Capital Budgeting Vishaka

MBA PROGRAMME
INTRODUCTION
The field of capital budgeting is both comprehensive and
challenging .it is clearly plays a vital role in assisting most business firms
to achieve there various goals (e.g. ., profitability, growth, stability, risk
reduction, social goals, etc) it has been closely allied to the economic
problem. This is rather broadly defined as the allocation of scarcer
resources among competing alternatives.
Capital budgeting may be defined as the planning, evaluation, and
selection of capital expenditure proposal .as distinguished from operating
expenditures, whose chief benefits are recognized with in a period of one
year, capital expenditures represent outlay whose principal benefits will
be recognized over longer period of time. ecision relating to capital
expenditures as opposed to those for operating expenditures, are generally
irreversible, and they re!uire careful selection techni!ues and procedures.
Capital budgeting is commonly referred to as fixed asset
management, when integrated with the financial manager"s goal of
attending proper combination of assets) i.e., optimal asset mix), fixed
asset assume a great deal of significance. #ixed assets are also fre!uently
termed as the $earning asset" of the firm since they usually generate large
returns. %ince assets are the sources of revenue generation for the firm
and fixed asset its principal sources, it appears logical that future sales
growth is heavily correlated with the expansion of capital expenditures.
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WHAT IS CAPITAL BUDGETING?
Capital budgeting is a re!uired managerial tool. 'ne duty of a financial
manager is to choose investments with satisfactory cash flows and rates
of return. Therefore, a financial manager must be able to decide whether
an investment is worth undertaking and be able to choose intelligently
between two or more alternatives. To do this, a sound procedure to
evaluate, compare, and select pro(ects is needed. This procedure is called
capital budgeting.
Capital i a li!ited "e#u"ce
)n the form of either debt or e!uity, capital is a very limited resource.
There is a limit to the volume of credit that the banking system can create
in the economy. Commercial banks and other lending institutions have
limited deposits from which they can lend money to individuals,
corporations, and governments. )n addition, the #ederal *eserve %ystem
re!uires each bank to maintain part of its deposits as reserves. +aving
limited resources to lend, lending institutions are selective in extending
loans to their customers. ,ut even if a bank were to extend unlimited
loans to a company, the management of that company would need to
consider the impact that increasing loans would have on the overall cost
of financing.
)n reality, any firm has limited borrowing resources that should be
allocated among the best investment alternatives. 'ne might argue that a
company can issue an almost unlimited amount of common stock to raise
capital. )ncreasing the number of shares of company stock, however, will
serve only to distribute the same amount of e!uity among a greater
number of shareholders. )n other words, as the number of shares of a
company increases, the company ownership of the individual stockholder
may proportionally decrease.
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DE$INITION%
Capital budgeting is defined as .the firm decision to invest its current
funds most effectively in long term activities in anticipation of an
expected flow of future benefit over a serious of year.
Capital budgeting includes are those expenditure which are
expected to produce benefits to the firm over more than one year, and
encompasses both tangible and intangible assets. /any companies follow
the traditional benefits occurring only the expenditure on tangible fixed
assets.
.Capital ,udgeting involves the process of planning expenditure
whose returns are expected to extend beyond one year0.
& Wet#n ' B"ig(a!
.Capital budgeting is long term planning for making and financing
proposed capital outlay0
&C(a"le T) H#"nge"en
$EATURES O$ CAPITAL BUDGETING DECISION%
1otentially large anticipated benefits.
2 relatively high degree of risk.
2 relatively long time period between the initial outlay and the
anticipated returns.
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NATURE O$ CAPITAL BUDGETING DECISIONS4
The investment decision of a firm are generally know as the capital
budgeting, or capital expenditure decisions. 2 capital budgeting decision
may be defined as the firm"s decision to invest its current funds most
effectively in the long 5term assets in anticipation of an expended flow of
benefits over a series of years. The long 5term asset are those that affect
the firm"s operational beyond the one6year period.
)nvestment decisions generally include expansion, ac!uisition
modernization and replacement of the long6term asset sale of a division
or business (divestment) is also an investment decision. ecision like the
change in the method of sales distribution, or an advertisement campaign
or a research and developing program have long 5term implication for the
firm"s expenditures and benefits, and therefore e, they should also be
evaluated as investment decision.
The argument that capital is a limited resource is true of any form
of capital, whether debt or e!uity (short6term or long6term, common
stock) or retained earnings, accounts payable or notes payable, and so on.
7ven the best6known firm in an industry or a community can increase its
borrowing up to a certain limit. 'nce this point has been reached, the
firm will either be denied more credit or be charged a higher interest rate,
making borrowing a less desirable way to raise capital.
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CAPITAL BUDGETING PROCESS%
Capital budgeting is a complex process as it involves decisions
relating to the investment of current funds for the benefits to be achieved
in future and the future is always uncertain. +owever, the following
procedure may be adapted in the process of capital budgeting. There are
five stages in the capital budgeting process.
Identi*icati#n #* in+et!ent #pp#"tunitie4
The capital budgeting process begins with the identification of potential
investment opportunities. Typically, the planning body (it may be an
individual or committee organized formally or informally) develops
estimates of future sales which identifying re!uired investment in plant
and e!uipment.
)dentification of investment ideas it is helpful to4
/onitor external environment regularly to scout investment
opportunities.
#ormulate a well6defined corporate strategy based on through analysis
of strengths, weaknesses, opportunities, and threats.
%hare corporate strategy and respective with persons.
)dentification of
investment
opportunities
2ssembling of
investments
ecision making
1erformance
review
)mplement
action
1reparation of
capital budget
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/otivate employees to make suggestions.
Ae!bling #* in+et!ent p"#p#al4
)nvestment proposal identified by the production department and
other department are usually submitted in a standardized capital
investment proposal form. :enerally, most of the proposal, before they
reach the capital budgeting committee or viewed from different angle. )t
also helps in creating a climate for bringing about co6ordinations of inters
related activities.
)nvestment, proposals are usually classified into various categories
for facilitating decision 5making, budgeting, and control.
*eplacement investments
7xpansion investments.
;ew product investments.
'bligatory and welfare investment.
Decii#n !a,ing%
2 system of rupee gateways usually characterized capital investment
decision6making. <nder this system executive are vested with the power
to pay investment proposals up to certain limits.
P"epa"ati#n #* capital budgeting%
1ro(ects involving smaller out lays and which executives at lower
levels can decide are often covered by a blanket appropriation for
expenditures action. 1ro(ects involving larger outlays are included in the
capital budget after necessary approvals. ,efore under facing such
pro(ects an appropriation order is usually re!uired. The purpose of this
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check is mainly to ensure that the funds position of the firm satisfactory
at the time of implementation.
I!ple!entati#n%
Translating an investment proposal in to a concert pro(ect is a complex,
time consuming, and risk6fraught task.
Ade-uate *#"!ulati#n #* p"#.ect
The ma(or reasons for delay is insinuate formulation of pro(ects put
differently, if necessary home work in terms of preliminary
comprehensive and detailed formulation of the pro(ect .
Ue #* t(e p"incipal #* "ep#nibilit/ acc#unting
2ssigning specific responsibility to pro(ect managers for completing the
pro(ect within the defined time 5frame and cost limits is helpful for
expeditious execution and cost control.
Ue #* net0#", tec(ni-ue
#or pro(ect planning and control several network techni!ues like 17*T
(programmed evolution review techni!ues) and C1/ (critical path
method) is available.
Pe"*#"!ance "e+ie0%
1erformance review, or post 5 completion audit, is a feed back device. )t
is a means for comparing actual performance with pro(ected performance.
)t may be conducted, moat appropriately. >hen the operation of the
pro(ect have stabilized.
)t is useful several ways.
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)t throws light on how realistic were the assumption underlying the
pro(ect.
)t provided a documented log of experience that is highly valuable for
decisional making.
C#!p#nent #* capital budgeting
Initial In+et!ent Outla/4
)t includes the cash re!uired to ac!uire the new e!uipment or build
the new plant less any net cash proceeds from the disposal of the replaced
e!uipment. The initial outlay also includes any additional working capital
related to the new e!uipment. 'nly changes that occur at the beginning of
the pro(ect are included as part of the initial investment outlay. 2ny
additional working capital needed or no longer needed in a future period
is accounted for as a cash outflow or cash inflow during that period.
Net Ca( bene*it #" a+ing *"#! t(e #pe"ati#n%
This component is calculated as under46
(The incremental change in operating revenues minus the incremental
change in the operating cost @ )ncremental net revenue) minus (taxes)
plus or minus (changes in the working capital and other ad(ustments).

Te"!inal Ca( *l#0%
)t includes the net cash generated from the sale of the assets, tax effects
from the termination of the asset and the release of net working capital.
T(e Net P"eent 1alue tec(ni-ue%
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2lthough there are several methods used in Capital ,udgeting, the ;et
1resent Balue techni!ue is more commonly used. <nder this method a
pro(ect with a positive ;1B implies that it is worth investing in.
Baic tep #* capital budgeting
&. 7stimate the cash flows
-. 2ssess the riskiness of the cash flows.
3. etermine the appropriate discount rate.
8. #ind the 1B of the expected cash flows.
9. 2ccept the pro(ect if 1B of inflows C costs. )** C +urdle *ate andDor
1ayback E policy.

