CAPITAL BUDGETING

CHAPTER-I
 INTRODUCTION
 INDUSTRY PROFILE
 COMPANY PROFILE
 PRODUCT PROFILE

Sree vidyanikethan institute of management page 1

 1.1 INTRODUCTION

The term Capital Budgeting refers to long term planning for proposed capital
outlay and their financing. It includes raising long-term funds and their utilization.
It may be defined as a firm’s formal process of acquisition and investment of capital.
Capital Budgeting May also be defined as “The decision making process by
which a firm evaluates the purchase of major fixed assets. It involves firm’s decision to
invest its current funds for addition, disposition, modification and replacement of fixed
assets.
It deals exclusively with investment proposals, which an essentially long term
projects and is concerned with the allocation of firm’s scarce financial resources among
the available market opportunities.
Some of the examples of Capital Expenditure are
(i) Cost of acquisition of permanent assets as land and buildings.
(ii) Cost of addition, expansion, improvement or alteration in the fixed assets.
1. In any growing concern, capital budgeting is more or less a continuous process
and it is carried out by different functional areas of management such as
production, marketing, engineering, financial management etc.
2. All the relevant functional departments play a crucial role in the capital
budgeting decision process of any organization, yet for the time being, only the
financial aspects of capital budgeting decision are considered.
The role of a finance manager in the capital budgeting basically lies in the
process of critically and in-depth analysis and evaluation of various alternative
proposals and then to select one out of these. As already stated, the basic objectives of
financial management is to maximize the wealth of the share holders, therefore the
objectives of capital budgeting is to select those long term investment projects that are
expected to make maximum contribution to the wealth of the shareholders in the long
run.
NEED AND IMPORTANCE OF CAPITALBUDGETING
The importance of capital budgeting can be understood from the fact that an
unsound investment decision may prove to be fatal to the very existence of the
organization.
The importance of capital budgeting arises mainly due to the following:

1. Large investment
Capital budgeting decision, generally involves large investment of
found. But the funds available with the firm are the demand for fund for
exceeds resources. Hence, it is very important for a firm to plan and control
capital expenditure.

2. Long term Commitment of Funds

Capital expenditure involves not only large amount of funds for long-term or a
permanent basis. The long –term commitment of funds increase the financial risk
involved in the investment decision.
3. Irreversible Nature

The capital expenditure decisions are of irreversible nature. Once, the

decision for acquiring a permanent asset is take, it becomes very difficult to impose of
these assets without incurring heavy losses.
4. Long term effect on profitability
Capital budgeting decisions has a long term and significant effect
on the profitability of a concern. Not only the present earning of the present
earning of the are affected by the investment in capital assets but also the future
growth and profitability of the firm depends up to the investment decision taken
today. Capital budgeting decision has importance to avoid over or under investment
in fixed assets.

5. Difference of Investment Decision

The long–term investment decision are difficult to be taken because UN
certainties of future and higher degree of risk.
 Investment decision tough taken by individual concern is of national
importance because it determines employment, economic activities and economic
growth.
FEATURES OF CAPITAL BUDGETING
Capital budgeting the following are the features.
1. The exchange of current funds for future benefits.
2. The funds are invested in long –term assets.
3. The future benefits will occur to the firm over a series of years.

METHODS OF CAPITAL BUDGETING

The capital budgeting appraisal methods or techniques of evaluation of
investment pr
Opposes will help the company to decide upon the desirability of an investment
proposals depending upon their relative income generating capacity and rank them in
proposal depending upon their desirability. These methods provide the company a set
of norms on the basis of which, either it has to accept or reject the investment proposal.
Therefore, a sound appraisal method should enable the company to measure the real
worth if the investment proposal.
All capital budgeting techniques divided in to two types
1. Traditional (or) non discounted cash flow techniques
A. Payback period method (P.B.P)
B. Accounting rate of return method (or) average rate of return method (A.R.R)
2. Modern (or) time adjusted (or) discount cash flow technique
A. Net present value method (N.P.V)
B. Internal rate of return method (L.R.R)
Merits of the method
1. Easy to understand
2. Easy to calculate
3. It can be readily computed with help of the available accounting data
4. It uses the entire stream of earnings to calculate the ARR
5. It is better method when we compare with payback period method because
Here the entire cash inflow values generated by the project were considered.
Demerits of method
1. Time value money is not considered
2. It is not based on cash flow generated by a project,
3Iit does not take into account the fact that the profits can be reinvested.
4. It ignores the time value of money.
[Link] method does not consider the objective of wealth maximization.

1. Modern [or] discounted cash flow method

The discounted cash flow method provide a more objective basis for
evaluating and selecting an investment project . these methods considered the
magnitude and timing of cash flow method enable us to is late the differences in
the timing of cash flow of project by discounting them to know the present
values .the present values can be analyzed to determine the desirability of the
project . these techniques adjust the cash flow over the life of a project for the
time values of money .the discounted cash flow method are;
[Link] present values method
B. internal rate of return method; and
C. profitability index method.
A. Net present value method (N.P.V)
Net present value method is the widely used and more sophisticated project
evolution methods under discounted cash flow method. It is a superior method because
the value of cash inflow are taken at discounted value of one rupee. Net present value
is calculated by sub stating present value of cash inflow from present value of cash out
flows. It recognizes the importance of time value of money.
According to Ezra Solomon, “It is a present value of future returns, discounted
at the required rate of return, minus the present value of the investment”. Net present
value method can be calculated with help of the following formula,
Net present value (N.P.V) = present value of cash inflows –present value of cash out
flows
Acceptance Rules:-
The present value of investment out lays and cash inflows are to be calculated
using present value table. The decision criteria for accepting or rejecting. A project a
given under:
NPV>Zero accept the proposal
NPV<Zero reject the proposal
In other words, if the NPV is positive,(that is the present value of cash inflows is more
than the present value of cash outflows or investment outlays, the project should be
accepted, otherwise rejected.
NPV>C accept the proposal
NFV<C reject the proposal
NPV = present value of cash inflows C= present value of cash outflows Zero NPV
implies a situation where the firm can only recover the original investment.
Merits of the method:-
It consider time value of money, it consider all cash flow values
generated by the project, it considers the cost of capital for discounting rates of one
rupee which is more appropriate method it is considered as true method of profitability.

1. Recognition to the time value of money:

This method explicitly recognizes the time value of money, which is

inevitable for making meaningful financial decisions.

2. consideration to total cash inflows:

3. The NPV method considers the total cash inflows of investment

opportunities over the entire lifetime of the project unlike the payback
period method

Demerits of the method

1. Difficult to understand
2. Difficult to calculate
3. The concept of discounting factor may not suttees for all projects in a similar
way
 4. The NPV calculated by using the cost of capital as a discount rate. But the
concept of cost of capital itself is difficult to understand and determine.

