return:

Firms utilise the internal rate of return (IRR) to determine whether or not they
should invest. "Rate of return" is also known as "discounted cash flow return"
(DCFROR) (ROR).

It is an indication of the investment's efficiency or quality, rather than its worth or

size, unlike Net present value (NPV).

An investment's IRR is the yearly effective compounded return rate that can be
realised on the invested money, which is to say, the yield on investment. To put it
another way, the discount rate used to arrive at a net present value of zero for an
investment's income stream is known as the internal rate of return.

IRR may also be defined as the interest rate obtained on an investment that includes
periodic payments and income.

If the IRR of a project is higher than the rate of return that might be generated by
comparable investments of equivalent risk, it is a solid investment opportunity
(investing in other projects, buying bonds, even putting the money in a bank
account). A proper risk premium is needed, thus the IRR should be compared with
any alternative capital costs that include that risk premium.

Projects with higher returns than their cost of capital, or "thru rate," are more likely
to provide value to a business.

As a financial term, the effective interest rate (IIR) is often referred to as the IRR
for short.

NPV (growth in shareholders' wealth) is more important than IRR (expectation return)
in circumstances when one project has a bigger starting investment than another
mutually incompatible one (assuming no capital constraints).

68
The IRR presupposes that positive cash flow from the project will be reinvested at
the same IRR. Using an IRR that overstates returns when cash flows cannot be
recycled back into the project is an error. For projects with just one positive cash
flow at the conclusion of the project term, IRR is the ideal tool for calculating the
project's IRR.

Profitability index:

The benefit-cost (B/C) ratio or profitability index is yet another time-adjusted way
of analysing investment proposals. Return on investment (ROI) is calculated as the
current value of cash inflows divided by the investment's original cost.

Evaluation of PI method:
As with NPV and IRR rules, PI is a theoretically solid way for generating potential
investments. You need to do the same calculations as with the NPV approach.

 Amount of time It takes into account the temporal worth ofmoney.

 Value maximisation is compatible with the notion of shareholder value
maximisation. A project with a PI larger than one will have a positive
net present value and, if adopted, will enhance the wealth of the
shareholders.
 Relative profitability is a measure of a project's profitability in the PI
method because the present value of cash inflows is divided by the
beginning cash outflow.

As with the NPV technique, the PI criteria necessitates the computation of cash
flows and the estimation of the discount rate.

Payback period:
Payback time is a frequently used and well-known conventional way of assessing
investment proposals. The payback period is the amount of years necessary to
recoup the initial investment in a project. If the project provides consistent yearly
cash flows, the payback time may be calculated by dividing the capital expenditure
by the annual cash flow.

69
Evolution of payback:
The payback time is a common metric for evaluating investments and a way to rate
initiatives at many companies. They measure the project's return on investment to a
known benchmark. If the payback term is smaller than the maximum or standard
payback period specified by management as a ranking technique, the would be
allowed. The project with the shortest payback term receives the best score, while
the project with the longest repayment period receives the lowest ranking. There are
two projects with equal payback periods, however one will be chosen if there is no
other option.

Payback period evolution;

In actuality, payback is a common investment criteria. It is said to possess certain
properties.
Simplicity: A fundamental advantage of payback is its simplicity of understanding
and calculation. The simplicity of the process is seen as a virtue by company
leaders. This is shown by their substantial dependence on it when it comes to
evaluating investment offers in practise.
Economical:
Payback is less expensive than the majority of complex procedures that demand a
significant amount of analyst time and computer utilisation.
Short-term:
By establishing a shorter standard payback time, a corporation may have more
positive short-run impacts on profits per share. It should be noted, however, that this
may not be a prudent long-term strategy, since the firm may be forced to forego future
development in order to maintain present profitability.
Payback places a premium on early return of the investment. As a result, it provides
insight into the project's liquidity. The monies so freed up may be used for other
purposes.
Despite its seeming simplicity and benefits, payback may not be a viable
investment criteria due to a number of major constraints.
Risk mitigation: The risk associated with the project may be mitigated by
establishing a shorter conventional payback time. As it may be covered by a
guaranteed promise against damage. A business must invest in a variety of initiatives