#aced with limited sources of capital, management should carefully
decide whether a particular pro(ect is economically acceptable. )n the
case of more than one pro(ect, management must identify the pro(ects that
will contribute most to profits and, conse!uently, to the value (or wealth)
of the firm. This, in essence, is the basis of capital budgeting.
In+et!ent decii#n & Capital budgeting
Capital budgeting is vital in marketing decisions. ecisions on
investment, which take time to mature, have to be based on the returns
which that investment will make. <nless the pro(ect is for social reasons
only, if the investment is unprofitable in the long run, it is unwise to
invest in it now.
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'ften, it would be good to know what the present value of the
future investment is, or how long it will take to mature (give returns). )t
could be much more profitable putting the planned investment money in
the bank and earning interest, or investing in an alternative pro(ect.
Typical investment decisions include the decision to build another
grain silo, cotton gin or cold store or invest in a new distribution depot.
2t a lower level, marketers may wish to evaluate whether to spend more
on advertising or increase the sales force, although it is difficult to
measure the sales to advertising ratio.
C(apte" #b.ecti+e
This chapter is intended to provide4
2n understanding of the importance of capital budgeting in
marketing decision making
2n explanation of the different types of investment pro(ect
2n introduction to the economic evaluation of investment
proposals
The importance of the concept and calculation of net present value
and internal rate of return in decision making
The advantages and disadvantages of the payback method as a
techni!ue for initial screening of two or more competing pro(ects.
St"uctu"e #* t(e c(apte"
Capital budgeting is very obviously a vital activity in business.
Bast sums of money can be easily wasted if the investment turns out to be
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wrong or uneconomic. The sub(ect matter is difficult to grasp by nature of
the topic covered and also because of the mathematical content involved.
+owever, it seeks to build on the concept of the future value of money
which may be spent now. )t does this by examining the techni!ues of net
present value, internal rate of return and annuities. The timing of cash
flows are important in new investment decisions and so the chapter looks
at this HpaybackH concept.
Capital budgeting +e"u cu""ent e2penditu"e
2 capital investment pro(ect can be distinguished from current
expenditures by two features4
a) %uch pro(ects are relatively large
b) a significant period of time (more than one year) elapses between the
investment outlay and the receipt of the benefits.
2s a result, most medium6sized and large organizations have developed
special procedures and methods for dealing with these decisions. 2
systematic approach to capital budgeting implies4
a) The formulation of long6term goals
b) The creative search for and identification of new investment
opportunities
c) Classification of pro(ects and recognition of economically andDor
statistically dependent proposals
d) The estimation and forecasting of current and future cash flows
e) 2 suitable administrative framework capable of transferring the
re!uired information to the decision level
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f) The controlling of expenditures and careful monitoring of crucial
aspects of pro(ect execution
g) 2 set of decision rules which can differentiate acceptable from
unacceptable alternatives is re!uired.
The last point (g) is crucial and this is the sub(ect of later sections of the
chapter.
T(e clai*icati#n #* in+et!ent p"#.ect
a) ,y pro(ect size
%mall pro(ects may be approved by departmental managers. /ore
careful analysis and ,oard of irectorsI approval is needed for large
pro(ects of, say, half a million dollars or more.
b) ,y type of benefit to the firm
2n increase in cash flow
2 decrease in risk
2n indirect benefit (showers for workers, etc).
c) ,y degree of dependence
/utually exclusive pro(ects (can execute pro(ect 2 or ,, but not
both
Complementary pro(ects4 taking pro(ect 2 increases the cash flow of
pro(ect ,.
%ubstitute pro(ects4 taking pro(ect 2 decreases the cash flow of
pro(ect ,.
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d) ,y degree of statistical dependence
1ositive dependence
;egative dependence
%tatistical independence.
IN1EST3ENT PRO4ECTS
T(e ti!e +alue #* !#ne/4
*ecall that the interaction of lenders with borrowers sets an
e!uilibrium rate of interest. ,orrowing is only worthwhile if the return on
the loan exceeds the cost of the borrowed funds. Jending is only
worthwhile if the return is at least e!ual to that which can be obtained
from alternative opportunities in the same risk class.
The interest rate received by the lender is made up of4
i) The time value of money4 the receipt of money is preferred sooner
rather than later. /oney can be used to earn more money. The earlier the
money is received, the greater the potential for increasing wealth. Thus,
to forego the use of money, you must get some compensation.
ii) The risk of the capital sum not being repaid. This uncertainty re!uires
a premium as a hedge against the riskK hence the return must be
commensurate with the risk being undertaken.
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iii) )nflation4 money may lose its purchasing power over time. The lender
must be compensated for the declining spendingDpurchasing power of
money. )f the lender receives no compensation, heDshe will be worse off
when the loan is repaid than at the time of lending the money.
a5 $utu"e +alue6c#!p#und inte"et
#uture value (#B) is the value in dollars at some point in the future of one
or more investments.
The general formula for computing #uture Balue is as follows4
#B
n
@ B
o
(l L r)
n
>here
B
'
is the initial sum invested
r is the interest rate
n is the number of periods for which the investment is to receive interest.
Thus we can compute the future value of what B
o
will accumulate to in n
years when it is compounded annually at the same rate of r by using the
above formula.
>e can derive the 1resent Balue (1B) by using the formula4
#B
n
@ B
o
() L r)
n

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,y denoting B
o
by 1B we obtain4
#B
n
@ 1B () L r)
n

