A

PROJECT REPORT
ON
CAPITAL BUDGETING
AT
BLUE DART EXPRESS LTD.

project report submitted in partial fulfillment of the

requirements for the award of the degree of

BACHELOR OF BUSINESS ADMINISTRATION

By
Mr. MIR SAIF ALI
RoLL No. 1170-21-684-011

Under The Guidance Of

Mrs. MOUNIKA MATTAM

DEPARTMENT OF BUSINESS MANAGEMENT

R.G. KEDIA DEGREE COLLEGE OF COMMERCE
(Affiliated to Osmania University)
HYDERABAD.
2022-2024
 R.G. KEDIA DEGREE COLLEGE OF COMMERCE
(Affiliated to Osmania University)
HYDERABAD

CERTIFICATE

This is to certify that the project work entitled “CAPITAL

BUDGETING has been accomplished by Mr. MIR SAIF ALI Bearing
Roll No. 1170-21-684-011 Student of BBA, under my guidance and
supervision.

This project is being submitted by his in partial fulfillment of the

requirement for the award of “BACHELOR OF BUSINESS
ADMINISTRATION” from Osmania University, Hyderabad for the
academic year 2022-2024.

All sources of information have been duty mentioned and is a record of

bonafide work carried out by him/her

Principal H.O.D

Internal Guide External Examiner

 DECLARATION

I hereby declare that the project/ dissertation entitled, “CAPITAL BUDGETING

AT BLUE DART EXPRESS LTD”. was carried out and written by me in R.G.KEDIA

COLLEGE OF COMMERCE. This work has not been submitted for the award of any

degree or diploma or certificate nor has been submitted elsewhere for the award of any

degree or Diploma.

Mr. MIR SAIF ALI

RoLL No. 1170-21-684-011

Place: Hyderabad

Date
 ACKNOWLEDGEMENTS

I would like to thank, Principal Dr K SREE HARI and my project guide

_______________ Asst. Professor of “R.G. KEDIA COLLEGE OF COMMERCE” for
giving me such an opportunity to carry out this project, I am thankful to all the faculty
members of our college for co-operation and their encouragement during the course of
project work.

I would like to acknowledge, my sincere thanks to all faculty members of

“R.G. KEDIA COLLEGE OF COMMERCE” who have extended helping hand
in giving the information being part of the study.

I would to thank the management of Blue Dart, for their kind gesture of allowing
me to undertake this project report and its various employees who lent their helping hand
towards the completion of this report.

The cooperation I received from the wide cross section of employees of Blue
Dart, makes it difficult to single out individuals for acknowledgement. However, I am
particularly in debited to Blue Dart,, for giving me the opportunity to take the project
report in such an esteemed organization. I am also thankful to Mr. K.ARJUN, Asst.
Manager.

I would like to express my gratitude for all the people, who extended
unending support at all stages of the project.

Mr. MIR SAIF ALI

 ABSTRACT

During the course of training in an organization. I am fortunate enough to get this

opportunity of undergoing training in BLUE DART EXPRESS LTD, Hyderabad, which

is an air express carrier and premium logistic service provider. Blue Dart Express Ltd,

South Asia’s leading integrated air express. To win the competitive edge, every

organization is much constriction on the financial aspect of development. A finance

manager’s job begins even before a business actually comes in to action and continues till

the very end. The activities of a finance manager includes procurements of funds from

various resources, determining where to invest, the extent of invest and analysis of over all

performance of the organization. In the area of finance, I have chosen the project work on

capital budgeting because it is the most crucial financial decision of a firm. It relates to the

selection of an asset or investment proposal or course of action whose benefits are likely to

be available in future over the life time of the project. The following aspects of capital

budgeting has inspired me to take up the topic: Capital budgeting decision involves critical

analysis of risk/return the benefits from the investment proposal deferred.

 TABLE OF CONTENTS

PAGE
S.NO CHAPTER NAME
NO

CHAPTER I INTRODUCTION OF THE STUDY 1–2

CHAPTER II LITRATURE REVIEW 3 – 28

CHAPTER III INDUSTRY AND COMPANY PROFILE 29 – 42

DATA ANALYSIS AND INTERPRETATION

CHAPTER IV 43 – 63

CHAPTER V FINDINGS AND CONCLUSION 64 – 66

 BIBLIOGRAPHY 75
 LIST OF TABLES

Table No Table Name Page No

1.1 Calculation of cash Inflows 44
1.2 Discounted Pay Back period 46
1.3 Summary of Project I 51
1.4 Computation of Cash Flows Of Project II 53
1.5 Pay Back Period 54
1.6 Discounted Payback Period 56
1.7 Net Present Value 57
1.8 Summary of Project II 62
 CHAPTER – I
INTRODUCTION

1
 1. INTRODUCTION

Capital budgeting (or investment appraisal) is the planning process used to determine
whether an organization's long term investments such as new machinery, replacement
machinery, new plants, new products, and research development projects are worth the
funding of cash through the firm's capitalization structure (debt, equity or retained
earnings). It is the process of allocating resources for major capital, or investment,
expenditures. One of the primary goals of capital budgeting investments is to increase the
value of the firm to the shareholders.
These methods use the incremental cash flows from each potential investment,
or project. Techniques based on accounting earnings and accounting rules are sometimes
used - though economists consider this to be improper - such as the accounting rate of
return, and "return on investment."
Simplified and hybrid methods are used as well, such as payback period and
discounted payback period.

Capital budgeting is the planning of long-term corporate financial projects relating

to investments funded through and affecting the firm's capital structure. Management must
allocate the firm's limited resources between competing opportunities (projects), which is
one of the main focuses of capital budgeting.

Capital budgeting is also concerned with the setting of criteria about which projects
should receive investment funding to increase the value of the firm, and whether to finance
that investment with equity or debt capital. Investments should be made on the basis of
value-added to the future of the corporation.

Capital budgeting projects may include a wide variety of different types of

investments, including but not limited to, expansion policies, or mergers and acquisitions.
When no such value can be added through the capital budgeting process and excess cash
surplus exists and is not needed, then management is expected to pay out some or all of
those surplus earnings in the form of cash dividends or to repurchase the company's stock
through a share buyback program. Choosing between capital budgeting projects may be
based upon several inter-related criteria.

2
 Corporate management seeks to maximize the value of the firm by investing in
projects which yield a positive net present value when valued using an appropriate discount
rate in consideration of risk. These projects must also be financed appropriately.

IMPORTANCE OF CAPITAL BUDGETING

1. INVOLVEMENT OF HEAVY FUNDS: Capital budgeting decisions require large

capital outlays. It is, therefore absolutely necessary that the firm should carefully plan its
investment programme so that it may get the finances at the right time and they are put to
most profitable use.

2. LONG-TERM IMPLICATIONS: The effect of capital budgeting decisions will be

felt by the firm over a long period, and, therefore, they have a decisive influence on the rate
and direction of the growth of the firm.

3. IRREVERSIBLE DECISION: In most cases, capital budgeting decisions are

irreversible. This is because it is very difficult to find a market for the capital asset. The
only alternative will be to scrap the capital assets so purchased or sell them at substantial
loss in the event of the decision being proved wrong.

4. MOST DIFFICULT TO MAKE: The capital budgeting decisions require an

assessment of future events which are uncertain. It is really a difficult task to estimate the
probable future events, because of economic, political, social and technological factors. On
account of these reasons, capital expenditure decisions are among the class of decisions
which are best reserved for consideration by the highest level of management. In case some
parts of its are delegated, a system of effective control by the top management should be
evolved.

3
 OBJECTIVES OF THE STUDY

1. The primary objective of my study is to study the CAPITAL BUDGETING process

in BLUE DART.

2. The secondary objective is to analyze the projects which are going to be

implemented by using the traditional and modern techniques.

3. Document the policies and practices of company.

4. Understand the linkage between corporate strategy and investment decision.

5. Another major objective of my study is giving the conclusions and advising

whether to invest the funds in the project.

4
SCOPE OF THE STUDY
The period of my study is limited to 2 month(Jan-Mar) ;I have analyzed the capital
budgeting decision of BLUE DART by analyzing four projects which I have included in
my study.

Capital planning should take into account all appropriations for expenditures related to:

 Construction or acquisition of capital facilities, including land purchase,

preparation and easements
 Acquisition, construction, demolition or replacement of a capital asset
 The major repair or renovation of a capital asset which materially extends its
useful life or improves or increases its capacity
 Equipment
 The planning or design of any of the above
 Construction management, legal fees, and supervision costs
 Financing charges.

NEED OF THE STUDY

The following aspect of capital budgeting has inspired me to take up the topic

1. Capital budgeting decision involves critical analysis of risk / return

2. The benefits from the investment proposal deferred into the future with an

immediate cash flow/ commitment

5
LIMITATIONS OF THE STUDY

 Most of the data is collected from secondary sources as such the accuracy of the
data may not be to the fullest extent.

 The study was conducted with the data available and analysis was made
accordingly due to which I have taken many assumptions for my study.

 Due to the confidential financial records the data is not exposed so my study may
not be detail and fully fledged.

 Since the study is based on the financial data that are obtained from the company’s
financial statements, the limitations of financial statements shall be equally
applicable.

6
METHODOLOGY OF THE STUDY

1. The capital budgeting mechanism is studied in detail.

2. The various factors of capital budgeting management are studied in detail.
3. The technical analysis in respect to internal rate of return (IRR), net present value
(NPV) and discounted cash flow techniques have been studied, as well as methods
like pay back period (PBP) average rate of return (ARR) and profitability index (PI)
have also used.

The following techniques are used to evaluate the projects of BLUE DART.

1) Non-Discounted Techniques
 Payback period
 Average rate of return

2) Discounted Techniques
 Discounted payback period
 Internal rate of return
 Net present value
 Profitability index

SOURCES OF DATA:

PRIMARY DATA:
It is that data which have been conducted for the first time through personal discussion with
the management and through questioner.