70
with extremely variable cash flows and life expectancies. Payback may become
significant in these situations, not as a metric of profitability, but as a method of
defining an upper limit on the tolerable degree of risk.
Payback period with a discount:
One significant criticism levelled at the repayment technique is that it does not
discount the cash flows used to determine the payback time. We may discount future
cash flows and then determine the payback period. The number represents the
discounted payback time. The time required to recoup the investment expenditure in
current value terms. The discounted payback term, however, does not take into
account the cash flows that occur after the payback period.
Return on investment in accounting:
The accounting rate of return (ARR), often known as the return on investment
(ROI), is a financial term that refers to the profitability of an investment based on
accounting information given by financial statements. The accounting rate of return
is calculated as the difference between the average after-tax profit and the average
investment. The typical investment would be worth less than half of its initial value
if it was perpetually depreciated. Alternatively, it may be determined by dividing the
total by the life of the investment's book value after depreciation.
ANALYSIS OF THE ARR METHOD
The ARR approach does have several advantages:
Simplicity The ARR approach is straightforward to comprehend and use. It does not
need complex calculations.
Accounting Information:
Unlike the NPV and IRR approaches, the ARR may be easily estimated from
accounting data; no changes are necessary to get at the project's cash flows.
Accounting Profitability: \sThe ARR rule incorporates the entire stream of income
in calculating the project’s profitability.
The ARR is a technique that accountants are familiar with and that is regularly used
as a performance metric. However, as a choice criteria, it has significant
shortcomings.
Expenses Ignored:
The ARR technique appraises projects based on accounting profitability rather than
cash flows. Accounting profits are determined arbitrarily and include non-cash things.

71
As a result, it is reasonable to rely on them while determining the acceptability of
investment initiatives.
The duration of time Ignored:
The average income calculation makes no allowance for the time worth of money.
Indeed, this technique accords greater weight to remote revenues.
Arbitrary Cut-off: The business that applies the ARR regulation does so using an
arbitrary cut-off. In general, the yardstick is the present rate of return on the firm's
assets (book -value). As a result, growing firms generating very high rates on their
current assets may propose lucrative ventures, while less profitable companies may
accept less profitable ones.
CLASSIFICATION OF THE PROJECT:
Because project categorization requires time and effort, the expenditures must be
justified by the benefits derived from it. Certain projects, due to their complexity
and size, may need a thorough study; others may require a more cursory
examination. As a result, businesses often categorise their initiatives. Each category is
then studied in a slightly different manner.

While the categorization method used by each business may differ, the following
categories are common in cost classification.
Mandatory investments are those that are necessary to meet legislative obligations.
Examples of such expenditures include pollution control equipment, a medical
clinic, fire suppression equipment, and a crèche on-site at a plant. These are often
non-profit investments. When examining such investments, the primary objective is to
determine the most cost-effective solution to meet a specific regulatory requirement.
Firms often spend in equipment replacement projects to replace outmoded and
inefficient equipment, even if it is still usable. Such expenditures are intended to
minimise costs (of labour, raw materials, and electricity), enhance output, and
improve quality. Replacement projects may be assessed quite simply, while the
analysis may be extremely extensive at times.

Expansion projects: These investments aim to improve capacity and/or the network's
reach. Such expenditures often need a more thorough review than replacement
initiatives. Top management makes decisions on such initiatives.

72
Diversification projects: These investments are made with the intention of
developing new goods or services or expanding into completely new geographic
regions. Diversification initiatives can involve significant risks, demand significant
capital expenditures, and need significant administrative work and attention. Given
their strategic significance, these initiatives need an exhaustive examination, both
quantitative and qualitative. Additionally, they need an active role for the board of
directors.

Proposals for research and development:

Historically, R&D initiatives accounted only a negligible fraction of most Indian
enterprises' capital budgets. However, times are changing. Companies are increasingly
investing funding to research and development initiatives, particularly in
knowledge- intensive sectors. Numerous uncertainties define research and development
initiatives, which often require sequential decision making.
As a result, the typical DCF analysis does not apply to them. These kinds of
initiatives are chosen based on management judgement. Firms that depend more
heavily on quantitative approaches analyses R&D projects using decision tree
analysis and option analysis.

This is a catch-all category that encompasses interior decorating, leisure amenities,

executive planes, and manicured gardens, among other things. There is no
conventional method for appraising these initiatives, and judgments about them are
made primarily on senior management's personal preferences.