*ationale for the formula4
2s you will see from the following exercise, given the alternative of
earning &GM on his money, an individual (or firm) should never offer
(invest) more than N&G.GG to obtain N&&.GG with certainty at the end of the
year.
b5 Net p"eent +alue 7NP15
The ;1B method is used for evaluating the desirability of investments or
pro(ects.
>here4
C
t
@ the net cash receipt at the end of year t
)
o
@ the initial investment outlay
r @ the discount rateDthe re!uired minimum rate of return on investment
n @ the pro(ectDinvestmentIs duration in years.
Decii#n "ule%
)f ;1B is positive (L)4 accept the pro(ect
)f ;1B is negative (6)4 re(ect the pro(ect
d5 Pe"petuitie
1erpetuity is an annuity with an infinite life. )t is an e!ual sum of money
to be paid in each period forever.
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e5 T(e inte"nal "ate #* "etu"n 7IRR5
*efer students to the tables in any recognised published source.
The )** is the discount rate at which the ;1B for a pro(ect e!uals
zero. This rate means that the present value of the cash inflows for
the pro(ect would e!ual the present value of its outflows.
The )** is the break6even discount rate.
The )** is found by trial and error.
Net p"eent +alue +) inte"nal "ate #* "etu"n
)ndependent vs. dependent pro(ects
;1B and )** methods are closely related because4
i) both are time6ad(usted measures of profitability, and
ii) their mathematical formulas are almost identical.
%o, which method leads to an optimal decision4 )** or ;1BO
a5 NP1 +) IRR% Independent p"#.ect
)ndependent pro(ect4 %electing one pro(ect does not preclude the choosing
of the other.
>ith conventional cash flows (6PLPL) no conflict in decision arisesK in this
case both ;1B and )** lead to the same acceptDre(ect decisions.
;1B vs. )** )ndependent pro(ects
)f cash flows are discounted at k
&
, ;1B is positive and )** C k
&
4 accept
pro(ect.
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)f cash flows are discounted at Q
-
, ;1B is negative and )** E Q
-
4 re(ect
the pro(ect.
/athematical proof4 for a pro(ect to be acceptable, the ;1B must be positive, i.e.
>here * is the )**.
%ince the numerators C
t
are identical and positive in both instances4
)mplicitlyDintuitively * must be greater than k (* C k)K
)f ;1B @ G then * @ k4 the company is indifferent to such a pro(ectK
+ence, )** and ;1B lead to the same decision in this case.
b5 NP1 +) IRR% Dependent p"#.ect
;1B clashes with )** where mutually exclusive pro(ects exist.
<p to a discount rate of Q
o
4 pro(ect , is superior to pro(ect 2, therefore
pro(ect , is preferred to pro(ect 2.
,eyond the point Q
o
4 pro(ect 2 is superior to pro(ect ,, therefore pro(ect
2 is preferred to pro(ect ,
The two methods do not rank the pro(ects the same.
ifferences in the scale of investment
;1B and )** may give conflicting decisions where pro(ects differ in
their scale of investment. 7xample4
isadvantage of 1)4
Jike )** it is a percentage and therefore ignores the scale of investment.
T(e pa/bac, pe"i#d 7PP5
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The C)/2 defines payback as Ithe time it takes the cash inflows from a
capital investment pro(ect to e!ual the cash outflows, usually expressed in
yearsI. >hen deciding between two or more competing pro(ects, the usual
decision is to accept the one with the shortest payback.
1ayback is often used as a Hfirst screening methodH. ,y this, we mean
that when a capital investment pro(ect is being considered, the first
!uestion to ask is4 I+ow long will it take to pay back its costOI The
company might have a target payback, and so it would re(ect a capital
pro(ect unless its payback period was less than a certain number of years.
Diad+antage #* t(e pa/bac, !et(#d4
)t ignores the timing of cash flows within the payback period, the
cash flows after the end of payback period and therefore the total
pro(ect return.
)t ignores the time value of money. This means that it does not
take into account the fact that N& today is worth more than N& in
one yearIs time. 2n investor who has N& today can consume it
immediately or alternatively can invest it at the prevailing interest
rate, say 3GM, to get a return of N&.3G in a yearIs time.
)t is unable to distinguish between pro(ects with the same payback
period.
)t may lead to excessive investment in short6term pro(ects.
Ad+antage #* t(e pa/bac, !et(#d%
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1ayback can be important4 long payback means capital tied up and high
investment risk. The method also has the advantage that it involves a
!uick, simple calculation and an easily understood concept.
T(e acc#unting "ate #* "etu"n & 7ARR5
The 2** method (also called the return on capital employed (*'C7) or
the return on investment (*')) method) of appraising a capital pro(ect is
to estimate the accounting rate of return that the pro(ect should yield. )f it
exceeds a target rate of return, the pro(ect will be undertaken.
Diad+antage%
)t does not take account of the timing of the profits from an
investment.
)t implicitly assumes stable cash receipts over time.
)t is based on accounting profits and not cash flows. 2ccounting
profits are sub(ect to a number of different accounting treatments.
)t is a relative measure rather than an absolute measure and hence
takes no account of the size of the investment.
)t takes no account of the length of the pro(ect.
)t ignores the time value of money.
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T(e pa/bac, and ARR !et(#d in p"actice
espite the limitations of the payback method, it is the method most
widely used in practice. There are a number of reasons for this4
)t is a particularly useful approach for ranking pro(ects where a
firm faces li!uidity constraints and re!uires fast repayment of
investments.
)t is appropriate in situations where risky investments are made in
uncertain markets that are sub(ect to fast design and product
changes or where future cash flows are particularly difficult to
predict.
The method is often used in con(unction with ;1B or )** method
and acts as a first screening device to identify pro(ects, which are
worthy of further investigation.
)t is easily understood by all levels of management.
)t provides an important summary method4 how !uickly will the
initial investment be recoupedO
epreciation is charged on the straight6line basis. 1roblem4
a) Calculate the following for both proposals4
)) The payback period to one decimal place
ii) the average rate of return on initial investment, to one decimal place.
All#0ing *#" in*lati#n
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%o far, the effect of inflation has not been considered on the
appraisal of capital investment proposals. )nflation is particularly
important in developing countries, as the rate of inflation tends to be
rather high. 2s inflation rate increases, so will the minimum return
re!uired by an investor. #or example, one might be happy with a return of
&GM with zero inflation, but if inflation was -GM, one would expect a
much greater return.
E2pectati#n #* in*lati#n and t(e e**ect #* in*lati#n
&. >hen a manager evaluates a pro(ect, or when a shareholder
evaluates hisDher investments, heDshe can only guess what the rate
of inflation will be. These guesses will probably be wrong, at least
to some extent, as it is extremely difficult to forecast the rate of
inflation accurately. The only way in which uncertainty about
inflation can be allowed for in pro(ect evaluation is by risk and
uncertainty analysis.
-. )nflation may be general, that is, affecting prices of all kinds, or
specific to particular prices. :eneralized inflation has the following
effects4
a. )nflation will mean higher costs and higher selling prices. )t
is difficult to predict the effect of higher selling prices on
demand. 2 company that raises its prices by 3GM, because
the general rate of inflation is 3GM, might suffer a serious
fall in demand.
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b. )nflation, as it affects financing needs, is also going to affect
gearing, and so the cost of capital.
c. %ince fixed assets and stocks will increase in money value,
the same !uantities of assets must be financed by increasing
amounts of capital. )f the future rate of inflation can be
predicted with some degree of accuracy, management can
work out how much extra finance the company will need and
take steps to obtain it, e.g. by increasing retention of
earnings, or borrowing.
3. +owever, if the future rate of inflation cannot be predicted with a
certain amount of accuracy, then management should estimate what
it will be and make plans to obtain the extra finance accordingly.
1rovisions should also be made to have access to Icontingency
fundsI should the rate of inflation exceed expectations, e.g. a higher
bank overdraft facility might be arranged should the need arise.
8. /any different proposals have been made for accounting for
inflation. Two systems known as HCurrent purchasing powerH
(C11) and HCurrent cost accountingH (CC2) have been suggested.
9. C11 is a system of accounting which makes ad(ustments to income
and capital values to allow for the general rate of price inflation.
=. CC2 is a system which takes account of specific price inflation
(i.e. changes in the prices of specific assets or groups of assets), but
not of general price inflation. )t involves ad(usting accounts to
reflect the current values of assets owned and used.
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?. 2t present, there is very little measure of agreement as to the best
approach to the problem of Iaccounting for inflationI. ,oth these
approaches are still being debated by the accountancy bodies.
T8PES O$ CAPITAL BUDGETING DECISIONS%
Capital ,udgeting decisions are of paramount importance in
financial decision6making. )n first place they affect the profitability of the
firm. They also have a bearing on the competitive position of the firm
because they relate to fixed assets. The fixed assets are true goods than
can ultimately be sold for6profit. :enerally the capital budgeting of
investment decision includes addition, disposition, modification, and
replacement of fixed assets.
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E9PANSION
DI1ERSI$ICATION