SECONDARY DATA:
It is the data which has been already conducted and stored.
For my present study I have used both the data that is primary as well as secondary.
I have collected the primary data like the process of budgeting through personal discussion
with the managers of capital budgeting department
The secondary data have been collected through Internet, Manuals, and Broachers

7
 CHAPTER – II
REVIEW OF LITERATURE

8
 REVIEW OF LITERATURE

CAPITAL BUDGETING:

Financing decisions relate to determination of the amount of long-term finance

required and the sources from which such finance is to be raised. He has to determine the
optimum capital structure keeping in view the cost and risk associated with each source of
finance.

The investment decisions, also popularly termed as capital budgeting decisions,

require comparison of cost against benefits over a long period. For example the deployment
of finances of additional plant and equipment cannot be recovered in the short run. Such
investment may affect revenues for the time period ranging from 2 to 20 years or more.
Such investment involve a careful consideration of various factors viz profitability, safety,
liquidity and solvency.

DEFINITION OF CAPITAL BUDGETING:

The term capital budgeting refers to long-term planning for proposed capital outlays
and their financing. Thus, it includes both rising of long-term funds as well as their
utilization. It may this be defined as “the firms formal process for the acquisition and
investment of capital”. It is the decision making process where the firm evaluate the
purchase of major fixed assets. It involves the firm’s decision to invest its current funds for
addition, disposition, modification and replacement of long-term or fixed asset. However, it
should be noted that investment in current assets necessitated on account of investment in
fixed assets, is also to be taken as a capital budgeting decision.

9
OBJECTIVES OF A CAPITAL EXPENDITURE BUDGET:

The word capital expenditure includes all those expenditures, which are expected to
produce benefits to the firm over more than one year. The objectives of capital expenditure
budget are as follows:

 It determines the capital projects on which work can be started during the budget
period after taking into account their urgency and the expected rate of return on
each project.

 It estimates the expenditure that would have to be incurred on capital projects

approved by the management together with the source or sources from which the
required funds would be obtained.
 It restricts the capital expenditure on projects within authorized limits.

IMPORTANCE OF CAPITAL BUDGETING:

1. INVOLVEMENT OF HEAVY FUNDS: Capital budgeting decisions require large

capital outlays. It is, therefore absolutely necessary that the firm should carefully plan
its investment programme so that it may get the finances at the right time and they are
put to most profitable use. An opportune investment decision can give spectacular
results. On the other hand, an ill-advised and incorrect decision can jeopardize the
survival of even the biggest firm.

2. LONG-TERM IMPLICATIONS: The effect of capital budgeting decisions will be

felt by the firm over a long period, and, therefore, they have a decisive influence on the
rate and direction of the growth of the firm.

3. IRREVERSIBLE DECISION: In most cases, capital budgeting decisions are

irreversible. This is because it is very difficult to find a market for the capital asset. The
only alternative will be to scrap the capital assets so purchased or sell them at substantial
loss in the event of the decision being proved wrong.

10
4. MOST DIFFICULT TO MAKE: The capital budgeting decisions require an
assessment of future events which are uncertain. It is really a difficult task to estimate
the probable future events, because of economic, political, social and technological
factors. On account of these reasons, capital expenditure decisions are among the class
of decisions which are best reserved for consideration by the highest level of
management. In case some parts of its are delegated, a system of effective control by the
top management should be evolved.

KINDS OF CAPITAL INVESTMENT PROPOSALS:

1. INDEPENDENT PROPOSALS: These are proposals which do not compete with one
another in a way that acceptance of one recluse the possibility of acceptance of another.
In case of such proposals the firm may straightaway “accept or reject” a proposal on the
basis of a minimum return on investment required. All these proposals which give a
higher return than a certain desired rate of return are accepted and the rest are rejected.

2. CONTINGENT OR DEPENDENT PROOSALS: These are proposals whose

acceptance depends on the acceptance of one or more other proposals. For example a
new machine has to be purchased on account of substantial expansion of plant, in this
case investment in the machine is dependent upon expansion of plant. When a
contingent investment proposal is made, it should also contain the proposal on which it
is dependent in order to have a better perspective of the situation.

3. MUTUALLY EXCLUSIVE PROPOSALS: These are proposals which compete with

each other in a way that the acceptance of one precludes the acceptance of other or
others. For example, if a company is considering investment in one of two temperature
control systems, acceptance of one system will rule out the acceptance of another. Thus
two or more mutually exclusive proposals cannot be accepted. Some technique has to be
used for selecting the better or the best one. Once this is done other alternatives get
automatically get eliminated

11
FACTORS AFFECTING CAPITAL INVESTMENT DECISIONS:-

The following are the four important factors which are generally taken into account while
making a capital investment decision:
1. THE AMOUNT OF INVESTMENT: In case a firm has unlimited funds for
investment it can accept all capital investment proposals which give a rate of return
higher than the minimum acceptable or cut-off rate. However, most firms have limited
funds and therefore capital rationing has to be imposed. In such an event a firm can take
only such projects which are within its means. In order to determine which project
should be taken up on this basis, the projects should be arranged in an ascending order
according to the amount of capital investment required.

COMPUTATION OF CAPITAL INVESTMENT REQUIRED:

The term ‘capital investment required’ refers to the net cash outflow which is the sum
of all outflows and inflows occurring at zero time period.The net outflow is determined by
taking into account the following factors.

(i) Cost of the new project

(ii) (a) Installation cost.
(iii) Working capital
(iv) Proceeds from sale of asset: A new asset may be purchased for replacement of
an old asset. The old asset may therefore be sold away. The cash realized on
account of such sale will reduce the cost of new investment.
(v) Tax effects: The amount of profit or loss on the sale of assets may affect the
cash flows on account of tax affects. The profit/loss is ascertained by taking into
account the cost of the asset, its book value and the amount realized on its sale.
The tax liability will be different in each of the following cases:

(a) If the asset is sold at its book value.

(b) If the asset is sold at a price higher than its book value but lower than its
cost.
(c) If the asset is sold at a price higher than its cost.
(d) If the asset is sold lower than its book value.

12
 (vi) Investment allowance: This is allowed to encourage capital investment in
Machinery and equipment. Such allowance thus reduces the cost of the initial
investment of the project.

2. MINIMUM RATE OF RETURN ON INVESTMENT : The management expects a

minimum rate of return on the capital investment. The minimum rate of return is
usually decided on the basis of the cost of capital. For example ,if the cost of capital is
10% ,the management will not like to accept a proposal which yields a rate of return
less than 10%.The project s giving a yield below the desired rate of return will,
therefore, be rejected.

CUT-OFF POINT:

The cut-off point refers to the point below which a project would not be accepted.
For example, if 10% is the desired rate of return, the cut-off rate is 10%.The cut-off
point may also be in terms of period. For example, if the management desires that the
investment in the project should be recouped in three years, the period of three years
would be taken as the cut-off period.

3. RETURN EXPECTED FROM THE INVESTMENT:

Capital investment decisions are made in anticipation of increased return in the future.
It is therefore very necessary to estimate the future return or benefits accruing from the
investment proposals.

There are two proposals available for quantifying benefits from capital Investment
decisions.

They are:

(i) ACCOUNTING PROFIT: The term accounting profit is identical with

income concept used in accounting.

13
 (ii) CASH FLOWS: In this depreciation charges and other amortization charges
on the fixed assets are not subtracted from gross revenue because no cash
expenditure is involve.

SIGNIFICANCE OF CAPITAL INVESTMENT:

Capital Budgeting Decisions are of paramount importance in financial decision-

making. Capital investment decisions may result in a major departure from what the
company has been doing in the pat. Acceptance of a strategic investment will involve a
significant change in the company’s expected profits and in the risk to which these profits
will be subject. These changes are likely to lead stockholders and the creditors to revise
their evaluation of the company.
1. Capital Budgeting Decisions determine the future destiny of the company. An opportune
decision can yield spectacular returns. On the other hand, an ill-advised and incorrect
investment decision can endanger the very survival even of the large sized firms. A few
wrong decisions and the firm may be forced into bankruptcy.

2. Capital Budgeting Decisions has its effect over a long time span and inevitably affects the
company’s future cost structure. To illustrate if a company to start a new product has
purchased a particular plant, the company commits itself to a sizable amount of fixed
costs, in terms of labour, supervisor’s salary, insurance, and rent of the building. If the
investment, in future turns out be successful or yields less profit than anticipated, the firm
will have to bear the burden of fixed costs unless it writes off the investment completely.
In short, a firm’s future costs; breakeven points, sales and profits will all be determined
by the firm’s selection of assets.

3. Capital Investment Decisions once made is not easily reversible without much financial
loss to the firm. It is because there may be no market for second-hand plant and
equipment and their conversion to other uses may not be financially feasible.

4 Finally, Capital Investment involves costs and the majority of the firms have scarce capital
resources. This states that every firm there is a need and importance of Capital Budgeting
Decisions.

14
FEATURES OF CAPITAL BUDGETING:
1) The exchange of current funds for future benefits.
2) The funds are invested in long-term assets.
3) Relatively high degree of risk.
4) A relatively long time period between the initial outlay and the anticipated return.

CAPITAL BUDGETING PROCESS:

Capital Budgeting is a complex process, which may be divided into following phases:
1) IDENTIFICATION OF POTENTIAL INVESTMENT OPPORTUNITIES.
2) ASSEMBLING OF PROPOSED INVESTMENTS.
3) DECISION MAKING.
4) PREPARATION OF CAPITAL BUDGET AND APPROPRIATIONS.
5) IMPLEMENTATION.
6) PERFORMANCE REVIEW.