B) Internal Rate of Return Method (I.R.R)

The Internal Rate of Returns is to be determined by trial and error method.
The following steps can be used for its computation.
1. Compute the present value of the cash flows from an investment, by using an
arbitrarily selected interest rate.
2. Then compare the present value so obtained with investment cost.
3. If the present value is higher than the cost, then the present value of inflows is
to be determined by using higher rate.
4. This procedure is to be continued until the present value of the flows from the
investment is approximately equal to its cost.
5. The interest rate that brings about this equality is the ‘Internal rate of Returns*.
If the internal rate of returns exceeds the required rate of return, then the project
is accepted. If the projects IRR are lower than the required rate of return, it will
be rejected. In the case of ranking the proposal, the technique of IRR is
significantly used. The projects with highest rate of return will be ranked as firs,
compared to the lowest of return projects.
Internal Rate of Returns method can be calculated with the help of the
following formula

I.R.R=lower discount Rate+ positive Value-Investment X Difference Between positive

negative constants Positive Value-Negative Value

Merits of the Methods

1. Consideration of time value of money
2. Consideration of total cash flows
3. Easier appeal to the users
4. Maximization market share possible
5. Provision for risk and uncertainty
6. Elimination of pre-determined discount rate
Demerits of the method
a. It is very difficult to understand and use
b. It involves a very complicated computational work
c. It may not give unique answer in all situations

Profitability Index Method (P.I)

This method is also known as a “Benefit cost ratio”, According to Van Home,
the profitability index of a project is the ratio of the present value of future net cash
flow to the present value of initial cash outflows.
Profitability index method can be calculated with the help of the following formula.
Profitability index(P.I) = present value of cash inflows
Present values of cash outflows

Acceptance rules
1. We will accept the project if the probability index is >1
2. We will reject the project if the probability index is <1

Merits of the method

1. It takes in to account time value of money
2. It requires less computation work than IRR method
3. It helps to accept/reject investment proposal on the basis of the index
4. It is useful to rank the proposal on the basis of the highest/lowest value
of the index

In this work cash inflow values are not given directly. In order to calculate cash inflow
values we will use the following formula
Cash inflow values = Depreciation
A number of capital budgeting techniques are used in practice. They may be grouped as
follows
1. Net Present Value Method
2. Internal Rate Of Return Method
3. Profitability Index Method
B. NONDISCOUNTED CASH FLOW METHODS
1. PAY BACK PERIOD METHOD
Payback period method is a traditional method of evaluation of capital budgeting
decision. The term pays back out or pay off refers to the period in which the project
will generate the necessary cash and recoup the initial investment or the cash outflows.
MBP is case, to calculate the pay period, the cumulative cash flow will be calculated
and by using interpolation the exact period may be calculated.
The MBP of APMDC has Rs.1546.60 lacks and the initial investment as shown in the
capital expenditure table of MBP and the annual cash flows for the year 2003, 2004,
2005, 2006, and 2007. Then the payback period may be calculated as follows.
Different in cash
flows Payback period = actual year + Next year cash
flows
ACCEPT-REJECT CRITERION
PBP can be used as criterion to accept or reject an investment proposal. A proposal
Whose actual payback period is more than what is pre-determined by the management.
PBP thus is useful for the management to accept the investment decision on the KBD
SUGARS PVT LTD and also to assist management to know that the initial investment
is recorded in 2.19 years.
MERITS
 This method makes it clear that no profit arise till the payback period is over.
 This method is simple to understand and equal to calculate.
 This method prefers investment in short-term periods therefore it reduces the
possibility of loss on account of obsolescence’s.
DEMERITS
 This method does not take into account the time value of money. A rupee
today is definitely worth more than a rupee after a year. This basic fact ignored
by this method.
 Hazy as long term outlook when future is uncertain on account conditional, this
method may be appropriate but not always suitable.

2. ACCOUNTING OR AVERAGE RATE OF RETURN METHOD

 It is another traditional method of capital budgeting evaluation. According to this
method the capital investment proposal are judged on the basis of their relative
profitability. The capital employed are related incomes are determined according to the
commonly accepted accounting principles and practices over the certain life of project
and the average yield is calculated. Such a rate is called the accounting rate of return or
the average rate of return or [Link] may calculated according to any one of the
following methods:
Annual average net earnings
(I)------------------------------------------100
Original investment
Annual average net
earnings
(ii) x 100
Original investment
Increase in expected future annual net earnings
(iii) x 100
Initial increase in required investment
The term average annual net are the average of the earnings after depreciation
and tax. Over the whole of the economic life of the project order and these giving on
ARR above the required rate of may be accepted.
The amount of average investment can be calculated according to any of the following
methods.

Original investment + scrap value

(a) ---------------------------------------------
2

Original investment + scrap value + net additional + scrap value

Working capital
(b) --------------------------------------------------------------------------------------
2
 TIME ADJUSTED (OR) DISCOUNTED CASH
FLOW METHOD
The time adjusted or discounted cash flow methods into accounts the
profitability time value of money. These methods are also called the modern methods
of capital budgeting.
1. NET PRESENT VALUE METHOD (NPV)
Net present value method or NPV is one of the best of evaluating the capital
investment proposals. Under this method cash inflows and outflows associated with
each project are first calculated.
ROLE OF DISCOUNTING FACTOR
The cash inflows and out flows are converted to the present values using
discounting factor which is the actually discounted factor of KBDS PVT LTD project
is 8%. The rate of return is considering as cut off rate or required rate or rate generally
determined on the bases of cost of capital to allow for the risk element involved in the
project.

STEPA FOR CALCULATION OF NPV

 Calculation of each cash flows after taxes of three years, which is arrived at by
deducting depreciation, interest and tax from earnings before tax and interest
(EBIT).this received is profit after tax arrives at cash flow after tax.
 This cash after tax are multiplied with the value obtained from the A-3 table
(the present value annuity table against the 10% actuary discount. Rate i.e. in
the case of mangampeta barites project.
 NPV is derived be deducting the sum of present values from the initial
investment.
 Initial investments are the sum of cash flows of 5 years shown in capital
expenditure table i.e., 1546.05.

ACCEPT-REJECTCRITERION
The accept reject decision of NPV is very simple. If the NPV is positive the
project should be accepted and if NPV is negative the project should be rejected.
NPV>0(ACCEPT)
NPV<0(REJECT)
Hence in the case of mangampeta barites project it is visible that the positive NPV
shows the acceptance and importance of the project.
MERITS
 It recognizes the time value of money and is suitable to be applied in situations
with
 Uniform cash outflows and uneven cash flows at different periods of time.
 It takes into account the earnings over the entire life profitability of the
investment proposal can be evaluated.
 It takes in to consideration of objective of maximum profitability.

DEMERITS
 As compared to the traditional method, the NPV is more difficult to understand.
 It may not give good result while comparing projects with unequal investment
of funds.
 It is not easy to determine an appropriate discount rate.

2. INTERNAL RATE OF RETURN METHOD (IRR)

The internal rate of return method is also a modern technique of capital
budgeting that takes into account the time value of money. It is also known as “TIME
ADJUSTED RATE OF RETURN” “DISCOOUNTED CASH FLOW”
“DISCOUNTED RATE OF RETURN”, “YIELD METHOD” and “TRAIL AND
YERROR YIELD METHOD”.
IRR is the rate the sum of discounted cash inflows equals the sum of
discounted cash outflows. It equals the present value of cash inflow to present value of
cash outflow.
In this method discounted rate is not known, but the cash inflows and the cash
outflows are known. It is the rate of return, which equates the present value of cash
inflows to out flows or it, is the rate of return, which renders NPV TO ZERO.
STEPS INVOLVED IN THE CALCULATION OF IRR
1) Calculation of outflow after tax.
2) Calculation fake payback period or factor the initial investment by average cash
flows.
 Initial investment
i.e. factor of fake payback period= -----------------------------
Average cash flows
 Look for the factor in the present annuity table in the year’s column until
arriving at the figure, which is at the closest to the fake payback period.
 Note corresponding percentage.
 Calculated NPV at that percentage.
 If NPV is positive take the higher rate and if the NPV is negative take the rate
lower and once again calculated NPV.
 Continue step 5 until arriving at two rates, one giving the positive NPV and the
one negative.
 Using interpolation to arrive at the actual IRR i.e. actual IRR can be calculated
by using the following formula.