73
 CHAPTER IV

DATA ANALYSIS
&
INTERPRETATION

74
 DATA ANALYSES AND INTERPRETATION
FINACIAL ANALYSIS
ANALYSIS OF INDIA

Share
Capital Long
Total Total Fixed Net holder
Years Employ term
sales assets assets Profit s’
ed funds
Funds
2016-2017 4750.62 4666.45 2461.86 237.34 3232.23 1,49,415 45.45
2017-2018 5397.88 5299.52 3041.39 -210.21 4145.56 1,66,719 45.45
2018-2019 5918.20 5020.35 2126.86 -379.74 2812.99 2,14,254 45.45
2019-2020 5710.82 4985.43 2729.15 -329.23 2965.51 2,35,458 45.45
2020-2021 5080.91 4514.67 2306.59 -515.55 2796.97 3,66,184 109.77

PAY BACK PERIOD METHOD:

Capital budgeting decisions are traditionally assessed using the payback period
technique, which is a more conventional approach. the time during which the project
will repay its original investment or cash out flows is known as "payback" or "payout"
or "payoff," respectively.
The cumulative cash flows will be estimated to determine the pay period, and the
precise period may then be determined via the use of interpolation.

The initial investment of Rs. 2041.63 crore and the yearly cash flows from 2018 to
2019 for INDIA Cements Limited are both positive. Following this formula, the
payback period is determined:

75
CALCULATION OF PAY BACK PERIOD OF INDIACEMENTS
LIMITED

(Rs. In crorers)
SI .NO YEAR CASH INFLOW CUMULATIVE
CASH FLOWWS

1 2016-2017 8014.59 8014.59

2 2017-2018 7188.91 15203.5
3 2018-2019 6959.35 22162.85
4 2019-2020 6254.32 28417.17
5 2020-2021 5857.72 34274.89

The above table shows that, the initial investment RS.12547.56 Cr… lies between
second yearwith 15203.50 Cr

Difference in cash flows

PBP = Actual (Base) year + ----------------------------------
Next year cash flows

7188.91
PBP = 1 + -------------
15203.50

= 1 + 0.47

= 1.47 year

Payback period (PBP) = 1.47 year.

ACCEPT-REJECT CRITERION:

Accepting or rejecting an investment proposal is possible based on the PBP

criteria. Proposals that have a payback time that exceeds management's
expectations
A decision to invest in INDIA cements limited is supported by PBP, which shows
management that the original investment would be returned in 1.47 years.
76
II. ACCOUNTING OR AVERAGE RATE OF RETURN METHOD:
It's a tried-and-true approach to evaluating capital budgets. Capital investment ideas
are ranked according to their relative profitability in this process. Capital employed
and associated earnings are estimated based on established accounting methods for a
given period of time, and an average yield is calculated. The accounting rate of
return (also known as the average return, or ARR) is a measure of this kind of
return.
To compute it, you may use any one of the techniques below:

(i) Annual average net earnings

X100
Original Investment

(ii) Annual average net earnings

X100
Average investment

(iii) Increase in expected future annual net earnings

X100
Initial increase in required investment

Depreciation and taxes are taken into account when calculating average yearly net
profits. Project orders with an ARR that is higher than the acceptable rate might be
accepted over time.
Any of the approaches listed below may be used to estimate the typical investment
amount:

(a) Original investment

2
(b) Original investment +scrap value
2

(c) Original investment +scrap value + net additional + scrap value

Workingcapital
2

77
Cash flows of the INDIA cements Limited are shown in cash flow statement.
ARR is calculated as follows:

Statement showing calculation of ARR

(Rs. In Cr….)
YEARS EARNINGS AFTER TAX (EAT)

2016-2017 8014.59

2017-2018 7188.91

2018-2019 6959.35

2019-2020 6254.32

2020-2021 5857.72

TOTAL 34274.89

Average annual EAT’S

ARR = X100
Average Investment

Total amount
Average Annual EAT’S = ---------------------
No of years

34274.89
= ------------------ =
6854.97 5

Average investment =6854.97

6854.97
ARR = ---------------- X 100 = 58.51
% 5857.72

Average Rate of Return = 58.51 %

78
A minimum rate of return may be set using the ACCEPT-REJECT critters
technique. Any project that is predicted to bring in less than this amount of money
will be immediately thrown out. INDIA cements Limited's average rate of return is
58.51%, which illustrates the potential for managerial efficiency.

CASH FLOW METHODS THAT ARE TIME ADJUSTED OR DISCOUNTED

Profitability is taken into consideration by discounting or time-adjusting the cash

flow. Methods such as this are referred to as "modern" capital budgeting.

It is one of the discounting cash flow methodologies known as the NPV, or net
present value approach. This approach is widely regarded as one of the finest ways
to assess potential investments in capital. The cash inflows and expenditures linked
with each project are first figured out in this approach.