1) IDENTIFICATION OF POTENTIAL INVESTMENT OPPORTUNITIES:

The Capital Budgeting process begins with the identification of potential investment
opportunities. The planning body develops estimates of future sales, which serve as the
basis for setting production targets. This information, in turn, is helpful in identifying
required investment in plant and equipment.
For imaginative identification of investment ideas it is helpful to
1) Monitor external environment regularly to scout investment opportunities.
2) Formulating a well defined corporate strategy based on a thorough analysis of
strengths, weakness, opportunities and threats.
3) Share corporate strategy and perspectives with persons who are involved in the process
of Capital Budgeting.
4) Motivate employees to make suggestions

2) ASSEMBLING OF PROPOSED INVESTMENTS:

Investment proposals identified by the production department and other departments

are usually submitted in a standardized capital investment proposal form.
Generally, most of the proposals, before they reach the capital budgeting team,
which assembles them, are routed through several persons. The purpose of routing a

15
proposal through several persons is primarily to ensure that the proposal is viewed from
different angles.It also helps in creating a climate for bringing about co-ordination of
interrelated activities.
1) Replacement investment.
2) Expansion investment.
3) New product investments/modernization.
4) Obligatory and welfare investments.

3) DECISION MAKING:
A system of rupee gateways usually characterizes capital investment decision-
making. Under this system, executives are vested with the power to okay investment
proposals up to certain limits. For example in company the plant superintendent can okay
investment outlays up to Rs.2000000 the works manager up to Rs 500000 and the M.D up
to Rs 2000000.Investment requiring higher outlays needs the approval of the Board of
Directors.

4) PREPARATION OF CAPITAL BUDGET AND APPROPRIATIONS:

Projects involving smaller outlays and which executives at lower levels can decide
are often covered by a blanket appropriation for expeditious action. Project involving larger
outlays is included in the capital budget after necessary approvals. Before undertaking such
projects an appropriation order is usually required. The purpose of this check is mainly to
ensure that the funds position of the firm is satisfactory at the time of implementation.
Further, it provides an opportunity to review the project at the time of implementation.
5) IMPLEMENTATION:
Translating an investment proposal into a concrete project is complex; time
consuming, and risk-fraught task. Delays in implementation, which are common, can lead
to substantial cost over runs. For expeditious implementation at a reasonable cost, the
following are helpful.
1. Adequate Formulation of Projects: The major reason for delay is inadequate formulation
of projects. Put differently, if necessary homework in terms of preliminary studies and
comprehensive and detailed formulation of the project is not done, many surprises and
project cannot be over-emphasized.

16
2. Use of The Principle Of Responsibility Accounting: Assigning specific responsibilities
to project managers for completing the project within the defined time frame and cost limits
is helpful for expeditious execution and cost control.

3 .Use Of Network Techniques: For project planning and control several network
techniques likes PERT (Programming Evaluation Review Technique) and CAPM (Critical
Path Method) are available. With the help of these techniques, monitoring becomes easier.

6) PERFORMANCE REVIEW:

Performance review, or post-completion audit, is a feedback device. It is a means for

comparing actual performance with projected performance. It may be conducted most
stabilized. It is useful in several ways:
1) It throws light on how realistic were the assumptions underlying the project.
2) It provides a documented log of experience that is highly valuable for
decision making.
3) It helps in uncovering judgmental biases.
4) It induces a desired caution among project sponsors.

EVALUATION TECHNIQUES OF CAPITAL BUDGETING:

They are classified into two types:

1. TRADITIONAL TECHNIQUE:
 Average rate of return
 Pay-back period

2. MODERN OR TIME ADUSTED OR DISCOUNTED CASH FLOW (DCF)

TECHNIQUES:
 Discounted payback period(DPV)
 Net present value(NPV)
 Internal rate of return(IRR)
 Profitability index(PI) or Benefit-cost
ratio(B/C RATIO)
17
 1. TRADITIONAL TECHNIQUES:

I. PAY BACK PERIOD (PBP):

The pay back method (PB) is the second traditional method of capital budgeting. It
is the simplest and, perhaps, the most widely employed, quantitative method for appraising
capital expenditure decisions. This method answers the question: How many years will it
take for the cash benefits to pay the original cost of investment, normally disregarding
salvage value? Cash benefits here represent CFAT ignoring interest payment. Thus the pay
back method measures the number of years required for the CFAT to pay back the original
outlay required in an investment proposal.

Investment
PB =
Constant annual cash flow

ACCEPT-REJECT CRITERION:
The payback period can be used as a decision criterion to accept or reject
investment proposals. One application of this technique is to compare the actual pay back
with a predetermined pay back that is the pay back set by the management in terms of the
maximum period during which the initial investment must be recovered. If the actual
payback period is less than the predetermined pay back, the project would be accepted; if
not it would be rejected.

II. AVERAGE RATE OF RETURN (ARR):

The average rate of return(ARR) method of evaluating proposed capital
expenditure is also known as the accounting rate of return method. It is based upon
accounting information rather than cash flows. There is no unanimity regarding the
definition of the rate of return. There are number alternative methods for calculating the
ARR. The most common usage of the average rate of return (ARR) expresses it as follows:
18
 Average annual profits after taxes
ARR=
Average investment over the life of the project

ACCEPT-REJECT RULE:
With the help of the ARR, the financial decision maker can decide whether to
accept or reject the investment proposal. As an accept-reject criterion, the actual ARR
would be compared with a predetermined or a minimum required rate of return or cut-off
rate.

2. DISCOUNTED CASH FLOW / TIME -

ADJUSTED(TA)

Techniques:

The distinguishing characteristics of the DCF capital budgeting is that they take into
consideration the time value of money while evaluating the cost and benefit of a project.T
he following are the different methods of DCF:

1. NET PRESENT VALUE (NPV):

The first DCF/PV technique is the NPV.NPV may be described as the summation
of the present values of cash proceeds(CFAT) in each year minus the summation of
present value of the net cash outflows in each year. Symbolically, the NPV for projects
having conventional cash flows would be:
n
NPV=  CFT + Sn+Wn
t=1 (1+K)t (1+K)n

ACCEPT-REJECT CRITERION:
 NPV > ZERO (ACCEPT)
 NPV < ZERO (REJECT)

19
  NPV = ZERO (INDEFFIRENT)

1) INTERNAL RATE OF RETURN (IRR):

The second discounted cash flow (DCF) or time adjusted method for appraising
capital investment decisions is the internal rate of return (IRR) method. This technique is
also known as yield on investment, marginal efficiency of capital, marginal productivity of
capital, rate of return, and time-adjusted rate of return and so on. Like the present value
method, the IRR method also considered the time value of money by discounting the cash
streams.

The internal rate of return is usually the rate of return the project earns. It is defined
as the discount rate(r)which equates the aggregate present value of the net cash inflows
(CFAT) with the aggregate present value of cash outflows of a project. In other words, it is
that rate which gives the project NPV as zero.

ACCEPT-REJECT CRITERION:
The use of the IRR, as a criterion to accept capital investment decisions, involves a
comparison of the actual IRR with the required rate of return also known as the cut-off rate
or hurdle rate. The project would qualify to be accepted if the IRR(r) exceeds the cut-off
rate (k).If the IRR and the required rate of return are equal, the firm is indifferent as to
whether to accept or reject the project.

3. PROFITABILITY INDEX(PI) OR
BENEFIT-COST RATIO (B/C RATIO):
Yet another time-adjusted capital budgeting technique is profitability index(PI) or
benefit cost ratio(B/C RATIO) .It is similar to NPV approach. The profitability index
approach measures the present value of returns per rupee invested, while the NPV is based
on the difference between the present value of future cash inflows and the present value of
cash outlays. A major shortcoming of the NPV method is that, being an absolute measure,
it is not a reliable method to evaluate projects requiring different initial investments. The PI
method provides a solution to this type of problem. It is, in other words, a relative measure.
It may be defined as the ratio which is obtained by dividing the present value of future cash
inflows by the present value of the cash outlays. Symbolically:

20
 Present value of cash inflows
PI=
Present value of cash outflows

This method is also called as benefit cost ratio because the numerator measures benefit and
the denominator cost. More appropriate description would be present value index.
ACCEPT-REJECT CRITERION:
Using the B/C ratio or the PI, a project will qualify for acceptance if its PI exceeds one.
When PI equals 1, the firm is indifferent to the project.
 PI > 1 (ACCEPT)
 PI < 1 (REJECT)
 PI = 1 (INDIFFERENT)

When PI is greater than, equal to or less than 1,the net present value is greater than, equal
to or less than zero respectively. I n other words, the NPV will be positive when the PI is
greater than 1; will be negative when the PI is less then one. Thus, the Upland PI
approaches give the same result regarding the investment proposals

21
CAPITAL EXPENDITURE PLANNING AND CONTROL

EXTERNA INTERNA

ENVIRONMENT
TECHNOLOGY
TOP MISSION THREAT AND COMPETITION
CORPORATE
MANAGEMENT OBJECT OPPORTUNITIES MARKET
STRATEGY
Govt POLICIES
OBJECTI STRATEGY
MARKETS
GOVT POLICIES

STRENGTHS
STRATEGIC WEAKNESSES
PLANNING MARKET SCOPE
CAPITAL COMPETENCE
BUDGETING GROWTH
SYSTEM IMAGE

ORIGINATION
DEVELOPMENT
EVALUATION
AUTHORISATION
CONTROL
NATURE OF
INVESTMENT
INVESTMENT

MIDDLE
MANAGEMENT
STRATEGIC

ADMINISTRATIVE

LOWER
MANAGEMENT
MANAGEMENT

OPERATING

22
 CAPITAL BUDGETING AT BLUE DART
1) The company has separate department for all capital investments evaluation.
2) User department specifying the details of the project to be executed will raise an
internal order request form.
3) The project proposal will be initially evaluated by the HOD (Head of the Dept).
4) After initial approval from the HOD the project will be evaluated by the Projects
Team (Meant for evaluation of Capital investments said in point no. 1) taking out
the Technicalities of the projects and viability in the existing environment. This
team will evaluate the project basically in three areas –
a. Guidelines from Pollution Control Board
b. Applicability of GMP
c. Safety
d. Financial viability
Once the project is evaluated by the project team the investment proposal will be
taken to the vice president/president (SBU Head ) based on the amount involved in
the project.
After evaluation and approval from Projects team and concerned approving authority an
internal order, will be created by Finance Dept, under which the total costs incurred will be
traced and capitalized under the project.