Present value of lower rate –cash out flow

Lower rate + x difference in
rates Present value of lower rate – present value of higher
rates

FORMULATION OF STEPS
Calculation of payback period (FPBP)

Initial investment
FPBP =

Average CFAAT’S

Total amount
Average CFAT’S= ---------------------
No. of years
ACCEPT-REJECT CRITERION
IRR is the maximum rate of interest which an organization can afford capital
invested in, is accepted if IRR exceeds the cutoff rates and rejected if it is below the
cutoff rate.
The cutoff rate of in KBD SUGARS PVT LTD is 8% which is less than the IRR
I.e. 45.37 hence the acceptance of MBP is quit a good investment decision taken by
management.
MERITS
 It takes into account the time value of money can be usually applied in situation
with even as wall as uneven cash flows at different periods.
 It considers the profitability of the project for its entire economic life and hence
enables evaluation of the profitability.
 It provides for uniform ranking of various proposals due to the percentage rate
of return.
 It is also compatible with the objectives of the maximum profitability and is
considered to be more reliable technique of capital budgeting.
DEMERITS
 It is difficult to understand and is most difficult method of evaluating
investment proposals.
 The result of NPV method and IRR method may differ with the projects
Under evaluation differ in the size, life and timing of cash flows.

3. PROFITABILITY INDEX
Profitability index method is also known as time adjusted method of evaluating
the investment proposals. Profitability also called as benefit cost ratio in relationship
between present value of cash inflows and the present value of cash outflows.

Present value of cash inflows

Profitability index =
Present value of cash
outflows Present value of
cash inflows
Profitability index =
Initial cash outlay
INDUSTRY PROFILE :

Plastic have become synonymous with modern living. It is undoubtedly a

product, which has penetrated extensively into the common man’s life. No wonder the
industry has achieved in terms of supply of raw material expansion and diversification
of processing capabilities and manufacturing of processing machinery and equipment.

This versatile material with its superior qualities such as light weight, easy
process ability corrosion resistance, energy conservation, no toxicity etc. many
substitute to a large extent many conventional and costly industrial materials like
wood, metal, glass, jute, lather etc., in the future. The manifold applications of plastics
in the field of automobiles, electronics, electrical, packaging and agriculture give
enough evidence of the immense utility of plastics.
At 80 percent of total requirement for raw material and almost all types of
plastic machines required for the industry are indigenously available. The present
investment in all the three segments of the industry namely production of raw
materials, expansion and diversification of processing capacities, manufacturing of
processing machinery and ancillary equipment is Rs.1250 crores and it provides
employment to more than eight laky people.

On account of their inherent advantage in properties and versatility in adoption

and use, plastics have come to play a vital role in a variety of applications, the world
over. In our country, plastics are used in making essential consumer goods of daily use
for common man such as baskets, shopping bags, water bags, water bottles, school
bags, stiffen boxes, hair combs, tooth brushes, spectacle frames and fountain pens, they
also find applications in field like packaging, automobiles, and transportation,
engineering, electronics, telecommunications, defense, medicine, and building and
construction. Plastics are growing in importance in agriculture and water management.
 The Govt. of India recognizing the importance of plastics in agriculture
appointed on March 7th, 1981 a National Committee on the use of plastics in
agriculture under the chairmanship of [Link]. This committee has forecast a
tremendous growth of drip irrigation through a net work of plastic pipes and tubes. In
its opinion large scale adoption of irrigation would lead to sports in demand for
PVC pipes,
L.D.P.E tubes and polypropylene emitters. The committee made a number of
recommendations for promoting the use of plastics. The implementation of
recommendations would go along away in increasing the consumption of plastics,
which at present is very low. The rigid pipes, flexible pipes and sheeting, which are
being used for agricultural operations to carry out water place to place and also lining
of ponds and reservoirs to reduce seepage and most important in drip irrigation system.

Export of plastics goods:

Plastics have excellent potentialities. Our country is equipped with all kind of
processing machinery and skilled labor and undoable, and extra to boost export,
finished plastics products will yield rich divided.

Today India exports plastic products to as many as 80 countries all over the
world. The exports, which were stagnant at around rest 60-70 cores per annum double
to 129 craters. The Plastic industry has taken up the challenge of achieving an export
target of Rs.17 cores.

Major export markets for plastic products and linoleum are Australia,
Bangladesh, Canada, Egypt, Hong Kong, Italy, Kuwait, Federal Republic of Germany,
Sri Lanka, Sweden, Taiwan, U.K., U.S.A., and Russia.

With view to boosting the export, the plastics and linoleum’s export promotion
council has urged the government to reduce import duty of plastic raw material, supply
indigenous raw materials at international prices, fix duty, draw backs on weighted
average basis and charge freight rate on plastic products on weights basis instead of
volume basis.
 Prospects:
The Production of various plastics a raw materials in the country is
expected to double by the end of seventh plan, the consumption of commodity plastics
including LDPE, HDPE, PP, PS AND PVC is immense scope for the use of plastics in
agriculture, electronics, automobile, telecommunications and irrigation and thus, the
plastic industry is on the threshold of an explosive growth.

Role of plastics in national economy

Plastics are got perceived as just simple colorful household products in
the mind so common person. A dominant part of the plastics of the percent and future
find their utilization in the areas.
 Agriculture, forestry and water-management.
 Automobile and transportation
 Electronics and telecommunications, buildings, construction and.
 Food processing and packaging
 Power and gas distributor.

Importance of Pipes Industrys

We shall look at the basic data about plastics and particularly those properties,
which are so, fuse in practical working with plastics. Plastics are man-made materials.
The oldest raw material for producing plastics is carbonaceous material obtained from
coal tar (benzene, phenol).
Today the majority of raw materials are obtained from petrol chemical source
and they can be economically produced in large quantities.
Plastics have changed our world and day-by-day they are becoming important.
They own their success to whole series of advantage, which they have over
conventional materials such as:
 Lightweight
 Excellent mould ability
 Attractive colors
 Low energy requirements for convention
 Low labor and cost of manufacture
 Low maintenance & High strength weight ratio
Economic role:
Agriculture is the chief occupation in India. For the developing countries
like India modernization of the agriculture practices assumes pivotal places in
improving the economic status and the process of modernization. Includes, usage of
higher productive plastics supplement to greater extent manufacturing of tools required
for new agricultural practices.
The usage of poly vinyl chloride pipes in agricultural fields, lesser water
seepage, which was predominant in earlier practices, with services of P.V.C pipes,
water can be transported efficiently with lesser from the place of higher potential to the
place of lower water potential.
Presently the revolutionary tried in water management speaks much about
drip irrigation, which is developed in Israel and is practiced by all agricultural based
nations in the world. Drip irrigation greatly P.V.C pipes as core tools of implementation
with the services of this sort, P.V.C pipes one way or the other strengthening the hands
of country’s economy.
A part with the referred P.V.C pipes supplemented with fitting is used in
houses for electrical connection and other domestic purposes. Apart from these two
applications it has got wide applications even in industrial sectors. P.V.C pipes with
much unique heart, chemical and physical characteristics serve many industrial
purposes.
Even characteristics of weight and low price attract many more applications.
Rigid PVC pipes have been manufactured in India from the 60’s on imported extrusion
lines and there after indigenous plan were few pipes manufactures up to 1979-83.
When many extrusion lines were imported from batten field, Cincinnati, kraaus-
maffi etc. the Govt. allowed the imports of sophisticated and high output plants, which
were not available indigenously.
PVC PIPES IN INDIA
Pipes products have found wide acceptance in India and abroad. PVC is one
of the more versatile plastics. It can be extruded, molded, calendared and
thermoformed into a multitude of furnished products. The PVC resin can be formulated
to give a wide range of properties ranging from hand, tough materials for load
bearing application
lime pipes, windows and doors to flexible materials for products a due as wire and
cable insulation and shooting and flooring.