REPLACE3ENT

RESEARCH AND
DE1ELOP3ENT

3ISCELLANEOUS
PROPOSAL
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Types of
Capital budgeting
Decisions
E2pani#n%
The company may have to expand its production capacities on
accounts of high demand for its products or inade!uate production
capacity. This will need additional capital e!uipment.
Di+e"i*icati#n%
2 company may intend to reduce it risk by operating in several
activities. )n such a case capital investment may become necessary for
purchases of new machinery and facilities to handle the new product.
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Replace!ent%
The replacement of fixed assets in place of existing assets, either being
worn out or become out dated on account of new technology.
Reea"c( and De+el#p!ent%
Jarge sums of money may have to be spent for research and
development, in case those industries where technology is rapidly
changing. )n such cases large sums of money are needed for research and
development activities. %o these are also included in the proposals of
Capital ,udgeting.
3icellane#u P"#p#al%
2 Company may have to invest money in pro(ects, which do not
directly helping achieving profit6oriented goals. #or example, installation
of pollution control e!uipment may be necessary on account of legal
re!uirements. Therefore, funds are re!uired for such proposal also.
Capital Budgeting and Public $inancial 3anage!ent%
1ublic investment is an important potential contributor to economic
growth and achievement of social development ob(ectives. )n addition to
the level of investment and the sectoral allocation, the capital budgeting
process is an important determinant of the !uality of investment pro(ects
and their implementation.
*ecent years have seen renewed attention to capital investment for
economic growth and development. )n particular, much attention has been
given to finding fiscal space for increasing capital investment. ,ut, absent
good processes for using existing or new funds, the impact of capital
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investments will not yield the expected results. This post provides an
overview of selected issues regarding capital budgeting and capital
budgeting systems as an aid in understanding what goes wrong and what
might be done about it. The post draws directly from a chapter written by
the author for a >orld ,ank
Public *inancial !anage!ent 7P$35 and capital budgeting
Countries commonly adopt special processes for addressing capital
or investment spending given the size of the expenditures, their long6term
costs and benefits, and their importance for public service delivery and
economic development. The special treatment of capital goes beyond
simple budgeting to capital asset management.
espite the importance of special attention to capital assets, the
capital budgeting process cannot be considered outside of the over6all
public financial management system. Capital spending is only one
component of spending, and needs to be considered within the context of
government6wide and sector6specific multi6year strategies and ob(ectives.
The capital budgeting process must be fully integrated into the general
budgeting and public financial management process.
De*ining Capital
>hile seemingly a straight forward !uestion, governments around
the world, and even within a country, may define capital" differently.
Capital spending is generally about physical assets with a useful life of
more than one year. ,ut it also includes capital improvements or
rehabilitation of physical assets that enhance or extend the useful life of
the asset (as distinct from a repair or maintenance, which assures the asset
us functional for its planned life).
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Capital spending is sometimes e!uated with investment or
development spending, where expenditures have benefits extending years
into the future. <nder this definition, governments may include physical
assets for government use (e.g. office buildings), physical assets of a
public good nature that also enhance private sector development (e.g.
roads, water systems), and intangibles (e.g. education, research). )t can be
!uite difficult to distinguish between investment and non6investment
expenditures, and if investment spending receives favored treatment in
the annual budgeting process, nearly all spending, whether recurrent or
not, will end6up being classified as investment.
7very government establishes some arbitrary cut6off point to
distinguish capital from current expenditures. #or budgeting purposes, the
relevant distinction is between capital and current or operating
expenditures. Current expenditures are purchases of assets to be
consumed within one year, regardless of expenditure size. %mall
expenditures (e.g. less than <%N-9,GGG) are generally considered current,
regardless of useful life.
%ome countries use the )/# &FF= :overnment #inance %tatistics
as the basis for their budget classification system, including defining
capital expenditure. The &FF= :#% defines capital expenditure as4
.Capital expenditure. 7xpenditure for ac!uisition of land, intangible
assets, government stocks, and nonmilitary, non6financial assets, of more
than a minimum value and to be used for more than one year in the
process of productionK also for capital grants. Capital expenditure is
fre!uently separated (in some cases along with certain revenue) into a
separate section or capital account of the budget or into an entirely
separate budget for capital expenditure. That is, the capital budget. This
separation may sometimes follow different criteria, however.0 >hile
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allowing intangible assets and government stocks, it does not standardize
.minimal value,0 allowing countries to specify a value.
The important issues are to have a clear criterion, use it
consistently, and that the threshold value captures the type of capital
spending that government and spending ministry management want to
monitor. %ome countries are tempted to set too low of a threshold value,
meaning reported $capital" spending is misleading, capturing many small
items from office supplies and office furniture to roads and schools. %ome
may also include capital transfers or subsidies to state6owned enterprises,
again creating a misleading picture of capital formation in the country.
Capital Aet C#nditi#n and 3aintenance
*ather than only examining funding, it is important to examine
other aspects of capital spending performance, such as condition of
facilities and ade!uacy of maintenance spending. These are important
inputs and outputs of the capital budgeting process, and affect both
decision6making and efficiency of capital spending. 2 central or sector
ministry registry of current assets and their physical condition is a useful
tool to support budget formulation, execution, and management. /any
countries do not have such registries, and they can demand much human
capital to maintain current data, let alone use the data for decision6making
and management.
7ven where no central registry of capital assets and their condition
exists, countries may have information on asset depreciation and years of
service. These can give some indication of potential investment needs.
,ut, they are relatively crude measures telling more about facility age
than current condition, and not a satisfactory way to estimate
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maintenance costs or need for various types of capital investment. The
absence of better data should raise serious !uestions of whether more
investment in a sector is (ustified, or would be properly maintained and
serve its full useful life.
Ele!ent #* a #und capital aet !anage!ent p"#ce
2s noted in the introduction, good capital budgeting should be an
integral component of a sound over6all budgeting system. >hile there are
some important elements of the process specific to capital spending, a
robust public finance system and budget process are as important to
sound capital management as the capital budgeting elements themselves.
S#und #+e"&all P$3 p"#ce
2 country"s 1#/ process has three main ob(ectives4
&. 2ggregate fiscal discipline 66 allowing budgets to be set consistent
with a realistic macroeconomic framework and a sustainable fiscal
program, and brought in on targetK
-. 2llocate efficiency 66 re!uiring that resource allocations reflect the
policies and priorities of the government"s programK and,
TECHNI:UES O$ CAPITAL BUDGETING DECISIONS%
2t each point of time a business firm has a number of proposals
regarding various pro(ects in which it can invest funds. ,ut the funds
available with the firm are always limited and it is not possible to invest
S.S & N COLLEGE Page -F
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funds in all the proposals at a time. +ence, it is very essential to select
from amongst the various competing proposals, those, which give the
highest benefits. The crux of the capital budgeting is the allocation of
available resources to various proposals. There are many considerations,
economic as well as non6economics, which influence the capital
budgeting decisions. The crucial factor that influences the capital
budgeting decisions is the profitability of the prospective investment. Ret
the risk involved in the proposals cannot be ignored because profitability
and risk are directly related, i.e. higher profitability, the greater the risk
and vice6versa.
There are many methods of evaluating profitability of capital investment
proposals. The various commonly used methods are as follows.
Traditional methods or non6discounted Techni!ues4
&. 1ayback 1eriod /ethod or 1ay out or 1ay off /ethod.
-. )mprovement of traditional 2pproach to 1ay ,ack 1eriod /ethod.
3. *ate of *eturn /ethod or 2ccounting /ethod.
Time 5 ad(usted method or discounted Techni!ues4
8. ;et present Balue /ethod.
9. )nternal *ate of *eturn /ethod
=. 1rofitability )ndex /ethod.
T(e T#p ;< T(ing T# C#nide" W(en 3a,ing A Capital Budgeting
#" In+et!ent Decii#n
Consider these ten things when youIre using the ;1B, )**, or
payback method to make a capital budgeting or investment decision.
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&) *emember that the reason youIre making a capital budgeting decision
is to create more value in the future than exists todayS onIt commit
yourself to a future course of action that is not profitable in the future
under all possible conditions you can think of today and expect tomorrow.
The value of a decision is not only centered in its expected results, but it
is raised or lowered according to the number of decisions in the future
that it does not preclude, but allows , and those for which space is
created. This statement has profound meaning for the futurity of decisions
and the design of decisions by decision makersS
=. 2lways use cash flows and not accounting income to create your
investment decision. Cash flows are the result of the total effects of
implementing the pro(ect or investment scenario only 2#T7* all costs
are removedS
3. o not include sunk costs in your investment analysis. They are
already spent, gone, kaputK use only the costs that will be incurred
by the new pro(ect or investment. There will be a tendency to66see
how much weIve already invested66use sunk costs to explain going
ahead with the pro(ect anyway66';ITS )t would be irrational to
use past expenditures to consider a decision which can only affect
the futureS
8. Rou must consider Hopportunity costsH as costs of the pro(ect or
investment. )f you use something that could be used for something else,
the cost to replace the use of the something else must be included in your
capital budgeting analysis. 2lways consider alternative uses of capital and
resources as costs to the capital budgeting pro(ect or investment.
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9. Jook beyond. Rou must consider not (ust the first order of
conse!uences, but the orders of conse!uences following your pro(ect
decision. ,uild a scenario of contingencies given the pro(ect decision.
Jook at the downstream effects of the decision, what are the side effectsO
2re there hidden costs, if so add them to the decision. >ill the pro(ect
steal market share from ongoing investmentsO >hat is t(e e2pected
effect of these lossesO
=. >hat are the effects of the non6conformities. onIt let the assumptions
you make about the present and the future be Hblinding.H )n the world we
live in today, things change66overnightS >hat about the nonconforming
assumptions you makeO +ow flexible are the beliefs that you have
established the pro(ect parameters uponO 2ccounting for this now, will
keep the value of the pro(ect in real terms.
?. 1art of the reason that ;1B calculations come out the way they do is
because of )** or )nternal *ate of *eturn. )** is designed to calculate
the HdiscountH rate at which the cash flows of your pro(ect are discounted.
/ake sure that the )**, discount rate, hurdle rate and the pro(ect
discounting rate are sufficiently related or indexed to the market
environment. )f you used a discount rate of 9M and the real rate of
inflation soared to &GM during the pro(ect66which happened in the early
eighties66your pro(ect assumptions could create disaster for the company
or your investment. onIt (ust assume that because you have an )** of x
M that you should use that M to discount cash flows under ;1B
calculations.
A. Consider the utility of time not (ust the time value of money. >ith
change occurring so rapidly, how !uickly you get to the marketplace
often determines how much utility is available for your investment
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decisions. )t is extremely difficult to calculate the utility of ideas66often
the marketplace is the only valuing entity66but as a planner you must gain
a feel for what happens if youIre not first, your pro(ect is outdated before
you go online, or sudden shifts in macroeconomic factors change pro(ect
assumptions. T+7*7 2*7;IT 2;R :<2*2;T77%66,<T, he who
ventures forth blindly, even though with courage and certainty, may need
a parachuteS
F.Consider risk management, contingency planning and disaster recovery
as a cost of the pro(ectS *isk analysis, business interruption and disaster
recovery are important factors when considering the ultimate cost or
discountability of cash flows. >hat is the risk level of the pro(ect or
investmentO +ow can this HcostH be factored into the calculationO )f the
pro(ect is a complete failure, is wiped out by unforseen contingencies or
even hampered by personnel problems, what will be the effect on the
company, organization or investmentO
&G.Jast, but not least, a maximum from professor %harpe at %tandford
<niversity who says, . )t is important to remember that investment
opportunities may influence one"s consumpton decision and that
consumption opportunities may influence one"s investment decision.
$act#" t# C#nide" in Dete"!ining Capital E2penditu"e
*ate of *eturn
,udget ceiling
1robability of success
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Competition
Tax rate
ollar amounts
Time value of money
*isk
Ji!uidity
Tax credits
Jong6term business strategy
#orecasting error
T/pe #* Capital Budgeting Decii#n
Cost reduction program
<ndertaking an advertising campaign
*eplacement of assets
'btaining new facilities or expanding existing ones
/erger analysis
*efinancing an outstanding debt issue
;ew and existing product evaluation
;o profit investments (e.g., health and safety)
COST E$$ECTI1E ANAL8SIS%
)n the cost effective analysis the pro(ect selection or technological
choice, only the costs of two or more alternative choices are considered
treating the benefits as identical this approach is used when the
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ac!uisition of how to minimize the costs for undertaking an activity at
given discount rate in case the benefits and operating costs are given, one
can minimize the capital cost to obtain the given discount.
P"#.ect planning4
The planning of a pro(ect is a technically predetermined set of inter
related activities involving the effective use of given material, human
technological and financial resources over given period of time. >hich in
association with other development pro(ect result in the achievement of
certain predetermined ob(ectives such as the production of specified
goods and servicesO
1ro(ect planning is spread over a period of time and is not a one shot
activity. The importance stages in the life of a pro(ect areK
)ts identification
)ts initial formulation
)ts evaluation (whether to select or re(ect)
)ts final formulation
)ts implementation
)ts completion and operation
The time taken for the entire process is the gestation period of the
pro(ect the seriously trying to over come certain problems. They
may be non utilization to over come available funds. 1lant capacity
expansion, etc..
C#ntent #* t(e p"#.ect "ep#"t%
*aw material
/arket and marketing
%ite of the pro(ect
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1ro(ect engineering dealing with technical aspects of the
pro(ect
Jocation and layout of the pro(ect building
,uilding
1roduction capacity
>ork schedule
Detail #* t(e c#t #* t(e p"#.ect%
Cost of land
Cost of building
Cost of plant and machinery
7ngineering know how fee
7xpenses on training and erection supervision
/iscellaneous fixed assets
1reliminary expanses
1reoperative expenses
1rovisions for contingences
I3PORTANCE O$ CAPITAL BUDGETING%
Capital budgeting decisions are among the most crucial and critical
decisions and they have significant impact on the future profitability of
the firm. 2 special care should taken while making capital decisions,
because it influences all the branches of a company such as production,
marketing, personnel, etc. the other reasons for keeping more attention on
capital budgeting decisions include the following4
;)L#ng te"! i!plicati#n4
The effect of a capital budgeting decisions will be felt over a long
time period. )t has an influence on the rate and direction of the growth of
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the company. The effects of capital budgeting decision extend into the
future to be put up with for a longer period than the conse!uences of
current operating expenditures.
=)In+et!ent #* la"ge *und%
Capital decisions re!uires large amount of capital outlay. +ence
the company should carefully plan its capital budgeting programme, so
that it may get funds at the right time and they must be put to most
profitable use. 2 wise investment can maximize the wealth of the
company and an ill advised and incorrect decision can (eopardize the
profitable potion and can also be the cause for the closer of the company.
>) I""e+e"ible decii#n%
The capital budgeting decisions are irreversible in ma(ority of the
cases. )t is due to the fact that, it is very difficult to find a market for such
capital terms once they have re!uired. The only alternative is to treat the
entire value of the asset as a scrap. This will result in heavy loss.
8.3#t di**icult t# !a,e%
Capital budgeting decisions involves forecasting of future benefits,
which is almost uncertain. )t is very difficult to pro(ect sales revenue,
costs and benefits accurately in !uantitative terms because of the
influence of economic, political, social and technological factors.
?) Riing #* *und
There must be a perfect plan to raise the funds systematically. The
company, planning for a ma(or capital expenditure, needs to arrange
finance in advance, to be sure of having the availability of funds.
NEED O$ THE STUD8
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Capital budgeting ecisions are the investment decisions of a firm
are generally known as the capital budgeting, or capital expenditure
decisions. 2 capital budgeting decisions may be defined as the firm"s
decision to invest in current funds most effectively and efficiently in the
long6term assets in anticipation of an expected flow of benefits over a
series of years. The long 5 term assets are those that affect the firm"s
operations beyond the one year period.
The firm"s investment decisions would generally include
expansion, ac!uisition, modernization and replacement of the long6term
assets. %ale of a decision or business is also an investment decision.
ecision like the change in the methods of sales distribution or an
advertisement comparison or research T development program have long
5term implications in the firm"s expenditure and benefits, and there fore
they should also he evaluated as investment decision.