IMPORTANCE OF CAPITAL INVESTMENT DECISION IN STRATEGIC

DECISION MAKING AT DR.REDDY’S LABORATORIES:

An efficient allocation of capital is the most important finance function in the modern
times. It involves decision to commit the firm’s funds to the long term assets. Such
decisions are of considerable importance to the firm since they tend to determine its value
size by influencing its growth profitability and risk.

The investment decisions of a firm are generally known as the capital budgeting, or capital
expenditure decisions. A capital budgeting decision may be defined as the firms decision to
invest its current funds most efficiently in the long-term assets in anticipation of an
expected flow of benefits over a series of years. The long term assets are those which affect
the firms operation beyond 1year period.

23
Capital investment decisions hold a very important place in Dr. Reddy .These decisions are
not involved with other aspects. In fact separate meetings are held for capital budgeting in
which the strategies are planned and implemented for investments. Sometimes it even
happens that each and every aspect which has to play a role in capital budgeting are
discussed separately .For example cost of production will be decided and implemented and
the performance of it is viewed whether the cost of production decided is fit to continue
further or else any modifications have to be brought .In the same sense each and every
aspect hold equal importance .When all the aspects are verified and approved the final
decision of investment in a particular project takes place.

Dr. Reddy tries out for various options in order to make a successful investment, it not only
makes investment in projects according to present scenario but also estimates the results in
the future from the investments made at present. Sometimes they even make investment in
the project which leads to a high cost of production, unlike giving the orders to outsourcing
which will lead to a reduction in the cost of production.

This is because as the capital budgeting decisions are long term revenue generating
decisions as such they not only focus on present but also on future ,they will undertake
even such projects which is leading to the high cost of production as they want to avoid the
risks associated with complete dependence on outsourcing.

24
 CHAPTER – II

INDUSTRY PROFILE
AND
COMPANY PROFILE

25
 INDUSTRY PROFILE

consumption in order to meet some requirements, for example, of customers or

corporations. The resources managed in logistics can include physical items, such as food,
materials, animals, equipment and liquids, as well as abstract items, such as time,
information, particles, and energy. The logistics of physical items usually involves the
integration of information flow, material handling, production, packaging, inventory,
transportation, warehousing, and often security. The complexity of logistics can be
modeled, analyzed, visualized, and optimized by dedicated simulation software. The
minimization of the use of resources is a common motivation in logistics for import and
export.

Procurement logistics consists of activities such as market research, requirements

planning, make-or-buy decisions, supplier management, ordering, and order controlling.
The targets in procurement logistics might be contradictory: maximizing efficiency by
concentrating on core competences, outsourcing while maintaining the autonomy of the
company, or minimizing procurement costs while maximizing security within the supply
process.

Production logistics connects procurement to distribution logistics. Its main function is to

use available production capacities to produce the products needed in distribution logistics.
Production logistics activities are related to organizational concepts, layout planning,
production planning, and control.

Distribution logistics has, as main tasks, the delivery of the finished products to the
customer. It consists of order processing, warehousing, and transportation. Distribution
logistics is necessary because the time, place, and quantity of production differs with the
time, place, and quantity of consumption.

Disposal logistics has as its main function to reduce logistics cost(s) and enhance service(s)
related to the disposal of waste produced during the operation of a business.

Reverse logistics denotes all those operations related to the reuse of products and
materials. The reverse logistics process includes the management and the sale of surpluses,
as well as products being returned to vendors from buyers. Reverse logistics stands for all
26
operations related to the reuse of products and materials. It is "the process of planning,
implementing, and controlling the efficient, cost effective flow of raw materials, in-process
inventory, finished goods and related information from the point of consumption to the
point of origin for the purpose of recapturing value or proper disposal. More precisely,
reverse logistics is the process of moving goods from their typical final destination for the
purpose of capturing value, or proper disposal. The opposite of reverse logistics is forward
logistics."

Green Logistics describes all attempts to measure and minimize the ecological impact of
logistics activities. This includes all activities of the forward and reverse flows. This can be
achieved through intermodal freight transport, path optimization, vehicle saturation and city
logistics.

One definition of business logistics speaks of "having the right item in the right quantity at
the right time at the right place for the right price in the right condition to the right
customer".[10] Business logistics incorporates all industry sectors and aims to manage the
fruition of project life cycles, supply chains, and resultant efficiencies.

The term business logistics has evolved since the 1960s[11] due to the increasing complexity
of supplying businesses with materials and shipping out products in an increasingly
globalized supply chain, leading to a call for professionals called "supply chain
logisticians".

In business, logistics may have either an internal focus (inbound logistics) or an external
focus (outbound logistics), covering the flow and storage of materials from point of origin
to point of consumption (see supply-chain management). The main functions of a qualified
logistician include inventory management, purchasing, transportation, warehousing,
consultation, and the organizing and planning of these activities. Logisticians combine a
professional knowledge of each of these functions to coordinate resources in an
organization.

27
There are two fundamentally different forms of logistics: one optimizes a steady flow of
material through a network of transport links and storage nodes, while the other coordinates
a sequence of resources to carry out some project

Handling and Order Processing

 Unit loads for transportation of luggage at the airport, in this case the unit load has
protective function.
 Unit loads are combinations of individual items which are moved by handling
systems, usually employing a pallet of normed dimensions.
 Handling systems include: trans-pallet handlers, counterweight handler, retractable
mast handler, bilateral handlers, trilateral handlers, AGV and stacker handlers.
Storage systems include: pile stocking, cell racks (either static or movable),
cantilever racks and gravity racks.

Order processing is a sequential process involving: processing withdrawal list, picking

(selective removal of items from loading units), sorting (assembling items based on
destination), package formation (weighting, labeling and packing), order consolidation
(gathering packages into loading units for transportation, control and bill of lading).[15]

Picking can be both manual or automated. Manual picking can be both man to goods, i.e.
operator using a cart or conveyor belt, or goods to man, i.e. the operator benefiting from the
presence of a mini-load ASRS, vertical or horizontal carousel or from an Automatic
Vertical Storage System (AVSS). Automatic picking is done either with dispensers or
depalleting robots.

Sorting can be done manually through carts or conveyor belts, or automatically through
sorters.
28
Transportation

Main article: Cargo

Cargo, i.e. merchandise being transported, can be moved through a variety of transportation
means and is organized in different shipment categories. Unit loads are usually assembled
into higher standardized units such as: ISO containers, swap bodies or semi-trailers.
Especially for very long distances, product transportation will likely benefit from using
different transportation means: multimodal transport, intermodal transport (no handling)
and combined transport (minimal road transport).

Operators involved in transportation include: all train, road vehicles, boats, airplanes
companies, couriers, freight forwarders and multi-modal transport operators.

Merchandise being transported internationally is usually subject to the Incoterms standards

issued by the International Chamber of Commerce.

Profile of the Courier Industry

History

The courier industry has long held an important place in American commerce and been
involved in pivotal moments in our nation’s history such as westward migration and the
gold rush. Wells-Fargo was founded in 1852 and rapidly became the preeminent package
delivery company. The company specialized in shipping gold, packages and newspapers
throughout the West, making a Wells-Fargo office in every camp and settlement a necessity
for commerce and connections to home.

Shortly afterward, the Pony Express was established to move packages more quickly than
the traditional method, which followed the stagecoach routes. The success of efficient
deliveries on the Pony Express route has been credited with keeping California in the
Union during the Civil War. It also illustrated the demand for timely deliveries across the
nation, a concept that continued to evolve with the railroads, automobiles and interstate
highways and that has emerged into today’s courier industry.

29
Typical Courier Firm

Courier businesses are small businesses and have a long history of positive influence in
their communities. Firms typically employ about 25 individuals, who receive good salaries
and benefits, and utilize up to three times that many independent owner-operator drivers
annually. There are more than seven thousand small businesses that make up the multi-
billion dollar same-day courier industry.

Goods Moved

Couriers pick up and deliver important business documents or packages that need to be sent
or received quickly either locally, regionally, or nationally. Couriers also deliver items that
the customer is unwilling to entrust to other means of delivery because they are either time-
sensitive or require specialized individual handling, such as medical supplies, blood,
machine parts, and even organs for transplant.

Business Model

The business model for the courier industry is particularly dependent on independent
contractors, which are used in addition to its dedicated employee resources. The nature of
the industry, with its on-demand, often unscheduled delivery model, requires a varying
number of courier drivers on any given day and time of day to complete a set service. To
meet their customers’ demands, courier services contract with competent, ambitious, and
responsible individuals on an ‘as needed’ basis to service their community every day.
These independent owner-operators pick up and deliver letters, important business
documents or packages that need to be sent or received quickly within a local area.
Couriers and messengers also deliver items that the customer is unwilling to entrust to
other means of delivery due to its sensitive and fragile nature, such as medical supplies,
blood, machine parts, and even organs for transplant. Because these items are transported
according to the customer’s own timetable and often times these shipments are time
sensitive, the owner-operator business model allows courier companies to staff each day of
work appropriately.

30
Value of the Industry

The existence of the same-day expedited delivery service is vital to the economy and just-
in-time nature of the U.S. We have become a nation dependent on last minute delivery and
supply. There are very few industry segments that can wait until tomorrow for vital parts
and supplies.