PVC products cater to both interiors and exteriors. In interiors it can be used for
flooring, profile and cable tray, wall covering modular office systems, houses and
furniture. For exteriors it is used for doors and windows, fencing partitions and
paneling, roofing and rain systems.
The other external applications are in the field of irrigation, portable water
supplies. In the field of irrigation there are several methods to irrigate the fields. There
are minor irrigation projects and major irrigation projects apart from individual sources
like wells, tube wells, bore wells. Major irrigation sector small projects will have
canals and lift irrigation schemes etc., will have canals and lift irrigation schemes etc.,
will have pipelines. Cement and GI pipes were the pipes used in conventional methods
of irrigation. Now-a-days PVC pipes replaced the conventional pipes and they
constituted almost 90% in this respect.
 COMPANY PROFILE

A dynamic entrepreneur Sri S P Y Reddy was established a black pipes

manufacturing company in 1977 and the name of the company is Nandi Pipes Pvt Ltd
at Nandyal, Kurnool district. Anita PVC Pipes Pvt Ltd was incorporated in the year
2002. The factory is situated at NH-7, Hampapuram village, Raptadu mandal, and
Anantapur district and it was taken over by Nandi Group Company. The company is
managed by team of professionals under the guidance of young, experienced, and well
qualified dynamic managing director Mr. S. Sreedhar Reddy.

Origin:
Rayalaseema is economically backward area in Andhra Pradesh,
was rare field region for industries. A dynamic entrepreneur sir [Link] who is
basically mechanical engineer started a unit at Nandyal, which manufactures black
pipes in 1977. The determination and hard work of Sri [Link] helped him to
overcome the problems faced by the company in the initial years, and with financial
assistance from local commercial banks. The company could overcome the problems
of the merger and now it is running smoothly.

Later the company started manufacturing of PVC pipes which terminated the
manufacturing of black pipes. This resulted in the formation of a Pvt. Ltd. company
called “SUJALA PIPES [Link].” with Sri [Link] as the Managing Director.

The only major competitors to the company are Sudhakar pipes, Maharaja
Pipes. The only backdrop to it is the competition from local brands. As the majority of
the customers belong to farmers, they consider the quality. The company has to make
aware of the company’s quality standards to them.
Board of directors:
[Link]:

Sri [Link] locally well known industrialist with the base at Nandyal, Kurnool
district who has been successful entrepreneur, he is technically qualified person with
B.E (MEC) from R.E.C (Warangal) and with work experience at BAARC (Bombay).
He has daringly ventured and established industries in and around Nandyal from 70’s.
As years went of he has established most successfully the following Nandi group of
companies:
 Nandi Milk
 Maha Nandi Mineral Water
 Nandi Infosys
 Nandi Online Services
 ANANTHA PVC PIPES PVT LTD.
 Integrated Thermos Plastic Ltd.
 Nandi PVC Projects.
Promoter:
Sri S Sreedhar Reddy, a computer engineer and a student of IIM,
Ahemadabad has been entrusted the management of ANANTHA PVC PIPES PVT
LTD., Hampapuram and great assistance and a great upcoming engineer and
industrialist.
Branches:
 Pondicherry
 Bellary
 Sangli
 Vellore
 Goa
 Kerala

Coverage:
At present Andhra Pradesh, parts of southern states of Karnataka, Tamilnadu and
Kerala are ambit of Sujala Pipes Pvt Ltd.
The company extended their sales in the below regions are shown below:
1979 Nandyal Region(polyphone pipes)
1984-85 Rayalaseema Region (PVC pipes)
1985-86 Telangana Region
1986-87 Karnataka and Andhra Pradesh
1988-91 Tamilnadu and Karnataka
1991-94 Kerala

Sizes:
Various sizes ranging from ½ to 10 are offered to customers. Even pipes
with different gauges and sizes are manufactured to suit specified conditions.

Packing:
Packing plays less important role into the products like PVC pipes because
the hallow space inside can be utilized. For, the purpose of cubic space utilization in
trucks while transport, organization is adopting the technique like pipes in pipes.
Payment period:
For monarch brand the company adopts zero credit policy and goods are not
delivered unless cash remittances are made. For monarch and sagar brands credit is
entitled up to a week. The difference between these brands is due to brand image.

Technical details about PVC

pipes: Ingredients:

 PVC resin
 D.B.L.S
 T.B.L.S
 L.S
 C.S
 Satiric Acid
 Hydro Carbon
 Calcium Carbonate

Manufacturing process:
The main raw materials are HDPE granules and PP granules. The
manufacturing process for pipes consists of mixing various resins along with the
coloring materials in a mixture and the prepared material is fed to the extruder. In the
extruder, the material is heated to the required politicizing temperature (190deg.
centigrade to 230deg. centigrade) the extruder through the die hard to form the pipe.
The hot pipe coming out of the extruder is cooled in a water bath to retain the final
shape.

The pipe coming out of the extruder is guided through the water bath suitable
transaction system. The temperature of the water is maintained by circulating through
the cooling towards and with the help of a chilling plant.
The required length of the pipe is cut with a planetary saw. The cut lengths
are titled by titling units and get corrected in the pipe rack attached to the titling
frames. Later they are stocked separately. The company has entered into a technical
with its own processing technology.
Channels of distribution:
ANANTHA PVC PIPES PVT LTD. has got zero level and single
level channel of distribution.