SCOPE O$ THE STUD8
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The study of capital budgeting in Bizag steel plalnt includes
analyzing the investment decision of the firm.
2s substantial amounts are tied up in such decision, it needs careful
analysis and proper management .in order to minimize the
manufacturing costs and maximize its profits.
2s the information available is limited and the sub(ect is vast the
study is combined to overall capital budgeting techni!ues followed
at the firm
OB4ECTI1ES O$ THE STUD8
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&. To present theoretical framework relating to the capital
budgeting.
-. To study the financial aspects for future expansion of B%1.
3. To discuss the process of pro(ect evaluation followed by B%1.
8. To evaluate the elements consider by B%1 for expansion
pro(ect.
9. To summarize and offer suggestions for the better investment
proposals.
3ETHODOLOG8
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/ethodology is a systematic procedure of collecting information in
order to analyze and verify a phenomenon. The collection of
information is done two principle sources. They are as follows4
&. 1rimary ata
-. %econdary ata
P"i!a"/ Data
The primary data needed for the study is gathered through
interviews with concerned officers and staff, either individually or
collectively, sum of the information has been verified or supplemented
with personal observation conducting personal interviews with the
concerned officers of finance department of Bisakhapatnam %teel
1lant.
Sec#nda"/ Data
The secondary data needed for the study was collected from
published sources such as, pamphlets of annual reports, returns and
internal records, reference from textbooks and (ournals relating to
financial management.
#urther the data needed for the study was also needed 4
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(a) Collection of re!uired data from annual records of Bisakhapatnam
%teel 1lant.
(b) *eference from textbooks and (ournals relating to financial
management.
DATA SOURCES
DATA
SOURCES
PRIMARY
SOURCES
SECONDARY
SOURCES
MANAGEME
NT
RESPONDENT
S
ANNUAL
REPORTS
PERSONAL
OBSERVANC
E
TEXT
BOOKS,
JOURNALS
INSIDE THE
COMPANY
OUTSIDE
THE
COMPANY
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LI3ITATIONS O$ THE STUD8
The following are the limitations of the study.
&. %ince the procedure and polices of the company will not allow to
disclose confidential financial information, the pro(ect has to be
completed with the available data given to us.
-. The study is carried basing on the information and documents
provided by the organization and based on the interaction with the
various employees of the respective departments.
3. There was no scope of gathering current information, as the
auditing has not been done by the time of pro(ect work.
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INDUSTR8 PRO$ILE
%teel is an alloy of iron usually containing less than &M carbon
is a versatile material with multitude of useful properties used most
fre!uently in the automotive and construction industries. %teel can be cast
into bars strips, sheets, nails, spikes, wire, rods or pipes as needed by the
intended user. The consumption of steel is regarded as the index of
industrialization and the economic maturity any country has attained.

The development of steel industry in )ndia should be viewed in
con(unction with the type and system of government that had been ruling
the country. The production of steel in significant !uantity started after
&FGG. The growth of steel industry can be conveniently studied by
dividing in the period into pre T post independence era (or before &F9GT
after &F9G).The total installed capacity for in6got %teel production in
during pre independence era was &.9 millions tones Dyear, which has risen
to about A million tones of ingot by the seventies. This is the result of the
bold steps taken by the government to develop this sector.
PRE&INDEPENDENCE
&A3G 6 Uosiah, /arshall +ealth constructed the first manufacturing
&A3& 6 1lant at port /ove in /adras presidency.
&A?8 6 Uames 7rskin founded the ,engal iron works.
&AFF 6 Uamshed(i Tata initiated the scheme for an integrated steel plant.
&FG= 6 #ormation of T)%C'.
&F&& 6 Tata iron T steel company started production.
&F&= 6 T)%)C' was founded.
&F8G689 6 #ormation of /ysore iron T steel limited, and ,hadravati
in Qarnataka.
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POST&INDPENDENCE
&F9&69= 6 #irst #ive Rear 1lan.
;o new steel plant came up .The +industan steel Jtd.
was born on &F
th
Uanuary, &F98 with the decision of
setting up three steel plants each with one million tone
input steel per year in at *oukela, ,hilai and
urgapurK T)%C' stated its expansion programme.
&F9=.=& 6 %econd #ive Rear 1lan
2 bold decision was taken up to increase the ingot
steel output )ndia to = /illion tones per year T
production at *ourkela, ,hilai and urgapur steel
plant started.
&F=&.== 6 Third #ive Rear 1lan
uring the third five year plan the three steel plants
under +%J, T)%C' T +%C' were expanded as show.
)n Uanuary &F=8 ,okaro steel plant came into
existence.
&F==.=F 6 *ecession 1eriod
The entire expansion programme was actively
executed during this period.
&F=F6?8 6#ourth #ive Rear 1lan
Jicenses were given for setting up of many mini steel
plants and re6rolling mills.
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:ovt. 'f. )ndia accepted setting up two more steel
plants in south. 'ne each at Bisakhapatnam and
+ospet(Qarnataka).
%2)J was formed during this period on -8
th
Uanuary,
&F?3. The total installed capacity from = integrated
plants was &G= /t.
&F?F 6 2nnual 1lan
The erstwhile %oviet <nion agreed to help in setting
up the visakhapatnam steel plant.
&FAG.A9 6 %ixth #ive Rear 1lan
>ork on visakhapatnam steel plant was started with a
big bang and top priority was accorded to start the
plant.
%cheme for modernization of ,hilai steel plant,
*ourkela, urgapur, T)%C' were initiated.

&FA96F& 6 %eventh #ive Rear 1lan
7xpansion work of ,hilai and ,okaro steel plants
completed.
1rogress on visakhapatnam steel plant picked up and
rationalized concept has been introduced to
commission the plant with 3.G/t li!uid steel capacity
by &FFG.
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&FF&6F= 6 7ight #ive Rear plan
Bishakapatanam steel plant started its production
modernization of other steel plants is also duly
envisaged.
&FF?6-GG- 6 ;inth #ive Rear 1lan
Bisakhapatnam steel plant had foreseen a ?M growth
during the entire plan period.
-GG-6-GG? 6 Tenth #ive Rear 1lan
%teel industry registers the a growth of F.F M
visakhapatnam steel plant high regime targets
achieved the best of them.
T+7 /2U'* %T77J 2; *7J2T7 C'/12;)7% ); );)2
&. ,harat *efactories Jtd.
-. +industan %teel >orks Construction Jtd.
3. Uindal %teel and 1ower Jtd.
8. Qudremukh)ron 're Company Jtd.
9. /anganese ore ()ndia ) Jtd.
=. /etal %crap Trade Corporation Jtd.
?. /etallurgical and 7ngineering Consultants )ndia Jtd.
A. ;ational /ineral evelopment Corporation (;/C).
F. *ashtriya )spat ;igam Jtd.
&G. %ponge )ron )ndia Jtd.
&&. %teel 2uthority )ndia ltd.
&-. Tata )ron %teel Company.
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The global steel industry has witnessed several revolutionary changes
during the last century. The changes have been in the realms of both
technology T business strategy. The ultimate ob(ect of all these changes
is to remain competitive and open global market.