Businesses that use couriers

While there are many industries that use courier services, certain industries critically
depend on couriers for expedited same-day or less than 24 hours delivery on a daily basis.
Biomedical labs and analysis centers use couriers to retrieve and deliver samples for testing
and evaluation. The manufacturing industry relies on couriers to distribute parts to keep
their plants operating smoothly. Financial institutions must transfer multiple documents
every day between branches and processing centers. Law firms must deliver confidential
documents on very strict deadlines and use couriers to ensure rapid delivery.
Pharmaceutical distributors utilize couriers to transport medications to hospitals and
nursing homes daily. These are just a few examples of primary customer market – each
courier company, dependent on their expertise and regional needs, has a unique customer
market profile.

Importance of 24 hour delivery

Same-day delivery is crucial for time-sensitive materials, such as important electronic parts
or medical samples. Due to the critical need, fragility, confidentiality or bulky size of items,
these packages cannot be slotted into the existing FedEx or Postal Service delivery times
for next day or two day delivery; they must be delivered according to the customer’s
schedule and specifications. Organs must be delivered in a certain timetable in order to be
viable for transplantation, medical specimens delivered for testing can be the most useful to
the patient if results are available quickly, and legal documents are often prepared and
delivered to the client or judge on unforgiving deadlines.

For these types of goods, courier service is the only form of delivery that does not
jeopardize the item delivered or the business involved. Owner-operator drivers are a key

31
part of the same-day delivery practice as they provide the ability for flexible scheduling and
ensure a courier will always be available for a customer delivery.

Value of competition in the sector

Courier firms provide an invaluable service because the “big four” (DHL, UPS, FedEx and
USPS) in the delivery business simply do not provide same-day delivery services uniquely
designed to meet specific individual customer needs. Expedited delivery firms also prevent
the big four from having a complete monopoly on deliveries that must be completed in a
short period of time. This competition, both among couriers and with the big four, has
greatly increased the quality and professionalism of the industry, while also ensuring
reasonable rates for customers. These 7,000 plus small businesses also help to keep the
pricing competitive and the big four honest. Additionally, the courier industry consists
almost entirely of small, locally owned and operated businesses, ensuring that revenue is
retained within the community served, rather than siphoned off by a multi-national
corporation.

Safety and Security Procedures

Due to the nature of many of the services the courier industry provides, such as transporting
controlled narcotics, publicly traded companies pre-published financial data and blood and
organ movements, most independent owner-operator couriers obtain the proper training and
abide by chain of custody requirements that ensure the safety and security of every
shipment channeled through the same-day pipeline.

Professionalism

Industry surveys indicate that 99 percent of owner-operator drivers are professional drivers.
These drivers are also vetted prior to being offered a position. Often times this includes
safety and TSA guideline knowledge, geography and even logistics questionnaires to
ensure safe practices and compliance with TSA guidelines. Drivers must have a valid
operator’s license in good standing with the state of issuance, and comprehensive insurance
that is up-to-date. Also, most states require that couriers take training courses prior to
becoming a commercial vehicle operator, which means only qualified, safe and committed
professionals make the final cut to become contract couriers. The business model works as

32
a self-policing mechanism, where only safe drivers become career employee drivers or
contracted owner-operator drivers.

Safety

While our industry is not regulated, per se, by the normal standards of government-
instituted regulations, we do meet increasingly rigorous training and safety demands. This
can be seen in our 100 percent safety record - to date, there has not been a single incident
that compromises our homeland security. The industry primarily accepts billed payments
and does 99 percent of their business with shippers that are “known” to them, both of
which drastically reduce the ability for an individual to use a courier service to deliver
explosives or biochemical agents, since there is a traceable record set by the transaction.

Our customers entrust us with the delivery of extremely fragile and sensitive items and as
such, set the security level according to that particular package. A customer recently
arranged for independent owner operators to undertake a week of specialized training to
prepare for a delivery involving transgenic mice that have the potential to foster

33
COMPANY PROFILE

34
 CORPORATE PROFILE BLUE DARE EXPRESS LTD

Blue Dart Express Ltd, South Asia’s leading integrated air express carrier and premium.
Logistics- Services provider. State-of – the art technology, indigenously developed, for
Track and Trace, MID ,ERP Customer service, Space control and reservations Blue dart
Aviation, dedicated capacity to support our time Definite morning deliveries though night
freighter flight operations. A countrywide surface network to complement our air services.
Warehouses at 38 locations across the country as well as bonded warehouses at the six
major metros of Bangalore, Chennai, Delhi, Mumbai, Kolkata, and Hyderabad. ISO 9001-
2000 countywide certifications by Lloyds Register Quality Assurance of our enter
operations, Products and services.
Ecommerce B2B B2C initiatives including partnering with some of the prime portals in the
country. Blue Dart is the most extensive domestic network covering over 14000 locations
and service more than 220 countries and territories world wide through sale alliance with
DHL. The premier global brand name in express distribution services .

BLUE DART COMPETITIVE ADVANTAGE LIES IN:

VAST AND UNPARALLED DOMESTIC NETWORK:

Linked by some of the most advanced communications systems and portioned to offer a
consistent, premium, standardized quality of services.
A SPECTRUM OF SERVICES TO PROVIDE CUSTOMIZED SOLUTIONS:
Blue Dart is the only express carrier in the country today which offers an entire range of
services that extent from a document to a charter-load of shipments. Blue Dart services are
relentlessly monitored to deliver a net service level of 99.94% for June 2006.Blue customs
and regulatory expertise: A dedicated team of specialized to provide the expertise for
customs as well as regulatory clearances at all states with in the country, to support
seamless services to the customers.
BLUE DART AIR NETWORK:
The only one of its kind in the country today that is focused on carriage of packages as its
prime business, rather than as byproduct of a passenger airline. A dedicated aviation system
to support Blue Dart’s services is self-sustaining, with its own bonded warehouses, ground
handling and maintenance capability.

35
ITS FINANCIAL CREDIBILITY:
Fitch, Ratings India Pvt. Ltd. has assigned the highest “F1+(ind)” (F one plus (ind)) Rating
for our short term debt programme of Rs 30 crores. Further, ICRA Ltd. Has also assigned
the highest A1+”(Pronounced A one plus) Rating for our Commerical paper programme of
Rs 25 crores.

BLUE DART PEOPLE FORCE:

Committed, diverse and over 4700 strong are Blue Dart most valued asset. All Their
achievements have been possible because They have a team who believes in themselves
and their company, a team with a winning attitude. Blue Dart is a learning organization,
Their value self-development, and most of their managers are homegrown.

BLUE DART – DHL RELATIONSHIP

On the 12th September 2002, BLUE DART AND DHL signed a Sales Alliance Agreement
which came into effect from the 1st October 2002. The Agreement is for a duration of five
years on a principal to principal basis. Blue Dart chose to ally with DHL as it is the #1
international air express company in the world. With superior hi-tech on-ground
infrastructure, unmatched cross-border specialization, greater flexibility of its network and
the strongest brand recongnition in India and in the world. The coming together of the
world’s No.1 domestic express services provider is a logical step in a win-win relationship
to benefit all the parties involved, the customer and the stakeholders of both organizations.
Blue Dart believes that the alliance would bring the DHL advantage to Blue Dart’s
customers resulting in greater customer satisfaction.
DHL is the world’s leading express and logistics company offering customers innovative
and customized solutions from a single source. With global expertise in solutions, express,
air and ocean freight and overland transport DHL combines worldwide coverage with an
in-depth understanding of local markets. DHL’S harmonized international network links
more than 220 countries and territories worldwide.

36
DHL continues to be at the forefront of technology and, with more than 150,000 dedicated
employees, guarantees fast and reliable services aimed at exceeding customers’
expectations. Based in Brussels, Belgium, DHL IS 100% owned by Deutsche post world
net.

BLUE DART VISION

“To be the best and set the pace in the air express integrated transportation and distribution
industry, with a business and human conscience.
Blue Dart commit to develop, reward and recognize our people who, through high quality
and professional service and use of sophisticated technology, will meet and exceed
customer and stakeholder expectations profitably.”
Focus on our core domestic products to exand our market share and consolidate our unique
and premium position in the Indian market. Blue Dart would also leverage its vast customer
base for global distribution through its alliance with DHL. We plan to leverage our
established infrastructure to continue adding value and customized solutions to the
changing and evolving demands of the customers with access to our quality domestic and
regional distribution. Our domestic network will continue to differentiate itself in all areas
of our core competencies- supply chain management, logistics and Ecommerce.
Position ourselves as the preferred, seamless link to a country projected to be an economic
superpower of the 21st century. Through our technology developments, premium services,
quality network and strategic alliances, we plan to carve for ourselves a leadership position
in the industry as India’s and the region’s link to the world.
Continue to deliver value to our stakeholders through our people philosophy and Corporate
Governance based on distinctive Customer Service, Business Ethics and Accountability,
and Profitability.

The first Indian –manufactured main deck loaders at all its 5 on-line stations – Chennai,
Bangalore, Mumbai, Delhi and Kolkata in 1996. The specs were provided by Blue Dart
Aviation, and desin and manufacture undertaken by a coimbatore-based
manufacturer,MAK control, in a 4-month period at less than 20% of the cost of the
international equivalent.

37
BLUE DART TECHNOLOGY
Blue Dart has been the only Indian Air Express Company that has invested extensively
in Technology infrastructure to create differentiated delivery capabilities, quality services
and customized solutions for the customer,

Some of the technology- based business offerings on our site are as follows:

TrackDart
MailDart
MobileDart
InternetDart
ShopTrack
PackTrack
ShipDart
Billing
Schedule a pickup
Waybill Generation
Location Finder
Transit Time Finder
Price Finder
COSMAT II
SMART
ImageDart

Blue Dart is one of the largest private computer networks in India, with over 1750
computer terminals connected by dedicated leased lines, VSATs and Microwave links.
And its E-mail is accessed at 114 locations daily by over 2450 users. It also employ
wireless, mobile telephones, radio sets and pagers extensively to enhance their
communication speed and connectivity with our troops on the field. Our customer service
Cell is equipped with Automated Call Distribution Systems (ACDS) to provide quick
response and support to our customers.