MANUFACTURER CONSUMER

MANUFACTURER DEALER CONSUMER

ANANTHA PVC PIPES PVT LTD. has an extensive network of 350 dealers in
Andhra Pradesh and who are directly serviced by company sales force and 620 dealers
in South India.
Transportation:
Transportation vehicles of ANANTHA PVC PIPES PVT LTD. outnumber the
fleet of the competitor’s vehicle. This unique strength of the organization enables the
delivery system to be efficient. This event helps the dealers to reduce inventory levels
to the minimum. The dealers are also supplemented with the benefit of the lower paid
up capital in the form of inventory.
ANANTHA PVC PIPES PVT LTD:
ANANTHA PVC PIPES PVT LTD. was incorporated in the year Feb 2002.
The factory is situated at NH-7, Hampapuram village, Raptadu mandal, and Anantapur
district. It was taken over by Nandi group company, and it is one of the sister company
among the Nandi groups.
Its annual production capacity is 18,000 mts. And it is one of the leading
manufacturers of PVC pipes in south India. This company is equipped with technical
collaboration from Batten field of West Germany.
It has made possible few other small ventures. Pipes are sold under the brand names of
MONARCH, KOHINOOR and KRISHNA.
ANANTHA PVC PIPES with their good quality, trouble free services, durability
and commercial use are a better choice than mild steel, galvanized steel, cast iron and
plastic pipes.
The company is managed by a term of professionals under the guidance of
a young, experienced and well qualified dynamic managing director Mr. Sreedhar
Reddy.
Mission Statement:
The mission statement of ANANTHA PVC PIPES PVT LTD. is as follows:
 To be preferred supply chain partner to out customer.
 To be recognized as the best in the world at we do.
 To create new values in the quality for our customers and employees.

Vision Statement:
The vision statement of ANANTHA PVC PIPES PVT LTD. is as follows:
“Creating new values in quality by working together for you”

Functional departments of the company:

Financial department:
 Through initially the company approached the external source for
financial aid, now the financial status of the company is very sound and is being run
only with self finance excepting for loans taken for hypothecation of machinery and
stock from
The company follows cash and carry policy for monarch brand. The product is
not delivered until the cash is paid and financial department with the help of marketing
department looks after these transactions.

Marketing department:
Marketing Department is headed by the Executive Director. Marketing
Manager is in charge of all operations who reports to the Executive Director. Marketing
Manager and 35 Sales Representatives are under the control of Executive Director.
There are also 20 salesmen who have to report to the sales representatives above them.

Personal Department:
The Personal department consists the details of the executives and
workers of the organization. The organization is formed with [Link] as the
managing Director. Two Marketing managers, financial managers, public relations
officer and quality control officer who all reports to executive director. Other, than
executives there are thousands workers in the organization.
Panel consisting of managing director, executive director and managers
of concerned departments makes the recruitment and selections of persons. Apart from
the attractive salaries company provides health card facilities.
Purchasing department:
The perplexing situation i.e. conformed by the manufactures of the PVC
pipes is scarcity of resin. Though the government of India has taken various steps to
improve the supply conditions of PVC resin, the Indian manufactures could meet only
50 percent of demand and remaining 50 percent is met from imports. The major
petrochemical company is Reliance Petrochemical Ltd. The lead time for the
acquisition of raw materials is 4 days.
The following lines highlight the human resources policies and practices:
  Effective utilization of manpower.
 To provide good working condition.
 To promote industrial development.

Application of PVC pipes:

 Agriculture and irrigation schemes.
 Rural and urban water supplies scheme.
 Tube well casing.
 Gas and oil supply lines.
 Industrial effluent disposal.
 Sewerage and drainage scheme.
 Air-condition ducting.
 Building installations.
 Industrial ducting.
 PRODUCT PROFILE
Pipe hollow structure usually cylindrical, for conducting materials. It is
used primarily to convey liquids, gases or solid suspended in a liquid for e.g. slurry and
also used for electric wires. The earliest pipes were probably made of bamboo. Used by
the Chinese to carry water c.5000 BC. The Egyptians made the first metal pipe of
copper c.3000 BC until the cost iron became relatively, Copper or bronze. Modern
materials include cast iron weight iron, steel, copper, brass, bead, concrete, wood, and
glass, plastic. In lying an oil pipeline, 40’ft (12-m) sections of seamless steel pipe are
electrically welded together while held over a trench. Before being lowered into place
the pipe is coated with a protective paint and wrapped with a substance composed of
treated asbestos felt and fiberglass. Pumping section located 50 to 75 ml (80-120km).
A part boosts the dwindling pressure backup as much as 1500’lb per inch. The piping
must be kept clean either by applying a negative electronic charge to the pipe or by
regular use of a “pig”, or scrubbing ball, inserted at one end and carried along by the
current. An oil pipe line 6 inches (15 cm) to 24 inches (60 cm) in diameter will move it
contents at about 3 to 6 ml (5-10) per hr. Water has moved since ancient times in
pipelines called aqueducts.
CAPITAL BUDGETING
BUDGETING

CHAPTER-2

RESEARCH DESIGN

Sree vidyanikethan institute of management page 29

REVIEW OF LITERATURE:

Many of you have expressed a curiosity about the historical development of PVC pipe. In
response to your requests, we provide you with this brief early history of PVC pipe and
fittings.

PVC was discovered as early as 1835, but the first definite report of the polymerization of
vinyl chloride did not come until about 35 years later. At that time, the material was reported
to be an off-white solid that could be heated to 130 degrees C without degradation.

PVC remained a laboratory curiosity for many years, probably because of its intractable
nature. The polymer was inert to most chemicals and very tough (strong). These properties
eventually led scientists to consider PVC for applications where durability and toughness
were desirable.

In 1912 the first industrial developments were initiated in Germany. Throughout the 1920’s,
attempts were made to use PVC copolymers that were easier to process than PVC. These
early attempts were only marginally successful.

By 1932, the first tubes made from a PVC copolymer were produced. Nearly three years later
the first PVC pipes were produced using a roll

mill and hydraulic extruder. This two step process involved melting the PVC powder on a
roll mill and rolling the sheet produced up to a billet. The PVC could then be processed in a
discontinuously working ram extruder to make pipe. This process was adapted from that used
for celluloid and was really ill-fitted for PVC. As a result, the products were often of dubious
quality.

Never-the-less, these early PVC pipes were deemed suitable for drinking water supply piping
and waste water piping because of their chemical resistance, lack of taste or odor and smooth
interior surface. From 1936 to 1939 over 400 residences were installed with PVC drinking
water and waste pipelines in central Germany. Various test pipelines of PVC were laid in
Leipzig, Dresden, Magdeburg, Berlin, Hamburg, Cologne, Heidelberg and Wiesbaden during
the period of 1936 to 1941.

Both the pipelines for chemicals and those for water supply and waste water came up to
expectations, as did the test pipelines in the cities mentioned above, apart from damage
caused by World War II. The PVC pipes installed in central Germany are still in use today
without any major problems.

In retrospect, these first PVC pipes had been made before their time, before the material
compounds and machines for their manufacture had been perfected. It was not until 1950 that
the systematic development of extrusion technology began. Prior to this, the manufacture of
PVC pipe remained makeshift and the use of PVC pipes did not become widespread.
The 1950’s and 1960’s were decades of dramatic advances for PVC pipe and fittings
technology. Encouraged by the results obtained from primitive pre-war PVC pipelines,
several European and American companies realized the enormous potential for PVC pipes.
These companies pursued the technology, both in formulation and processing. Systematic
research and trials were successful in the development of effective stabilizers, lubricants and
processing aids, together with processing machinery engineered specifically for PVC. During
this time period, PVC pipe began competing with traditional products in a number of major
markets, such as: gas distribution; sewer and drainage; water distribution; electrical conduit;
chemical processing; and drain, waste and vent piping.