The )ndian steel industry is growing very rigorously with the
ma(or producers like %2)J, *);J, T)%C', UBJ and many others. 'ur
steel industry has amply demonstrated its ability of adopt to the changing
scenario and to survive in the global market that is becoming increasingly
competitive. This has been possible to a large extent due to the adoption
of innovative operating practices and modern technologies.
)ndustrial evelopment in )ndia has reached a high degree of self6
reliance, and the steel industry occupies a primary place in the strategy
for future development. 2t present the production of steel industry
country is 38/t. the public sector steel industry has been restructured to
meet challenges and a separate fund has been established for
moderanisation and future development of the industry. )t is now being
proposed that )ndian steel industry should :ear up to achieve a
production level of about &GG /t by the year-GGG.
GLOBAL SCENARIO
2s per ))%)
)n /arch" -GG9 world Crude steel out put was F-A/t when
compared to march -GG8 (A?-/t), VThe change in
percentage was =.9M.
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China remained the world largest crude steel producer in
-GG9 also (-?9/t) followed by Uapan (F=/t) and <%2
(A&/t). )ndia occupied A
th
position (8-/t).
<%2 remained the largest importer of semi finished and
finished products in -GG- followed by China and :ermany.
Uapan remained the largest exporter of semi finished and
finished steel products in -GG- followed by *ussia and
<kraine.
'ther significant recent developments in the global steel
scenario have been4<nder the auspices of the '7C
('rganization #or 7conomic Co6operation T evelopment)
the negotiations among the ma(or steel producing countries
for a steel subsidy agreement (%%2) held in -GG3 with the
ob(ective to agree on a complete negotiating test for the
%%2 by the /iddle of -GG8. )t also set subsidies for the steel
industry of a ceiling of G.9M of the value of production to be
used exclusively for *esearch T evelopment
The global economy witnessed a gradual recovery from late
-GG3 on words. China has become one of the ma(or factors
currently driving the world economy.
2s a result of these economic developments ))%) has
pro(ected an increase by =.-M or 9.3 /t in -GG8 in the
global consumption of finished steel products. ))%) has split
the growth into two separate areas, china and the rest of the
world (*'>). %teel consumption in china has been
estimated to increase by &3.&M or 3&/t in -GG8.
<%2 has repealed the safeguard measures on import of steel
as a result of a ruling by a >T' dispute resolution panel,
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which held these measures to be illegal under the >T'
regime.
3AR@ET SCENARO
The year -GG86G9 was a remarkable one for the steel industry with
the world crude steel production crossing the one billion mark for the first
time in the history of the steel industry. The world :1 growth about 8M
lends supports to the expectations the steel market is all set for strong
revival after prolonged period of depression .The )ndian economy also
become robust with annual growth rates of ?6A M this will provide a
ma(or boost the steel industry. >ith the nations focus on infrastructure
development coupled with the growth in the manufacturing sector, the
)ndian steel industry all set for north ward movement. The draft national
steel police envisages production of =G /t by -G&- and &&G/t by-G-G,
and annual growth rate of =6?M. 2ll this should there fore augur well for
the )ndian steel industry.
PRODUCTION SCENARIO
%teel industry was de6licensed and decontrolled in
&FF&T&FF- respectively.
)ndia is the A
th
largest producer of steel in the world.
)n -GG36G8 finished steel production was 3=.&F3/t.
1ig iron production in -GG36G8 was 9.--&/t.
MBA PROGRAMME
%ponge iron production was AG.A9 /t during the
year -GG36G8
The annual growth rate of crude steel production in
-GG-6G3was AM and in -GG36G8 was =M.
The last five year production performance is as under4

Table 4&
()n /illion tones)
8EAR PIGIRON SPONGEIRON $INISHED
STEEL
-GGA6GF 3.3F 9.88 -F.-?
-GGF6&G 8.GA 9.88 3G.=3
-G&G6&& 9.-A =.88 33.=?
-G&&6&- 3.?= A.GF 3F.&-
-G&-6&3 3.&A F.F3 8&.&9
$igu"e%=
MBA PROGRAMME
DE3AND&A1AILABILIT8 PRO4ECTION%
emand62vailability of iron and steel in the country is pro(ected by
ministry of steel annually.
:aps in availability are met mostly through imports.
)nterface with consumers by way of %teel Consumer Council exists,
which is conducted on regular basis.
)nterface helps in redressing availability problems, complaints related
to !uality.
PRICING ' DISTRIBUTION %
1rice regulation of iron T steel was abolished on &=6G&6&FF-.
istribution controls on ironT steel removed except 9 priority
sectors, viz efense, *ailways, %mall %cale )ndustries
Corporations,
7xporters of 7ngineering :oods and ;orth 7astern region.
2llocation to priority sectors is made by /inistry of steel.
:overnment has no control over prices of iron T steel.
'pen market prices are generally on rise.
MBA PROGRAMME
1rice increases of late have taken place mostly in long products
than flat products.
CO3PAN8 PRO$ILE
Bisakhapatnam %teel 1lant (B%1), the first coast based %teel 1lant
of )ndia is located, &= Q/ %outh >est of city of estiny i.e.
Bisakhapatnam. ,estowed with modern technologies, B%1 has an
installed capacity of 3 million Tones per annum of Ji!uid %teel and -.=9=
million Tones of saleable steel. 2t B%1 there is emphasis on total
automation, seamless integration and efficient up gradations, which result
in wide range of long and structural products to meet stringent demands
of discerning customers within )ndia and abroad. B%1 products meet
exacting )nternational Wuality %tandards such as U)%, );, and ,)%, ,%
etc.
B%1 has become the first integrated %teel 1lant in the country to
be certified to all the three international standards for !uality ()%'6FGG&),
for 7nvironment /anagement ()%'6&8GG&) T for 'ccupational +ealth T
%afety ('+%2%6&AGG&). The certificate covers !uality systems of all
'perational, /aintenance and %ervice units besides 1urchase systems,
Training and /arketing functions spreading over 8 *egional /arketing
'ffices, -8 branch offices and stock yards located all over the country.
B%1 by successfully installing T operating efficiently *s. 8=G
crores worth of 1ollution Control and 7nvironment Control 7!uipments
and converting the barren landscape by planting more than 3 million
MBA PROGRAMME
plants has made the %teel 1lant, %teel Township and surrounding areas
into a heaven of lush greenery. This has made %teel Township a greener,
cleaner and cooler place, which can boast of 3 to 8X C lesser temperature
even in the peak summer compared to Bisakhapatnam City.
B%1 exports Wuality 1ig )ron T %teel productsI to %ri Janka,
/yanmar, ;epal, /iddle 7ast, <%2, China and %outh 7ast 2sia. *);J6
B%1 was awarded H%tar Trading +ouseH status during &FF?6-GGG. +aving
established a fairly dependable export market, B%1 plans to make a
continuous presence in the export market.
+aving a total manpower of about &=,=GG B%1 has envisaged a
labor productivity of -=9 Tones per man6year of Ji!uid %teel.
BAC@GROUND%
>ith a view to give impetus to )ndustrial growth and to meet the
aspirations of the people from 2ndhra 1radesh, :overnment of )ndia
decided to establish )ntegrated %teel 1lant in 1ublic %ector at
Bisakhapatnam (21). The announcement to this effect was made in the
1arliament on &?th 2prilI &F?G by the then 1rime /inister of )ndia late
%mt. )ndira :andhi.
2 site was selected near ,alacheruvu creak near Bisakhapatnam
city by a Committee set up for the purpose, keeping in view the
topographical features, greater availability of land and proximity to a
future port. %mt. :andhi laid the foundation stone for the plant on
-G.G&.&F?&.
%eeds were thus sown for the construction of a modern T
sophisticated %teel 1lant having annual capacity of 3.8 /illion Tones of
hot metal. 2n agreement was signed between :overnments of )ndia and
the erstwhile <%%* on Uune &-th, &F?F for setting up of an )ntegrated
MBA PROGRAMME
%teel 1lant to produce structural T long products on the basis of detailed
1ro(ect report prepared by /Ds /.;. ustur T Company. 2
Comprehensive revised 1* (ointly prepared by %oviets T /Ds ustur T
Company was submitted in ;ovI &FAG to :ovt. of )ndia.
The construction of the 1lant started on &st #ebruary &FA-.
:overnment of )ndia on &Ath #ebIA- formed a new Company called
*ashtriya )spat ;igam Jtd. (*);J) and transferred the responsibility of
constructing, commissioning T operating the 1lant at Bisakhapatnam
from %teel 2uthority of )ndia Jtd. to *);J.
ue to poor resource availability, the construction could not keep
pace with the plans, which led to appreciable revision of the plant cost. )n
view of the critical fund situation and need to check further increase in
the plant costs, a rationalized concept was approved which was to cost
*s. =A8F crores based on 8th Wuarter of &FAA.
The rationalized concept was based on obtaining the maximum
output from the e!uipments already installed, planned D ordered for
procurement and achieving higher levels of operational efficiency and
labor productivity. Thus the plant capacity was limited to 3.G /illion
Tones of Ji!uid %teel per annum. )n the process, one of the %teel /elt
%hops and one of the mills were curtailed.
The availability of resources were continued to be lower than what
was planned and this further delayed the completion of the construction
of the plant. #inally all the units were constructed and commissioned by
UulyI F- at a cost of *s.A9-F Crores. The plant was dedicated to
nation by the then prime /inister of )ndia Jate %ri 1. B. ;arasimha *ao
on &
st
2ugust &FF-.
%ince Commissioning B%1 has already crossed many milestones
in the fields of production, productivity T exports. Coke rate of the order
MBA PROGRAMME
of 9GF QgDTon of +ot metal, average converter life of -A=8 heats an
average of -3.= heats per se!uence in continuous ,loom Caster. %pecific
energy consumption of =.G? : Qal D ton of li!uid steel, a specific
refractory consumption of A.F8 kg and a labor productivity of -=9 Ton D
man6year are some of the peaks achieved (during the year -GG86G9) in
pursuit of excellence.
3ISSION 1ISION ' OB4ECTI1ES
To attain &Gmillion ton li!uid steel capacity through technological
up6gradation, operational efficiency and expansion4 to produce steel at
international standards of cost and !uality4 and to meet the aspirations of
the stakeholders.
1ISION
To be a continuously growing world6class company, )t
harnesses the growth potential and sustain profitable growth
eliver high !uality and cost competitive products and be the
#irst choice of customers
Create an inspiring work environment to unleash the creative
energy of people
2chieve excellence in enterprise management
,e a respected corporate citizen, ensure clean and green
environment and develop vibrant communities around
OBJECTIVES
7xpand plant capacity to &G million ton by -G&36&8 with the
mission to attain &9 million ton capacity in two subse!uent
1hases.
MBA PROGRAMME
>ipe out accumulated losses by -GGF6&G
,e amongst top five lowest cost li!uid steel producers in the
world by -G&G6&&.
/ake *);J the employer of choice by caring for employees.
evelop people as knowledge workers by -G&G6&& and
achieve.
2n improvement of 9 percentage points in employee
satisfaction Jevels every alternate year.
,e ranked as an excellent business organization by -G&&6&-
7nsure zero effluent discharge by -GGF6&G and contribute to
)mproving !uality of life (health, literacy, and water) in at least
one village every year.
CORE VALUES
Commitment
Customer %atisfaction
Continuous )mprovement
Concern for 7nvironment
Creativity T )nnovation
)%' 1'J)CR
To trainee -GGG employees through suitable )n6house training
and external training.
To implement = number of !uality circle pro(ects.
To provide 38 number of valuable suggestion to the top
management.