For their Aviation system, their in-house team has developed SMART (space management
allocation reservations and tracking ) for effective space and revenue management.
38
SERVICE GUIDE

Blue Dart services are subject to their Terms and Conditions of Domestic Carriage –Dart
Surfaceline, and liability terms incorporated therein. Please read these carefully before you
avail of our services.

Dart Surfaceline is an economical, door-to-door, ground distribution service within India

for shipments weighing 10kgs and above. It offers a cost-effective logistics option for your
less time- sensitive shipments with the following value – added benefits:

>TIME-BOUND DELIVERY
A fleet of vehicles run to pre-determined schedules to provide committed delivery. Click on
Transit Time Finder for information on delivery time, or contact Blue Dart.

>Track your shipment

Over the net, or contact Blue Dart to receive information on the status of your shipment.
You can also view, download and print copies of proof of Deliveries and Delivery Callans
of Dart Surfaceline shipments

>REGULATORY CLEARANCES
Our team of specialists will provide you with the clearance support required to ensure a
smooth delivery. Click on Regulatory for details of the paperwork requirements, or contact
Blue Dart for assistance.

>PICK-UP CONVENIENCE
You may contact Blue Dart to Schedule a pick-up and your shipment will be picked-up,
transported, cleared through regulatory channels and delivered to the consignee, while you
are able to receive updated information and proof of delivery on demand.

>SECURE SHIPMENTS
All the destinations serviced by Dart Surfaceline are supportd by our own warehouses,
manned by trained professionals to ensure the safety and security of your shipments.

39
>ECONOMICAL TARIFF
All these benefits are available at charges that support value pricing. Click on price finder
for the applicable tariff.

Security regulations do not permit carriage of certain items on the Dart Surfaceline mode.
Click on Banned commodities-All services and Dangerous Goods prohibited on Blue Dart
for information on these items or contact Blue Dart for details.

For any further assistance with your Dart Surfaceline shipment Contact Blue Dart.

CAPITAL BUDGETING IN BLUE DART

The capital Budgeting in Blue Dart is based on capital budget manual which covers the
following aspects.

I. INTRODUCTION.

The Company’s Budget for the calendar year 2010 will be prepared in accordance with the
“Budget/Accounts Consolidation Chart’ attached herewith as per Annexure “A”

Head Office will provide the historical sales date with Fuel surcharge, without fuel
surcharge and with fuel surcharge neutralized to 25% up to September 2010 for each area
by way of a file transfer to the Regional Heads/Controllers who would in turn disseminate
the same to the concerned Branch Mangers/Area Managers.

Each Area/Department on the consolidation Chart will have its own Budgets. The Budgets
for the service Centers reporting in to each area will be consolidated with the area Budgets
and similarly , the FCC and RSP Budget will be consolidated with the Budget where they
are controlled from, but would need to be computed scientifically and reflected in the Area
sales budget

All Area Budget will be consolidated first at the Branch Level, thereafter at the Region
level and finally at the company level and finally at the company level

40
Each Area/Department will prepare budgets as per annexure given hereto

a. Capital Budget
b. Sales Budget
c. Expenses

All budget prepared must be broken up taking into consideration the actual number of
working days at the area level in each month. The following information is also attached to
support you in the Budget process

1. Workings days region/month wise jan-dec’08, Jan-Dec’09, Jan-Dec’010 & average of

these 3 years is provided in Annexure “D”

2. For the period Jan’10 to Sep’10, the actual sale % Region wise against each Market
holiday is provided in Annexure “E”

You could refer to above-Mentioned Annexure as a guideline only: Areas need to take into
account their own market holidays

II.RESPONSIBILITY FOR PREPARATION OF BUDGETS

The Area Budget will be prepared by the Area manager supported by the Area Accountant.
The Budget will be reviewed by the Branch Manager. After review of the Area Budget by
the Branch Manger, it will be finally reviewed by the Regional head and the Regional
Controller.

The responsibility for the consolidation of the Regional Budget will be with the regional
Controllers and the responsibility for the consolidation of the Head office Department
Budget will be with the Corporation Controller All India at Head Office and the total
Company’s budget would be with V.P Corporate Accounts.

41
ANNUAL PLAN EXERCISE:

The capital funds budget/annual plan is meant for making provision for cash
expenditure of capital nature including the foreign exchange component wherever
necessary.
The capital funds budget will mainly contain the following information along with
other information:

1) Revised estimates for the current year.

2) Budget estimates for the ensuring year i.e., budget year.
3) Preliminary budget estimates for the year following the budget year.

GENERAL GUIDELINES:

The capital funds budget is to be prepared under six major heads.

 Continuing schemes
 New schemes
 Modernization and rationalization
 Township
Science and technology

1. CONTINUING SCHEMES:
These schemes include all such schemes which are under implementation of which
funds provision has been made in the current year/provision is required in the
budget year.

2. NEW SCHEMES:
This scheme includes all such schemes which are proposed to be initiated in the
budget year and for which funds provision is required in the budget year. Normally,
such schemes are included in the five year plan of the company approved by the
planning commission.

42
3. MODERNISATION AND RATIONALISATION(M&R):
This includes items of plant & machinery etc for which funds are required in the
budget year and the following year. All items included in M&R should result in cost
reduction/quality improvement/debottlenecking/replacement/productivity,
improvement and welfare. The M&R items are to be submitted in the following
main characteristics accompanied with full justification on the ageing of facilities,
increased output and production, quality requirements bottlenecks.

 Replacement/modernization
 Balancing facilities(essentially to increase production
 Operational requirements including material handing
 Quality/listing facilities
 Welfare
 Minor works

These requirements should be prioritized item wise. A separate proposal is required

for M&R items costing more than Rs.10,00,000

2. TOWNSHIP:
Township budget is divided into two parts.

o Continuing township schemes

o New township schemes

Funds required against each scheme should be backed up with full data on number
on quarter/scope of work to be completed against the funds requirements phasing of
budgeted funds for current year, budget year and following year etc, should be
given similar information on number of quarter/ scope of work already completed,
expenditure incurred till last year, satisfaction level it is to be added in the above
back up information for each scheme.

43
 3. SCIENCE AND TECHNOLOGY:
This budget can be divided into two categories.
 Continuing schemes
 New schemes to be taken up in the budget year.

The scheme should fall in any of the above categories giving details on physical and
financial progress etc.

4. EDP SCHEMES:
All funds requirements for computer/information systems should be grouped under
EDP schemes and projected accordingly.

FUNDING MODE

As per present practice, the annual plan/capital funds budget of the company is financed
under two major heads.

 Budgetary support from the government

 Internal resources of the company

1) The budgetary support from the government is received in the form of loan and
equity in the ratio of 1:1 approximately as per the government guidelines.
2) Internal resources are the company’s own funds/reserves. The present trend
indicates gradual decline budgetary support from the government and it is insisting
on utilizing of more internal resources for capital funding. This necessitates a
rigorous and critical budget formulation exercise.

1. SCHEMES/PROJECTS:
Feasibility report for such schemes should include and analysis of the plant
initiating the report, its present status, its products and its role in the industry. Governments
view on the present future growth plants for the industry to which the products belong and
current five year plan provisions for the scheme should also be brought out.

44
 NEED FOR THE PROJECT:
A brief para on alternatives examined/results obtained should be included in the
report. This should be done taking into consideration factors like optimum size of the plant,
location, product mix, technology, demand, transportation etc.

2. TECHNOLOGY CONSIDERATION/CHOICE:
For the product to which the scheme relates, all considerations/parameters analyzed in
making the choice should be outlined. These may be enumerated as follows.

I. Suitability of technology for the product/raw material available

II. Status of technology within Blue Dart,
III. Whether existing/new technology, if new reasons for preference and benefits.
IV. Trends in the world/local markets.
V. Competitiveness of the technology chosen
VI. Collaboration proposed
VII. R&D activities required
VIII. Chances of technology had chosen getting obsolete.

2. PROJECT DESCRIPTION:
In order to help the appraisal, in analyzing evaluating the proposal, the description
should touch upon site, equipment requirement, input requirement, labor phasing of
construction, production built up, and any collaboration required, housing needs, etc.

3. MARKETING:
The detailed market analysis in the feasibility report should answer questions like.
I. Total market potential for the product
II. Expected market share
III. Competitors details

Based on the market survey the demand supply position in detail should be given.
Marketing plan for the product based on market survey and studies conducted for the
product should be mentioned in the report.
45
4. INDUSTRIAL LICENSE:
Feasibility report should mention the need for industrial license, if any, for the
products proposed in the investment proposal

5. CAPITAL INVESTMENT REQUIREMENTS:

It is necessary that the estimates of capital costs presented in the feasibility report
should be reasonable complete and properly estimated. For the purposes of project
appraisal, capital costs are essentially those costs which are incurred before the
commencement of commercial production. For fixed assets are costs like customs duty,
excise, insurance, transportation at the latest applicable rates should be calculated.

6. OPERATING REQUIREMENTS:
For the purposes of project appraisal, operation costs are essentially those costs
which are incurred after the commencement of commercial production. This will help in
financial analysis.

7. FINANCIAL ANALYSIS:
The purpose of financial analysis of a project is to present some measures to assess
the financial viability of the project. The data presented in this formats should be consistent
with the production plans, operation costs, capital costs.