Previous:

India PVC Pipes Market Key Segments:

By Type

 Chlorinated PVC Pipe

 Unplasticized PVC Pipe
 Plasticized PVC Pipe

By Material

 PVC Resin
 Stabilizers
 Plasticizers
 Lubricant
 Pigment Base
 Others

By Application

 Irrigation
 Water Supply
 Sewerage
 Plumbing
 Oil & Gas
 Heating, Ventilation, and Air Conditioning (HVAC)
 Others

By Region
 North India

 West India
 East India
 South India

STATEMENT OF THE PROBLEM

Techniques like IRR, NPV and Pay Back Period. So I choose

the concept for the study on capital budgeting for expansion (or)

replacement of the business.

By understanding the importance of the capital budgeting in Anantha

Pvc pipes pvt ltd. Evaluating an investment proposal of setting up
Anantha Pvc pipes pvt ltd. Highlighting the necessity of current of
assets and current liabilities
NEED FOR THE STUDY
 The project study is undertaken to analyze and understand the
Capital Budgeting process in ANANTHA PVC PIPES PVT
LTD, which gives mean exposure to practical implication of
theory knowledge.
 To know about the company’s operations of using various
Capital budgeting techniques
 To know how the company gets funds from various resources.
 Selection of the project is a crucial one in every enterprise the
firm is not exempted from that. Hence this kind of research is
required
OBJECTIVES OF THE STUDY
 The review the traditional methods.
 To analyse the discounted cash flows methods.
 To offer a package of suggestions to Anantha PVC pipes pvt ltd.
 SCOPE OF THE STUDY
Capital budgeting is the method of calculations of
inflows of the project undertaken by the company and investment
recovers position of the company. For, the evaluation of the
profitability position use discounting and non-discounting techniques.
 RESEARCH METHODOLOGY
All the findings and conclusions obtained are based on the survey done in the working area within
the time limit. I tried to select the sample representative of the whole group during my job training. I
have collected data from people linked with different profession at Pune.
RESEARCH PLAN:
Preliminary Investigation: In which data on the situation surrounding the problems shall be
gathered to arrive at
 The correct definition of the problem.
 An understanding of its environment.
Exploratory Study: To determine the approximate area where the problem lies.

RESEARCH DESIGN:
Research was initiated by examining the secondary data to gain insight into the problem. By
analyzing the secondary data, the study aim is to explore the short comings of the present system
and primary data will help to validate the analysis of secondary data besides on unrevealing the
areas which calls for improvement
DEVELOPING THE RESEARCH PLAN:
The data for this research project has been collected through self Administration. Due to
time limitation and other constraints direct personal interview method is used. A structured
questionnaire was framed as it is less time consuming, generates specific and to the point
information, easier to tabulate and interpret. Moreover respondents prefer to give direct answers.
In questionnaires open ended and closed ended, both the types of questions has been used.
COLLECTION OF DATA:
1: Secondary Data: It was collected from internal sources. The secondary data was collected on the
basis of organizational file, official records, news papers, magazines, management books, preserved
information in the company’s database and website of the company.
2: Primary data: All the people from different profession were personally visited and interviewed.
They were the main source of Primary data. The method of collection of primary data was direct
personal interview through a structured questionnaire.
SAMPLING PLAN:
Since it is not possible to study whole universe, it becomes necessary to take sample from
the universe to know about its characteristics.
 Sampling Units: Different professionals Chartered Accountants, Tax Consultants, Lawyers,
Business Man, Professionals and House Wives of Pune.
 Sample Technique: Random Sampling.
 Research Instrument: Structured Questionnaire.
 Contact Method: Personal Interview.

SAMPLE SIZE:
My sample size for this project was 200 respondents. Since it was not possible to cover the
whole universe in the available time period, it was necessary for me to take a sample size of 200
respondents.

DATA COLLECTION INSTRUMENT DEVELOPMENT: The mode of collection of data will be based on
Survey Method and Field Activity. Primary data collection will base on personal interview. I have
prepared the questionnaire according to the necessity of the data to be collected.
 LIMITATIONS OF THE STUDY

 To study has focused on evaluation of Payback period ,Accounting rate of

returns, net present, IRR, profitability Index Methods
 The data has been collected from historical data
 To study only five years beyond five years the analysis has not done. Due to
lack of time few techniques have analyzed and presented inferences.
CHAPTER – III
DATA ANALYSIS

AND

INTERPRETATION
 3.1 DATA ANALYSIS AND INTERPRETATION
Three steps are involved in the evaluation of an investment:
 Estimation of Cash Flows.
 Estimation of the required rate of return.
 Application of a decision rule for making the choice.

The investment decision rules may be referred to as capital budgeting techniques

or investment criteria. A sound appraisal technique should be used to measure the
economic worth of the investment project. The essential property of a sound technique
is that it should maximize the shareholder’s wealth.
“Here, in the data analysis the financial Manager to suggest their
information to taking the initial investment from the year 2007. Because, the company
registered in the year before, the 2006 on that year the company is a proprietary
company”.
A number of capital budgeting techniques are used in practice. They may be
grouped as follows:
 Payback period (PBP)
 Average rate of return (ARR)
 Net Present Value (NPV)
 Profitability Index(PI)
 Internal Rate of Return(IRR)
All these methods of capital budgeting techniques are explained in detail below
Initial Investment 2,00,00,000 Rs. Tax percentage 25% (such as 10%) and the
depreciation the company will be provided in the Balance Sheet. these are all the based
to calculate the Profit after Tax and cash flows.
PAY BACK PERIOD:
The payback period is one of the most popular and widely recognized
traditional methods of evaluating investment proposals. It is defined as the number of
CAPITAL
BUDGETING
years required in a project. If the project generates constant annual cash inflows, the
payback period can be computed by the following formulae:

Initial Investment
Pay Back period
=
Annual Cash Flows

In case of unequal cash inflows, the payback period can be computed by

calculating the cumulative cash inflow and checking whether the values are recovered
to the original outlay and taking the remaining amount and apply the formulae i.e.,

Required CFAT
PBP = base year
+
Next year

ACCEPTANCE RULE:
1. Many firms use the payback period as acceptance for reject criterion as
well as a method of ranking projects.

2. If the payback period calculated for a project is less than the maximum
or standard payback period set by management, it would be accepted, if
not, it would be rejected.
a. As a ranking method, it gives highest ranking to the project,
which has the shortest payback period and lowest ranking to the
project, which has highest payback period.

Initial Investment is Rs.2, 00, 00,000.

Sree vidyanikethan institute of management page 41

CAPITAL BUDGETING

SHOWING THE CALCULATIONS OF PAYBACK PERIOD (In Rupees)

Profit after tax Depreciation Cash flow after Cumulative

Year
tax cash flows
2015-16 374540 2432956 2807496 2807496
2016-17 3049546 2167152 5216698 8024195

2017-18 4380048 2437146 6817194 14841389

2018-19 5300374 3102096 8402470 23243860

2019-20 7567635 5611603 13179238 36423098

Base Year = 5 Year; Required CFAT = 51, 58,610.07;

Next Year CFAT = 2, 32, 43,860.28

2, 00, 00,000-1, 48, 41,389.93

Payback Period = 4
+
2, 32, 43,860.28

= 4 + 0.2219 = 3.2219 years (0.2219 X 365 days)

= 5 years 2 months 20days.