MBA PROGRAMME
UALIT! "OLIC!
Bisakhapatnam %teel 1lant is committed to meet the needs and
expectations of their customers and other interested parties. To
accomplish this, they will
%upply !uality goods and services to customers delight
2chieve !uality of the products by following systematic
approach
Through planning, documented procedures and timely review of
Wuality ob(ectives.
Continuously improve the !uality of all materials, processes and
1roducts.
/aintain an enabling environment of all employees with their
)nvolvement.
#R "OLIC!
Bisakhapatnam %teel 1lant, believe that its employees are the
most important resources. To realize the full potential of
employees, the company is committed to4
1rovide work environment that makes the employees
Committed and motivated for maximizing productivity.
7stablish systems for maintaining transparency, fairness and
e!uality in dealing with employees.
7mpower employees for enhancing commitment,
*esponsibility and accountability.
7ncourage teamwork, creativity, innovativeness and high
achievement orientation.
1rovide growth and opportunities for developing skill and
Qnowledge.
MBA PROGRAMME
7nsure functioning of effective communication channels with
employees.
MBA PROGRAMME
CUSTO$ER "OLIC!
B%1 will endeavor to adopt a customer6focused approach
2t all times with transparency.
B%1 will strive to meet more than the customer needs
and expectations pertaining to products, !uality, and
Balue for money and satisfaction.
B%1 greatly values its relationship with customers and
would make efforts at strengthening these relations for
/utual benefit.
IT "OLIC!
*);JDB%1 is committed to leverage )nformation Technology as
the vital enabler in improving the customer6satisfaction,
organizational efficiency, productivity, decision6making,
transparency and cost6effectiveness, and thus adding value to
the business of steel making. Towards this, *);J shall4
#ollow best practices in process 2utomation T ,usiness
1rocesses through )T by in6house efforts D outsourcing and
collaborative efforts with other organization D expert groups D
institutions of higher learning, etc., thus ensuring the !uality of
product and services at least cost.
#ollow scientific and structured methodology in the software
development processes with total user6involvement, and thus
delivering integrated and !uality products to the satisfaction of
internal and external customers.
S.S & N COLLEGE Page =G
MBA PROGRAMME
)nstall, maintain and upgrade suitable cost6effective )T
hardware, software and other )T infrastructure and ensure high
levels of data and information security
%trive to spread )T6culture amongst employees based on
organizational need, role and responsibilities of the personnel
and facilitate the ob(ective of becoming a >orld6Class business
organization.
7nrich the skill6set and knowledge based of all related
personnel at regular intervals to make employees knowledge6
employees.
1eriodically monitor the )T investments made and achievements
accrued to review their cost effectiveness.
1SP Tec(n#l#g/% State&#*&t(e&A"t
? meter tall Coke 'ven ,atteries with coke dry !uenching.
,iggest ,last #urnaces in the Country
,ell 6 less top charging system in ,last #urnace.
&GGM slag granulation at the ,# Cast +ouse.
%uppressed combustion 6 J gas recovery system.
&GGM continuous casting of li!uid steel.
HTemporalH and H%telmorH cooling process in J/// T >*/
respectively.
7xtensive waste heat recovery systems.
Comprehensive pollution control measures.

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Table :2 3a.#" S#u"ce #* Ra0 3ate"ial
Ra0 3ate"ial S#u"ce
)ron 're Jumps T #ines ,ailadilla, /1
,# Jime %tone Uaggayyapeta, 21
%/% Jime %tone /iddle 7ast
,# olomite /adharam, 21
%/% olomite /adharam, 21
/anganese 're Chipurupalli, 21
,oiler Coal Talcher, 'rissa
Coking Coal 2ustralia
/edium Coking Coal
(/CC)
:idi D %wang D *a(arappa D Qargali

Table 43 3a.#" Unit
Depa"t!ent
Annual
Capacit/
7A<<< T5
Unit 7>)< 3T Stage5
Coke 'vens -,-=& 3 ,atteries of =? 'vens T ? /eters. +eight
%inter 1lant 9,-9=
- %inter /achines of 3&- %!. /eters. grate
area each
,last #urnace 3,8GG
- #urnaces of 3-GG Cu. /eters. volume
each
%teel /elt %hop 3,GGG 3 J Converters each of &33 Cu. /eters.
Bolume and %ix 8 strand bloom casters
J/// ?&G 8 %trand finishing /ill
>*/ A9G
8 %trand high speed continuous mill with no
twist finishing blocks
//%/ A9G = %T2; #);)%+);: /)JJ

Table %B 3ain P"#duct #* 1SP
Steel P"#duct B/&P"#duct
,looms ;ut Coke :ranulated %lag
,illets Coke ust Jime #ines
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Channels, 2ngles Coal Tar 2mmonium %ulphate
,eams 2nthracene 'il
%!uares
+1
;aphthalene
#lats ,enzene
*ounds Toluene
*e6bars Yylene
>ire *ods >ash 'il

3A4OR DEPART3ENTS%
Ra0 3ate"ial Handling Plant%
B%1 annually re!uires !uality raw materials viz. )ron 're, fluxes
(Jime stone, olomite), coking and non coking coals etc. to the tune of
&-6&3 /illion Tonnes for producing 3 /illion Tonnes of Ji!uid %teel. To
handle such a large volume of incoming raw materials received from
different sources and to ensure timely supply of consistent !uality of feed
materials to different B%1 consumers, *aw /aterial +andling 1lant
serves a vital function. This unit is provided with elaborate unloading,
blending, stacking T reclaiming facilities viz. >agon Tipplers, :round T
Track +oppers, %tock yards Crushing plants, Bibrating screens, %ingleD
twin boom stickers, wheel on boom and ,lender reclaimers. )n B%1
peripheral unloading has been adopted for the first time in the country.
C#,e #+en ' C#al C(e!ical Plant 7CO'CCP5%
,last #urnaces, the mother units of any %teel plant re!uire huge
!uantities of strong, hard and porous solid fuel in the form of hard
metallurgical coke for supplying necessary heat for carrying out the
reduction and refining reactions besides acting as a reducing agent. 2t
B%1 there are three Coke 'ven ,atteries, ? /eter tall and having =?
'vens each. 7ach oven is having a volume of 8&.= cu. meter T can hold
S.S & N COLLEGE Page =3
MBA PROGRAMME
up to 3&.= Tonnes of dry coal charge. There are 3 Coke ry Cooling
1lants (CC1) each having 8 cooling chambers. ;itrogen gas is used as
the Cooling medium. The heat recovery from nitrogen is done by
generating steam and expanding in two backpressure turbines to produce
?.9 /> each.
The Coal chemicals such as ,enzole (T its products), Tar (T its
products), and 2mmonium %ulphate etc. are extracted in Coal Chemical
1lant from C.'. :as. 2fter recovering the Coal chemicals the gas is used
as a by6product fuel by mixing it with gases such as ,# :as, J :as etc.
2 mechanical, biological T chemical treatment plant takes care of the
effluents.
Sinte" Plant%
%inter is a hard T porous ferrous material obtained by agglomeration of
)ron 're fines, Coke breeze, Jime %tone fines, /etallurgical wastes viz.
#lue dust, mill scale, J slag etc. %inter is a better feed material to ,last
#urnace in comparison to )ron 're lumps and its usage in ,last furnaces
help in increasing productivity, decreasing the coke rate T improving the
!uality of +ot /etal produced. +ot %inter discharged from %intering
machine is crushed to L9 mm 6 9G mm size and cooled before dispatching
to ,last #urnaces.
Table 49 Pa"a!ete" #* Sinte"ing 3ac(ine a"e
7ffective area 3&- %!. meter
%intering area -?= %!. meter
%inter bed height 3GG mm
Capacity. 89G T 1 + each
MBA PROGRAMME
The dust laden air from the machines are cleaned in scrubbers T
electrostatic precipitators to reduce the dust content to &GG mgD m3 level
before allowing to escape into the atmosphere and thus helping in
maintaining a clean T dust free environment