8. SENSITIVITY ANALYSIS:
The feasibility report should also briefly present the results of sensitivity analysis.
This is relevant whenever the key assumptions made in the feasibility report are likely to be
changed/affected.

9. PROJECT IMPLEMENTATION PLAN:

The feasibility report should briefly indicate the project implementation,
organization that will be responsible for executing the scheme. This is most essential for
expansion/diversification schemes at existing plant locations.

46
10. ECONOMIC ANALYSIS:
Economic analysis the viability of the project is evaluated taking into account the
opportunity cost of the tradable inputs/outputs which go into the project, shadow prices for
foreign exchange, domestic resource costs of the non tradable inputs. Such analysis may be
relevant for planning commission in evaluating the projects from the national
perspective/plans.

11. PREPARATION OF DETAILED PROJECT REPORT.

For all capital investment schemes which have been approved by the government, it
is essential to prepare a detailed project report which will form the basis of project
execution. The purpose of detailed project report is not only to enable projecting a realistic
requirement of budgetary funds, but it would also improve the planning the implementation
aspects of capital projects. The detailed project report should be submitted within 6 months
from the date of financial sanction for the scheme.

MODERNISATION AND RATIONALISATION

Plant modernization and rationalization which is in operation for some time is very
important. The facts about the wear and tear of the equipment, change in technological
process quality improvement cannot be denied. All this needs a marginal investment in the
existing plants/units. This may also be very essential to meet the production targets,
customer satisfaction and markets share. All such modernization and rationalization
proposals can be classified to fall under the following categories.

1. Technological up gradation
2. Cost reduction efficiency improvement
3. Replacements
4. Production diversification.

In most of the cases, if the equipment procured is of a very high value the exceeding
Rs 20 lakes it is necessary to treat the same as a scheme and to justify the proposal on
the ;basis of financial economic analysis wherever possible.

47
 In some of the cases involving quality improvement etc. where it may be difficult to
quantify benefits for the purpose of financial viability, stress should be laid on selecting the
optimum cost option. In regard to cost reduction efficiency improvement proposals, the
recommendation of technological/industrial engineering departments supported by
financial analysis can be furnished.

SCIENCE AND TECHNOLOGY:

The capital investment made under science and technology for R&D purpose
should be considered under the following heads.
 R&D items/schemes envisaged for commercialization in a specified time span
 R&D schemes for product development
 R&Dschemes dealing with new products
 Computer schemes.

48
 CHAPTER – VI
DATA ANALYSIS
AND
INTERPRETATION

49
 4. DATA ANALYSIS AND INTERPRETATION

As advised by the finance department. I had been to the planning & development
department, which looks after the capital budgeting decisions for collection of data and had
a talk with the officials engaged in the capital budgeting process.

I am fortunate enough to get a live project on the following topics

Procurement of thermo-hydro graph recorder

The data that has been collected from the planning and development department has been
recast by me to present the same in an appreciable and easily understandable manner.

The procedure with regard to the capital budgeting followed by BLUE DART EXPRESS
LTD detail with the help of the live case.

CASE I

PROPOSAL: New services centres

SPECIFICATION OF : New service center

1. Building
2. Furniture
3. Systems

DESCRIPTION s: Its can increases the sales by the proposal of new services center
increasing the number of services centers at different locations
PRESENT PRACTICE

A customer looking more comfortable, by brand image if we set-ups the services centers
the nearest and busy areas the customer can feel more comfortable.

50
JUSTIFICATION

The Location Branch manger gives the justification about the new services center and he
explains the advantages of new service centers.

Schedule for implementation: 6 months from the time of approval.

PROJECT BASIC DETAILS:

CAPITAL EMPLOYED 2.1 MILLION (PER MONTH )

LIFE OF THE PROJECT (ASSUMED) 5 YEARS

SELLING PRICE PER KG 900 RS

CONTRIBUTION RS/KG 430 RS

RATE OF DEPRECIATION 15%

NET INCOME/YEAR 11.8 MILLION

COST OF CAPITAL 10%

METHOD OF DEPRECIATION SLM

RATE OF INCOMETAX 35%

COMPUTATION OF CASH INFLOWS

Table 1.1
PARTICULARS
AMOUNT (RS)
CASH FLOW BEFORE TAX
AND DEPRECIATION
(CFBT) 11800000

LESS:DEPRECIATION @ 15% 1770000

PBT 10030000

LESS:TAX @ 35% 3510500

PAT 6519500

ADD: DEPRECIATION 1770000

CFAT 8289500

51
PAY BACK PERIOD (PBP) :

PAY BACK PERIOD = INITIAL INVESTMENT

CONSTANT ANNUAL CASH INFLOWS

= 25200000
8289500

= 3.04 YEARS

INTERPRETATION:

The cash inflows in this project are constant as such the above formulae have been applied.
The pay back period of this project is 3.04 years.

AVERAGE RATE OF RETURN (ARR) ;

Since the profit after tax is constant, as such the average profit after tax is 6519500

AVG INVESTMENT = ½[INITIAL INVESTMENT + INSTALLATION CHARGES – SALVAGE]

+SALVAGE VALUE

=1/2[25200000 + 0 –0]+0

=12600000

52
ARR = AVERAGE PAT * 100
AVERAGE INVESTMENT

= 6519500 *100
12600000

=51.74%

INTERPRETATION:

The average rate of return from the project is 51.74%

DISCOUNTED PAY BACK PERIOD :

Table 1.2
CASH
YEAR INFLOW PVAF@10% PV OF CASH INFLOW
1-5 yrs 8289500 3.791 31425495

PBP = INITIAL INVESTMENT

CONSTANT ANNUAL CASH INFLOWS

= 25200000
31425495
=0.80 YEARS

INTERPRETATION:
The initial investment can be recovered from 0.80 years

53
NET PRESENT VALUE (NPV);

As the cash flows are constant, we can calculate the NPV of the project by applying the
following formulae:

PV OF CASH INFLOW = CONSTANT ANNUAL * PV OF ANNUITY FACTOR

CASH INFLOW @10% AGAINST 5 YEARS

= 8289500 * 3.791

= 31425495

NPV = PV OF CASH INFLOW – PV OF CASHOUTFLOW

= 31425495 – 25200000

= Rs6225495

INTERPRETATION:

It is desirable to accept the project as it is generating a positive NPV of Rs 6225495

54
PROFITABILITY INDEX (PI) OR BENEFIT COST RATIO (BCR);

PI = PV OF CASHINFLOW

PV OF CASH OUTFLOW

= 31425495
25200000

=1.25%

INTERPRETATION:

The project have a profitability index of 1.25%

55
INTERNAL RATE OF RETURN (IRR):

As the annual cash inflows are constant we need to calculate IRR by applying the actual
PBP formulae instead of fake pay back period.

PAY BACK PERIOD = INITIAL INVESTMENT

CONSTANT ANNUAL CASH INFLOWS

= 25200000
8289500

=3.04 YEARS

Locate 2 discount factors in present value of annuity table against year5 such that one
should be higher then 3.04 and other lower then 3.04.

AT 19%-------------- 3.058
AT 20%-------------- 2.991

IRR LIES BETWEEN 19 TO 20%

IRR = rl + DFRL - PB *Δr

DFRL – DFRH

56
Where
RL = LOWER RATE =19%

DFRL = DISCOUNT FACTOR AT LOWER RATE=3.058

PB = PAY BACK PERIOD=3.04

DFRH = DISCOUNT FACTOR AT HIGHER RATE=2.991

Δr =DIFFERENCE IN THE DISCOUNT RATE=20 – 19 =1

IRR = 19 + 3.058 –3.04 *1

2.991

= 19 + 0.018 *1
0.067

= 19 + 0.268

=19.27%

INTERPRETATION:
The IRR of this project is 19.27%

57
 Table 1.3

SUMMARY

PARTICULARS COMPUTATIONS

PBP 3.04 YEARS

ARR 51.74%

DPBP 0.80 YEARS

NPV 6225495

PI 1.25%

IRR 19.27%

58
 PROJECT-II

PROJECT BASIC DETAILS:

CAPITAL INVESTMENT PROPOSAL FOR CAPACITY ENHANCEMENT AND
IMPROVEMENT IN THE SERVICES.

CAPITAL OUTLAY/ CAPITAL EMPLOYED 21,600,000

LIFE OF THE PROJECT 10 YEARS

SELLING PRICE PER KG

1 YEAR = 1000 RS/KG
2 YEAR =700 RS/KG
3 YEAR= 1350 RS/KG

4. TOTAL COST PER KG

1 YEAR=812 RS/KG
4 YEAR=650 RS/KG
3-10 YEAR=1137 RS/KG

5. CONTRIBUTION PER KG
1 YEAR= 188 RS/KG
2 YEAR= 50 RS/KG
3-10 YEAR= 213 RS/KG

6. SALVAGE (5% OF INVESTMENT)

7. COST OF CAPITAL 9%

8. REPAIRS AND MAINTAINANCE 41667

59
 9.NUMBER OF UNITS PRODUCED PER YEAR
1 YEAR =11000 UNITS
2 YEAR =11000 UNITS
3-10 YEAR =17000 UNITS

10. RATE OF INCOME TAX 35%

DEPRECIATION SLM

Table 1.4

COMPUTATION OF CASH INFLOWS

PARTICULARS 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
SALES (UNITS)
11000 11000 17000 17000 17000 17000 17000 17000 17000 17000
SELLING PRICE(P.U)
1000 700 1350 1350 1350 1350 1350 1350 1350 1350
SALES (RS)
11000000 7700000 22950000 22950000 22950000 22950000 22950000 22950000 22950000 22950000
LESS: COST
8932000 7150000 19329000 19329000 19329000 19329000 19329000 19329000 19329000 19329000
PBDT
2068000 550000 3621000 3621000 3621000 3621000 3621000 3621000 3621000 3621000
LESS:DEPRECIATIO
N
2052000 2052000 2052000 2052000 2052000 2052000 2052000 2052000 2052000 2052000
PBT
16000 -1502000 1569000 1569000 1569000 1569000 1569000 1569000 1569000 1569000
LESS:TAX@35%