Sree vidyanikethan institute of management page 42

SHOWING THE CALCULATIONS OF PAYBACK PERIOD(In Rupees)

2016 2017 2018 2019 2020

Inference:

From the point of Pay Back Period the project can be accepted, because to get
the initial investment of Rs. 2, 00, 00,000, it is taking a time of 3 years 2months 20
days.
 Average Rate of Return (ARR):

The Average Rate of Return (ARR) is also known as Accounting Rate of Return
using accounting information, as revealed by financial statements, to measure the
profitability of an investment. The accounting rate of return is found out by dividing
the average after tax profit by the average investment. The average investment would
be equal to half of the original investment, if it is depreciated constantly. The
Accounting rate of return can be calculated by the following formula i.e.
Profit after Tax
A.R.R. = X
100 Book Value of the Investment

SHOWING CALCULATION OF AVERAGE RATE OF RETURN (in Rupees)

Profit before Tax25% (include Profit after tax

Year tax 10%surcharge

2015-16 483278 108737 374540

2016-17 3934898 885352 3049546
2017-18 5651675 1271626 4380048
2018-19 6839192 1538818 5300374
2019-20 9829346 2261711 7567635

Calculation of A.R.R:
Total Net Profit after Tax
Average Net Profit after Tax
=
Number of years

2, 06, 72,143
= = 41, 34,428.6
5
CAPITAL BUDGETING
Initial Investment
Book Value of Investment =
2
2, 00, 00,000
=
2

41, 34,428.6
of Return =
00,000
= 41.34%

20162017201820192020

Inferences:
From the point of ARR method,
project should be accepted, the initial
investment we can get with in less time.

Net Present Value (NPV):

The Net present value
(NPV) method is the classic economic
method of evaluating the investment
proposals. It is one of the discounted
cash flow techniques explicitly
recognizing the time value of money. It

Sree vidyanikethan institute of management page 46

CAPITAL BUDGETING
correctly postulates that
cash flows arising at
different time periods
differ in value and the
comparable only when
their equivalents
present values are found
out.
Acceptance Rule:

Sree vidyanikethan institute of management page 47

  Accept if NPV >0

PROFIT PRESENT
AFTER AFTER VALUE
YEARS TAX DEPRICIATION TAX NPV @5% CASH FLOW

2015-16 374540.91 2432956 2807496.91 0.9523809523 2673806

2016-17 3049546.32 2167152 5216698.32 0.9070294784 4731699
2017-18 4380048.12 2437146 6817194.12 0.8638375985 5889075

2018-19 5300374.35 3102096 8402470.35 0.8227024747 6912768

2019-20 7567635 5611603 13179238 0.783526165 10326277

Total 30533625
 Reject if NPV <0
 In differences if NPV = 0

Cash flow 0cash flow 1 cash flow n cash flow t

NPV= ---------------+ ------------- +……. += - C0

SHOWING CALCULATION OF NET PRESENT VALUE (In Rupees)

Calculations of Net Present Value:
Net Present Value = Present Value Cash Inflows - Initial Investment or cash outflows

= 3, 05, 33,625 - 2, 00, 00,000 = 1, 05, 33,625 Rest.

.
 20162017201820192020

Inferences:
As NPV is positive, the project is accepted

Profitability Index:
It is also called as Benefit Cost Ratio. It is also a time-adjusted method
of evaluating the investing proposals. It is the relationship between present value of
cash inflows and the present value of cash outflows. Thus

Present Value of cash inflows

Profitability Index
= Initial Investment of or cash out flows
 SHOWING CALCULATION OF PROBILITTY INDEX (In Rupees)

From the above table calculated values are

Present value of cash inflow = 3, 05, 33,625
initial Investment cash outflow = 2, 00, 00,000
3, 05, 33, 625
Profitability Index =
2, 00, 00,000

= 1.5266

Present
Profit after Value Cash
Years Tax Depreciation After Tax NPV @5% flow
2015-16 374540.91 2432956 2807496.91 0.9523809523 2673806.58
2016-17 3049546.32 2167152 5216698.32 0.9070294784 4731699.15
2017-18 4380048.12 2437146 6817194.12 0.8638375985 5889075.77
2018-19 5300374.35 3102096 8402470.35 0.8227024747 6912768.69
2019-20 7567635 5611603 13179238 0.783526165 10326277

Total 30533625

Net Profitability Index = PI -1

=1.5266 – 1
=0.5266
Inferences:
As the profitability Index is >1, the project should be accepted

Internal Rate of Return:

The internal rate of return (IRR) method is another discounted cash flow
technique, which makes account of the magnitude and timing of cash flows. Others
terms used to describe the IRR Method are yield on investment, marginal efficiency of
capital, rate of return over cost, time adjusted rate of internal return and so on. The
concept of internal rate of return is quite simple to understand in the case of one-period
projects. The IRR is calculated by interpolating the two rates with the help of the
following formula:

PV of cash inflows at lower rate - PV of cash outflow

IRR = LR+ (Hr - Lr)
PV of cash inflows at lower rate-PV of cash inflows at higher
rate

Where,
Lr = Rate of interest that is lower of the two rates at which PV of Cash
inflows have been Calculated.
 Hr= Rate of interest that is higher of the two rates at which PV of Cash
inflows have been Calculated.

ACCEPTANCE RULE
The accept project rule, using the IRR method, is to accept the project if its
internal rate of return is higher than the opportunity cost of capital (r>k) note that k is
also known as the required rate of return or cut-off rate. The project shall be rejected if
its internal rate of return is lower than the opportunity cost of capital. Thus the IRR
acceptance rules are:

 Accept if r>k
 Reject if r<k
 May accept if r=k
SHOWING THE CALCULATIONS OF INTERNAL RATE OF RETURN
(In Rupees)
From the above table calculated values are:

CASH PRESENT PRESENT

PROFIT FLOW VALUE VALUE
AFTER DEPRI- AFTER CASH NPV CASH
YEARS TAX CIATION TAX NPV @10% FLOW @20% FLOW

2016 374540.91 2432956 2807496.91 0.9090909 2552269 0.83333 2339580

2017 3049546.38 2167152 5216698.32 0.8264462 4311320 0.69444 3622706

2018 4380048.64 2437146 6817194.12 0.7513447 5121858 0.57870 3945135

2019 5300374.35 3102096 8402470.35 0.6830134 5739000 0.48422 4052117

2020 7567635 5611603 13179238 0.6209213 8183270 0.40187 5296440

Total 25907717 Total 19255978

Net Present Value of cash flow of LOWER RATE (LR) = 2, 59, 07,717

Net Present Value of cash flow of HIGHER RATE (HR) = 1, 92, 55,978
Therefore,
Present value @ L R – Initial Investment
IRR = LR+ x Rate Difference
Present value @ L R – Present value @ H R

59, 07,717
= 10% + x 10
66, 51,739

= 10% + 0.889 x 10
= 18.89%
 20162017201820192020

Inferences:
Therefore, IRR lies at 18.89%. It is a point where outflow = inflow
And IRR>K, Therefore it is accepted.
 CHAPTER-IV
 FINDINGS
 SUGGESTIONS
 CONCLUSION
FINDINGS

 The company had taken longer period i.e., payback period is 5 years 2 months
20 days to recover its initial investment.
 The average rate of return is good i.e., ARR = 41.34% as it was just to
compensate the marginal profits.
 The net present value of ANANTHA PVC PIPES PVT. Ltd is satisfactory

as NPV = 3, 05, 33,625.

 The internal rate of return i.e., IRR= 18.89% is fairly good.