This is the role of the discounting factor, which is 10% for the Regulated display
tool kit project of INDIA cements limited and used to convert cash flows to current
values.
Return on investment (ROI) may be defined as a "cut-off point" or "necessary return,"
which is based on the project's risk and the cost of capital.

NEXT STEPS FOR NPV CALCULATION:

Depreciation, interest, and taxes are subtracted from the pre-tax and pre-interest
earnings to arrive at the three-year cash flow (EBIT). To get at cash flow after tax,
this residual is profit after tax.
Assuming an 8% actuarial discount rate, this after-tax cash flow is multiplied by the
numbers derived from Table (the present value annuity table).
A company's net present value (NPV) may be computed by subtracting the original
investment from the total present value.
The capital expenditure table shows the three-year cash flow total of the initial
investments.

79
 Let us assume the discount rate be 10%:

YEARS CFAT’S PVIF @ 10% PV’S

2016-2017 8014.59 0.909

7285.26231

2017-2018 7188.91 0.826

5938.03966

2018-2019 6959.35 0.751

5226.47185

2019-2020 6254.32 0.683

4271.70056

2020-2021 5857.72 0.620

3631.7864
TOTAL: 26353.26078

LESS: Initial Investment: 12547.56

NPV: 16495.61

ACCEPT-REJECT CRITERION:

NPV's accept-reject decision is rather straightforward. If the net present value is

positive, the project should be approved; if the net present value is negative,
the project should be refused.
i.e .If NPV >0 (ACCEPT)
and NPV < 0 (REJECT)
Hence in the case of INDIA cements Limited project it is visible that the positive
NPV shows the acceptance and importance of the project.

80
INTERNAL RATE OF RETURN METHOD: (IRR)
Internal rate of return is also a contemporary capital planning methodology that
takes the time worth of money into account. It is also referred to as “TIME
ADGUSTED RATE OF RETURN”, “DISCOUNTED CASH FLOW”,
“DISCOUNTED RATE OF RETURN”, “YIELD METHOD” and “TRAIL AND
ERROR YIELD METHOD”.

The rate at which the total of discounted cash inflows equals the sum of discounted
cash outflows is called the internal rate of return. It is equivalent to the difference
between the present value of cash inflows and outflows. The discount rate is
unknown in this strategy, but the cash inflows and outflows are known. It is the rate
of return that equalises the present value of cash inflows and outflows or that
reduces NPV TO ZERO.
STEPS INVOLVED IN THE CALCULATION OF IRR:
1) Calculation of net present value using a specified discount rate
2) Calculation of net present value using an expected discount rate
3) Choose the one with the greater net present value.
4) Assume R is the greater discount rate.
5) Assume that R1 is the difference between discount rates.
6) Calculation of the difference between P and Vs (Always higher NPV-
lower NPV)
Higher NP
IRR= XRI
Difference of P V s.

8) Decision making(Accepting- Rejecting the proposal)

81
FORMULATION OF STEPS:

STATEMENT OF SHOWING CALCULATION NPV @88%,89%,90% UNDER

IRR METHOD
(R s corers)

YEARS Annual Discount Discount Discount

CFA Rate-88% Rate-89% Rate-90%
Ts PVF PV PVF PV PVF PV

2016-2017 8014.59 0.531 4255.74729 0.529 4239.7181 0.526 4215.6743

2017-2018 7188.91 0.2921 2099.88061 0.2799 2016.1759 0.277 1991.3281

2018-2019 6959.35 0.1579 1098.88137 0.1481 1030.6797 0.145 1009.1058

2019-2020 6254.32 0.0858 536.620656 0.0783 489.71326 0.076 475.32832

2020-2021 5857.72 0.0461 270.040892 0.0414 242.50961 0.04 234.3088

8261.17081 8014.7966 7925.7453

From the above calculations the following can be observed.

PV 0f net cash flows at 88% is:

8261.173cr PV 0f net cash flows at 89%
is: 8014.79cr

DECISION:
Since the initial investment RS.12547.56cr is lies between 88% and 89% the company
APTDC can determine the IRR as 83.65%

Hence IRR=83.65%

ACCEPT-REJECT CRITERION:

IRR is the highest rate of interest that an organisation can afford to pay on invested
money. IRR is approved if it exceeds the cutoff rate and is rejected if it is less than
the cutoff rate.
The cutoff rate for INDIA Limited is 10%, which is less than the IRR of 83.56
percent, indicating that management made an excellent investment selection in
accepting INDIA Limited.