5600 NIL 549150 549150 549150 549150 549150 549150 549150 549150
PAT
10400 -1502000 1019850 1019850 1019850 1019850 1019850 1019850 1019850 1019850
ADD:DEPRECIATION
2052000 2052000 2052000 2052000 2052000 2052000 2052000 2052000 2052000 2052000
CFAT (PAT+DEP)

2062400 550000 3071850 3071850 3071850 3071850 3071850 3071850 3071850 3071850

60
PAY BACK PERIOD (PBP) :

The annual cash inflows are not constant so we calculate cumulative cash inflows in order
to compute the pay back period.
Table 1.5
CUMULATIVE CASH
YEAR CASH INFLOWS INFLOWS
1 2062400 2062400
2 550000 2612400
3 3071850 5684250
4 3071850 8756100
5 3071850 11827950
6 3071850 14899800
7 3071850 17971650
8 3071850 21043500
9 3071850 24115350
10 3071850 27187200

Initial investment = 21600000

Amount received upto the end of 8th year = 21043500
Amount to be received in 9th year = 556500
(21600000 – 21043500)
Cash flows after tax (CFAT) in 9th year = 30718750

PBP = 8 + 556500
3071850
= 8 + 0.181
= 8.18 years

INTERPRETATION:
The payback period for this project is 8.18 years.

61
AVERAGE RATE OF RETURN (ARR):

ARR = AVERAGE PAT * 100

AVERAGE INVESTMENT

AVERAGE PAT = TOTAL PAT

NUMBER OF YEARS

AVERAGE INVESTMENT = ½[INITIAL INVESTMENT + INSTALLATION CHARGES –

SALVAGE]+SALVAGE VALUE

AVERAGE PAT = 6667200

10

= 666720

AVERAGE INVESTMENT=1/2[21600000 +41667 – 1080000] +1080000

=1/2[20561667] +1080000

=10280833.5 +1080000

= 11360833.5

ARR = 666720 *100

11360833.5

= 5.87%

INTERPRETATION:
The ARR of this project is 5.87%

62
 DISCOUNTED PAY BACK PERIOD:

COMPUTATION OF DISCOUNTED PAY BACK PERIOD

Table 1.6

YEAR CASH INFLOWS PV@9% PV OF CASH INFLOW CUMULATIVE CASH INFLOW

1 2062400 0.917 1891221 1891221
2 550000 0.842 463100 2354321
3 3071850 0.772 2371468 4725789
4 3071850 0.708 2174870 6900659
5 3071850 0.65 1996703 8897362
6 3071850 0.596 1830823 10728185
7 3071850 0.547 1680302 12408487
8 3071850 0.502 1542069 13950556
9 3071850 0.46 1413051 15363607
10 3071850 0.422 1296321 16659928

INTERPRETATION:

The pay back period is more than 10 years as the initial investment cannot be recouped
until 10 years.

63
NET PRESENT VALUE (NPV) :

NPV = PRESENT VALUE OF CASH INFLOWS - PRESENT VALUE

OF CASH OUTFLOW

Table 1.7

PV OF CASH
YEAR CFAT PV @9% INFLOW
1 2062400 0.917 1891220.8
2 550000 0.842 463100
3-10 3071850 4.659 14311749.15

PV OF CASH INFLOWS 16666069.95

NPV = 16666069.95 - 21600000

= - 4933930.05
INTERPRETATION:

The NPV of the project is –4933930.05

64
BENEFIT COST RATIO (BCR)
(OR)
PROFITABILITY INDEX (PI):

PI = PRESENT VALUE OF CASH INFLOWS

PRESENT VALUE OF CASH OUTFLOWS

PI = 16666069
21600000

PI = 0.77%

INTERPRETATION:

The profitability index generated by this project is 0.77%.

65
INTERNAL RATE OF RETURN (IRR):

In this project as the cash inflows are not constant we calculate fake pay back
period.

FAKE PBP = INITIAL INVESTMENT

AVERAGE CASH INFLOWS

AVERAGE CASH INFLOWS = TOTAL CASH INFLOWS

NUMBER OF YEARS

= 27187200
10

= 2718720

FAKE PBP = 21600000

2718720

= 7.94

Locate a discount factor in pv of annuity table nearest to 7.81 against year 10

At 5% - 7.722

66
Therefore our starting rate is 5%

YEAR CASH INFLOW PV@5% PV OF CASH INFLOW

1 2062400 0.952 1963404.8
2 550000 0.907 498850
3 - 10 3071850 5.863 18010256.55

PV OF CASH INFLOWS 20472511.35

To increase the PV of cash inflow, we decrease the rate.Let the new rate be 4%

YEAR CASH INFLOW pv@4% PV OF CASH INFLOW

1 2062400 0.962 1984028.8
2 550000 0.925 508750
3 – 10 3071850 6.225 19122266.25

PV OF CASH INFLOWS 21615045.05

PV OF CASH OUTFLOW = RS21600000

PV OF CASH INFLOW @4% =RS 21615045.05
PV OF CASH INFLOW @5% = RS 20472511.35

Therefore IRR lies between 4 – 5%

IRR = rl + pvcfat - pvc *Δr

Δ pv

67
WHERE rl = lower rate of discount = 4%

Pvcfat=pv of cash inflow at lower rate = 21615045.05

Pvc = pv of cash outflow =21600000

Δpv = difference in pv of cash inflow

= 21615045.05 – 20472511.35
= 1142533.7

Δr = difference in discounting rate

= 4 –5
=1
IRR = 4 + 21615045.05 - 21600000
* 1
1142533.7

= 4 + 401768.85 *1
1142533.7

= 4 + 0.013

= 4.013%

INTERPRETATION:

The Internal Rate OF Return of this project is 4.013%.

68
Table 1.8

SUMMARY

PARTICULARS COMPUTATIONS
PBP
8.18 YEARS

ARR 5.87%

DPBP 11 YEARS

NPV -4933930.05

PI 0.77%

IRR 4.013%

69
 SUMMARY OF THE PROJECTS

PROJECT – I PROJECT- II
LIFE – 5yrs LIFE – 10yrs
CASH OUTLAY – 2,52,00,000 CASH OUTLAY –2,16,00,000
COST OF CAPITAL –10% COST OF CAPITAL –9%

TECHNIQUE COMPUTATIONS TECHNIQUE COMPUTATIONS

PBP PBP
3.04 YEARS 8.18 YEARS

ARR 51.74% ARR 5.87%

DPBP 0.80 YEARS DPBP NILL

NPV 6225495 NPV -4933930.05

PI 1.25% PI 0.77%

IRR 19.27% IRR 4.013%

70
 CHAPTER – V

FINDINGS, SUGGESTION
AND
CONCLUSION

71
 FINDINGS

Project –1 is having a life of 5 years with cost of capital of 10% and total investment of
Rs.2,52,00,000

The PBP of the project is 3.04yrs and the discounted payback period is0.80yrs
which is less then the life of the project i.e. 5 years.
The ARR of the project is more then 30% i.e. 51.74%
The NPV of the project is more then “0” i.e. 6225495
The IRR is also more then the cost of capital i.e. 19.27% where as the cost of
capital of the project is just 10%
The PI is more then 1 i.e. 1.25%

In consideration with the above points it can be said that the project can be
accepted as it is satisfying all the required conditions.

Project –2 is having a life of 10 years with cost of capital of 9% and total investment of
Rs.2,16,00,000

The PBP of the project is 8.18yrs and where as the discounted payback period
of the project is more then its life i.e. 10 years.
The ARR of the project is less then 10% i.e. 5.87%
The NPV of the project is negative i.e. –4933930.05 but where as the
investment of the project is Rs.21600000
The IRR of the project is4.013% which is less then the cost of capital which is
9%.
The PI of the project is less then 1 i.e. 0.77%

By considering the above computations it can be said that the project has to be
rejected. But the company wants to continue the project because of strategic
reasons. They want to continue the project in order to avoid the risk of
outsourcing.

72
 SUGGESTIONS

1. Company should go for the improvement in the technology to improve efficiency

and to decrease the cost of production per unit

2. For society with lower income levels or below poverty line company should go for
subscribed rates and for industries it should increase its rate marginally to cover the
losses.

3. The subscribed cost in future should be reduced.

4. High risk is associated with the project, since the generation period is high.

5. Government of AP should provide notional debt equity.

73
 CONCLUSION

 Capital budgeting decisions involve the exchange of current funds for the benefits

to be achieved in future

 Independent, mutually exclusive, capital rationing decisions are very important

decisions in capital budgeting.

 It is very important for a firm to plan and control its capital expenditure.

 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

 The implications of a Capital Budgeting decision are scattered over a long period.

 The methods, which may be used for this purpose such as, payback period method,

Rate of return method, N.P.V and I.R.R etc.

74
 BIBLIOGRAPHY

 FINANCIAL MANAGEMENT TEXT AND PROBLEMS :

KHAN & JAIN
 FINANCIAL MANAGEMENT:
I.M.PANDEY
 FINANCIAL MANAGEMENT PRICIPLES & PRACTICES:
S.N.MAHESHWARI
 FINANCIAL MANAGEMENT THEORY & PRACTICES:
PRASANNA CHANDRA
 CAPITAL INVESTMENT DECISION MAKING:
DERYL NORTH COTT
 INVESTMENT DECISIONS & FINANCIAL STRATEGY:
RICHARD PIKE &RICHARD
DOBBINS
 COMPANY ANNUAL REPORT, BROUCHERS, MANUALS:

 INTERNET:
www.google.com
www.bluedart.com

75
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