 The profitability index is fairly good is it was gradually increasing in each year
as shown graphically.
 The unit cost and other expenditures are eligible to claim from the potential
buyer as approved by the Regulatory Commission
CAPITAL BUDGETING

SUGGESTIONS

 Company should go for the improvement in the technology to improve

efficiency.
 The Company can go for different projects as it has huge reserves and surplus,
to expand its operations.
 The Company is beneficial enough to expand its business by utilizing reserves
and surplus.
 The firm has to decrease the cost of production per unit.
 For society with lower income levels or below poverty line Company should go
for subscribed rates and for industries it should increases its rate marginally to
cover the losses.
 In order to diversify its operations it has to invest in more products so that NPV
will be fairly high.

Sree vidyanikethan institute of management page 57

 CONCLUSION

Under the light of inferences drawn from the analysis the company has to
concentrate on Pay Back Period and NPV for acceptance of the project. The
discounting methods are most preferable as the rate of returns is depending on the
present values. All the techniques which was used for the project resulted positively
expect on Pay Back Period. Finally it is concluded that firm can generate huge profits
by investing in more projects diversifying its operations.
BIBLIOGRAPHY
 BIBLOGRAPHY

1. M. PANDEY: Financial Management: Vikas publishing house pvt ltd, 9th edition.

2. PRASANNA CHANDRA: Financial Management: Tata McGraw-Hill, 7th edition.

3. SANDEEP GOEL. Management of finance in Public Enterprises, Deep & Deep

Publications Private Limited, New Delhi,2001.

4. JAIN P.K.., khan M.Y., (2008), Financial Management, Tata McGraw Hill
Publications company Limited, New Delhi,2008

5. SUNIDRA BHAT, Financial Management Princples and Practices, Excel books

Publications , New Delhi,2008.

6. SRIDHAR A.N., Financial Management,Shoff Publications & Distributers Private

Limited, Mumbai,2009.

7. CHANDRA BOSE.D., Fundamentals of financial Management. PHI Learning

Private Limited. New Delhi, 2010

8. PRASANNA CHANDRA. Financial management, Tata McGraw Hill Publications

Company Limited, New Delhi,2011
.

WEBSITES
[Link] [Link]
 ANNEXURE
PROFIT & LOSS ACCOUNT OF ANANTHA PVC PIPES PVT LTD ANTHAPOOR FOR THE
YEARS 2013- 14 TO 2017-18.

Particulars 2014-15 2015-16 2016-17 2017-18 2018-19

Income

Sales 3,15,870 33,58,900 41,04,500 49,47,200 68,04,695

Less: exercise duty 2,97,950 3,29,408 4,10,900 3,10,700 3,57,534

Sales(net) 2,86,087 30,29,560 36,93,600 46,36,500 64,47,161

Other income 6,234 7,770 3,359 9,321 21,018

Increase (decrease) in
stocks 87,963 74,146 47,120 1,416 24,682

Total 29,55,067 31,11,476 37,44,100 46,47,300 64,43,497

Expenditure

Raw materials consumed 1,54,840 18,26,494 19,23,200 24,77,900 39,77,551

Manufacturing expenses 0 6,47,997 8,62,900 8,87,400 10,10,171

Cost of materials sold 4,40,350 27,610 64,400 65,916 60,833

Salaries, wages & other

allowances 95,490 1,25,433 1,44,900 1,86,253 2,14,275

Other expenses 1,61,260 1,87,907 2,33,100 2,47,956 2,74,553

Interest & financial charges 98,950 1,25,786 1,83,200 2,30,259 4,60,848

Depreciation 85,250 11,036 1,15,600 1,51,299 1,64,184

Total 24,29,800 30,60,685 35,27,600 42,47,150 61,61,215

Profit before tax 3,47,420 60,991 2,16,400 4,00,144 2,82,282

Provision for current tax 27,242 5,278 24,200 45,341 31,820

Less: MAT credit
entitlement 0 -5,278 24,200 45,341 10,914

Provision fringe benefit tax 0 0 1,721 1,39,216 54,678

Provision for deferred tax 1,10,860 19,389 56,600 1,754 1,441

Profit after tax 2,10,410 41,502 1,58,000 2,59,174 1,83,529

Balance brought farrowed

from previous year 60,421 74,877 83,700 85,892 1,24,248

Profit available for

appropriation 2,69,830 1,16,379 2,41,700 3,39,520 3,08,777

Transfer to debenture
redemption reserve 0 0 9,375 18,750 46,875

Transfer to genera reserve 1,50,000 10,000 1,00,000 1,50,000 1,00,000

Proposed dividend 39,764 19,882 39,700 39,764 39,764

Tax on dividend 5,197 2,788 6,709 6,758 6,758

Balance carried to balance

sheet 74,877 83,710 85,800 1,24,248 1,14,380

Basic diluted earnings per

share 2,69,830 1,16,379 2,41,700 3,39,520 3,08,777

No. Of shares used in

computing 527 104 398 652 462

Earnings per share 39,763 39,763 39,763 39,763 39,763

BALANCE SHEET OF ANANTHA PVC PIPES PVT LTD ANTHAPOOR FOR THE YEARS
2013- 14 TO 2017-2018.

PARTICULARS 2014-15 2015-16 2016-17 2017-18 2018-19

Sources of funds

Shareholders’ Funds:

Share capital 3,97,630 3,97,630 3,97,636 3,97,636 3,97,636

Reserves & surplus 3,80,470 3,99,300 5,10,964 7,17,970 8,54,977

Loan Funds:
Secured loans 10,98,630 9,24,480 16,38,292 17,83,223 22,64,554
Unsecured loans 9,58,874 15,07,910 13,73,365 12,27,132 15,46,046
Deferred Tax Liabilities 42,417 61,807 1,18,479 2,57,632 3,12,373
TOTAL 28,68,037 32,90,140 40,38,636 43,83,666 53,75,586

Applications of funds

Fixed Assets
Gross block 20,02,136 25,03,599 31,82,432 35,51,623 38,97,486
Less: Depreciation 5,41,703 6,51,029 7,66,624 9,12,798 10,83,488

Net block 14,60,433 18,52,570 24,15,809 26,38,035 28,23,998

Capital work in progress 6,01,510 5,60,402 75,445 86,201 42,537

Investments 58,983 0 0 0 0

Current assets, Loans

& Advances:
Inventories 7,08,518 9,17,409 10,73,686 12,10,291 14,43,648
Sundry debtors 7,19,789 6,70,759 7,66,792 8,81,431 11,96,616
cash & Bank balances 24,772 35,067 2,65,037 42,010 3,46,366
Loans & advances 1,61,675 2,08,042 5,24,168 5,28,966 6,10,854
16,13,754 18,32,176 26,19,683 26,61,698 35,97,384
Less: Current Liabilities
Current Liabilities 8,10,645 9,20,211 10,18,834 9,31,938 10,10,938
Provisions 58,614 35,442 53,825 71,130 77,495
Net Current Assets 8,68,159 9,55,653 10,82,659 10,03,068 10,98,333
Miscellaneous expenditure 7,45,595 8,76,523 15,47,024 16,58,630 25,10,051
(Adjustment) 1,017 645 359 0 0
TOTAL 28,68,037 32,90,140 40,38,636 43,83,666 53,75,586