82
3. PROFITABILITY INDEX: (BCR OR PI)

Profitability index analysis is sometimes referred to as time-adjusted analysis of

investment ideas. Profitability, also known as benefit cost ratio (BCR), is the
connection between the present value of cash inflows and outflows. Thus
Present value of cash inflows
Profitability index = ---------------------------------------
Present value of cash outflows.

(OR)

Present value of cash inflows

Profitability index=
Initial cash outlay

CALCULATIONS OF BCR:

STEP1: Calculations of cash flows after taxes

STEP2: Calculations of Present values of cash inflows @10%.
STEP3: Application of the formula.
Statement for calculating of benefit cost ratio

YEARS CFAT’S PVIF @ PV’S

10%

2016-2017 8014.59 0.909

7285.26231
2017-2018 7188.91 0.826
5938.03966
2018-2019 6959.35 0.751
5226.47185
2019-2020 6254.32 0.683
4271.70056
2020-2021 5857.72 0.62
3631.7864
TOTAL: 26353.2608

Present value of cash inflows

Profitability index =
Initial Investment

83
 26353.2608
= -=2.10
12547.56

Hence PI = 2.10years.

ACCEPT-REJECT CRITERION:

There is a subtle distinction between the present value and profitability index
methods. The profitability index approach uses the present value of cash inflows
and outflows to determine whether to approve or reject a transaction.

I.e. the accept reject criterion is:

If Profitability Index > 1 (ACCEPT).

Profitability Index < 1 (REJECT).

The acceptance of by the management is evaluated through Profitability Index method

of as the PI > 1 (i.e.2.10 years)

84
CHAPTER V

FINDINGS

SUGGESTIONS
&
CONCLUSION

85
 FINDINGS

 The amount of total investment in assets has decreased significantly from

4985.43cr to Rs. 4514.67 cr.

 The amount of sales has increased from 5080.91 Cr to 5710.82Cr (2018-

2019) this increase helped the organization to improve its business turn
over in different sectors.

 The INDIA cements limited's average rate of return is 58.56 percent.

 During the same period profit before tax has decreased from Rs.-480 Cr to
Rs.-377.19 Cr.

 The ratio of fixed assets to long-term borrowings has not been showing
any consistent trend. It has varied from -0.58 times to 0.83(2016-2017).

 The initial ratio’s of the investment are decreased from 127090 Cr to -

235458 cr (2017-2018) constantly increased period of 5 years.

86
 SUGGESTIONS

 Budgeting for capital expenditures is critical because of the significant

financial stakes involved.

 If you make a long-term investment, you can't go back and get your

money without suffering a significant loss.. It has a long-term impact on

the company's operations

 Capital budgeting is necessitated by the need of a well- balanced capital

investment portfolio in order to get the best possible returnoninvestmen.

 The return on the capital is likely to be used as a metric for

determining the profitability of an investment

 Since the time component is involved, capital budgetingchoices

are more vulnerable to risk and uncertainty than short-term ones,
and the long-term effects are greater yet.

 Mistakes cannot be easily repaired after an investment has beensunk,

thus they must be endured until depreciation costs or liquidation
allow the company to be removed.

87
 CONCLUSION

Annual planning and long-term planning are part of the budgeting process at
INDIA, as well as the long-term plan for internal resources and debt servicing
translated into the company's overall corporate strategy. Investment in plant
improvement and refurbishment, balancing equipment, capital additions and
commissioning costs for trial runs producing units are all included in the capital
budgeting scope of work. So that government spending decisions may be based on a
solid understanding of the relationship between physical progress and monitoring
expenditures. Calculating NPV at an appropriate cost of capital/discount rate is
recommended by the handbook. It's not a good idea to use the same discount rate
across all of your capacity budgeting initiatives.
The examination of key facts and quantifications of expected outcomes and
advantages, as well as any risk considerations, must be clearly presented.
Incorporating the Search Committee's method to appoint at least three non-official
directors should revamp the boards of these PSUs. The project's feasibility assessment
is based on cost estimations and generation costs.

88
 CHAPTER VI
BIBLIOGRAPHY

89
 BIBLIOGRAPHY

Books:
 -Financial Management - Prasanna Chandra
 -Management Accounting - R.K.Sharma& Shashi K.Gupta
 -Management Accounting -S.N.Maheshwary
 -Financial Management -Khan and Jain
 -Research Methodology -K.R.Kothari

Internet Sites:
 http\\:www.Kesoram.co.in
 http\\:www.googlefinance.com

Magazines:
 New York Times
 Business Week
 TheEconomist

90
91