PRODUCTION PROCESS
Blat $u"nace%
B%1 has two 3-GG cu. meter ,last #urnaces (largest in )ndia)
e!uipped with 1aulworth ,ell less top e!uipment with conveyor
charging. *ightly named as H :odavari H T H Qrishna H after the two
rivers of 21, the furnaces will help B%1 in bringing prosperity to the state
of 2ndhra 1radesh.
1rovision exists for granulation of &GGM li!uid slag at blast
furnace cast house and utilization of blast furnace gas top pressure
(&.96-.G atmospheric pressure) to generate &- /> of power in each
furnace by employing gas expansion turbines. The two furnaces with
their novel circular cast house and four tap holes each are rated to
produce F?-G Tonnes of +ot /etal daily or 3.8 /illion Tonnes of low
%ulphur +ot /etal annually.
Steel 3elt S(#p%
B%1 produces steel employing three numbers of top blown
'xygen Converters called J Converters or ,asic 'xygen #urnaces D
Converters. 7ach converter is of &33 cu. /eter volume, rated to produce
3 /illion Tonnes of Ji!uid %teel annually. ,esides +ot /etal, %teel
MBA PROGRAMME
%crap, #luxes such as calcined lime or olomite form part of the charge
to the Converters.
ifferent grades of steel of %uperior !uality can be made by this
process by controlling the 'xygen blow or addition of various #erro
alloys or special additives such as #e%i, #e/n, %i/n, Coke ,reeze,
2luminum etc. in re!uired !uantities while li!uid steel is being tapped
from the converter into a steel ladle. Converter D J :as produced as by
product is used as a secondary fuel.
C(a"acte"itic #* 1SP C#n+e"te"%
Capacity 6 &9G Tones per heat blow
Bolume 6 &33 Cu. /etre
Convertor %p. Bolum 6 G.AA= /eter Cube per tonne
Tap to Tap6Time 6 89 mts 6 =G mts
Ji!uid %teel produced in J Converters is solidified in the form of
blooms in continuous ,loom Casters. +owever, to homogenize the steel
and to raise its temperature, if needed, steel is first routed through, 2rgon
rinsing station, )*<T ()n(ection *efining T <p temperature ) D ladle
#urnaces.

C#ntinu#u cating Depa"t!ent%
B%1 has six68 strand continuous casting machines capable
of producing -.A- million Tonnes D year ,looms of size -9G x -9G
mm and -9G x 3-G mm. 7ntire !uantity of molten steel produced
(&GGM) is continuously cast in radial bloom casters which help in
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energy conservation as well as production of superior !uality
products. #acilities at continuous casting machines include a lift and
Turn table for ladles, Copper mould, oscillating system tundish,
1rimary T %econdary Cooling arrangement to cool the steel bloom.
:as cutting machines for cutting the blooms in re!uired lengths
( 2v. = meters long ).
R#lling 3ill%
,looms produced in %/%6CC are shaped into products such as
,illets, rounds, s!uares, angles (e!ual T une!ual), Channels, )617
,eams, +7 ,eams, >ire rods and reinforcements bars by rolling them
in three sophisticated high capacity, high speed, fully automated
rolling mills, namely Jight T /edium /erchant /ills (J///),
>ire *od /ill (>*/) and /edium /erchant and %tructural /ill
(//%/).
Lig(t ' 3ediu! 3e"c(ant 3ill 7L3335%
J/// comprises of two units. )n the ,illetD,reak down mill
-9G x 3-G mm size blooms are rolled into ,illets of &-9 x &-9 mm size.
,illets are supplied from this mill to ,ar /ill of J/// T >ire *od
/ill. The ,ar mill is facilitated with temp core heat treatment tech6
nology evaporative cooling system in walking beam furnaces,
automated pilling T bundling facilities, high degree of automation and
computerization. The mill is designed to produce ?&G,GGG tons per an6
num of various finished products such as rounds, rebars, and s!uares,
flats, angles, and channels besides billets for sale.
Wi"e R#d 3ill 7WR35%
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>ire *od /ill is fully automated T sophisticated mill. The billets
are rolled in 8 strand, high6speed continuous mill having a capacity of
A,9G,GGG Tones of >ire *od Coils. The mill produces rounds in 9.9 6 &8
mm range and rebars in A, &G T &- mm sizes. The mill is e!uipped with
standard and *etarded %telmore controlled cooling lines for producing
high !uality >ire rods in Jow, /edium T +igh carbon grade meeting the
stringent ;ational T )nternational standards viz. ,)%, );, U)%, ,% etc.
and having high ductility, uniform grain size, excellent surface finish.
3ediu! 3e"c(ant ' St"uctu"al 3ill 733S35%
This mill is a high capacity continuous mill. The feed material to
the mill is -9G x -9G mm size bloom, which is heated to rolling
temperatures of &-GG XC in two walking beam furnaces. The mill is
designed to produce A,9G,GGG tons per annum of various products such as
rounds, s!uares, flats, angles (e!ual T une!ual), T bars, channels, )17
beams ) +7 beams (<niversal beams).
$UNCTIONS O$ 1ARIOUS DEPART3ENTS O$ RINL61SP%
Di"ect#"ate #* Ope"ati#n %
P"#ducti#n Planning and C#nt"#l%
#ormulation of long term production plans and infrastructure support.
#ormulation of 2nnual and /onthly production plan. This involves
detailed planning for product mix and value added steel along with
/arketing ept.
2nalyzing 1lant performance against targets on a periodic basis and
taking necessary corrective actions.
Tec(n#&ec#n#!ic and :ualit/%
#ormulation of techno6economic norms and energy management
parameters and reviewing the same against targets periodically.
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Input and Baic In*"at"uctu"e%
Jong term and short term planning for procurement of raw
materials like )mported Coking Coal ()CC), /edium Coking Coal
(/CC), ,oiler Coal, )ron 're #ines and )ron 're Jumps etc.,
#ormulation of 2nnual )nward and 'utward traffic movement plan
for raw materials and finished products in consultation with
/arketing and /aterial /anagement epts.
Repai" and 3aintenance Planning%
1lanning of ma(or Capital *epairs, %hutdowns, %pares re!uirement
and ensuring preparedness before taking up the repairs.
3ine planning%
#ormulation of annual and monthly production plans for ,#
limestone, ,# grade dolomite, /n 're and %and at B%1 Captive
/ines.
/onitoring of production and dispatch of Jimestone, olomite,
/n 're and %and from Captive /ines.
P"#.ect planning%
Jong and %hort term planning for all developmental schemes of
capital nature comprising modernization and technology up6
gradation.
1lanning and implementation of 2dditions, /odifications and
*eplacement (2/*) schemes.
7xpansion of 1lant Capacity from 3.G /t li!uid steel to =.3/t.
Reea"c( and De+el#p!ent%
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MBA PROGRAMME
)dentification of Technological )mprovement scopes for various
processes and plan for adoption of them by ac!uiring design and
know6how capability.
)ndigenous development of technology involving laboratory
investigation.
evelopment of new grades and products in coordination with
/arketing dept.
In*#"!ati#n Tec(n#l#g/%
#ormulation of 'rganizational )T61olicy, )T6%ecurity 1olicy and )T6
Bision.
)dentification of )T enabled pro(ects for various processes and
implement them.
Budget plan and c#nt"#l%
)dentification of ,udget re!uirement under various heads.
Control of the ,udget and %pares, Consumables T *aw /aterials
)nventory.
S/te! and P"#cedu"e%
%treamlining the contract management system to ensure
consistency of approach and adoption of sound principles of contract
management.
7nsuring the implementation and maintenance of !uality
management system re!uirements for )%' FGG&4-GGG Certificate.
/onitoring pollution control activities of the 1lant and interaction
with the %tate and Central 1ollution Control ,oard.
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MBA PROGRAMME
Di"ect#"ate #* $inance ' Acc#unt
/aking arrangement for long6term fund re!uirements.
2ccounting of all minority transactions and preparation of financial
statement of the company and getting the same audited as re!uired
under law.
/aintaining records with regard to the cost of products produced
by the company.
*elease of payments to suppliersDproviders of goods and services.
*elease of salaries to the employees.
2ccording concurrence to proposals for investments T expenditure
as per the policies, procedures and the elegation of 1owers.
Conduct )nternal 2udits, %tock Berification and %tatutory compliance.
/aking working capital arrangements.
%ubmission of periodical reports to banks as per their sanctioned terms.
'rganizing for payment of Central 7xcise, %ales Tax, )ncome Tax
and other statutory payments.
Co6ordination with statutory 2uditors and :overnment 2udit.
:eneration of various /)% reports pertaining to #T2 department
for /anagement )nformation and Control.
S.S & N COLLEGE Page ?&
MBA PROGRAMME
Di&ecto&ate of "e&sonnel
/anpower 1lanning,
7mployees" induction,
%ervice matters, policy T rules
)ndustrial relations,
7mployees" welfare
Corporate %ocial *esponsibility (C%*),
*eplies to parliamentary !uestions,
'fficial Janguage implementation
Legal A**ai"%
Jegal 2ffairs deals with all legal matters including arbitration,
coordination with %tanding Councils, Jegal 2dvices etc.
3anage!ent Se"+ice%
Wuality Circle,
%uggestion %cheme,
)ncentive %cheme,
*eward %cheme,
1rocedural 'rders etc.
T&aining ' #RD%
Jeadership Training,
Training on /otivation and 2ttitude,
Team ,uilding
S.S & N COLLEGE Page ?-
MBA PROGRAMME
%kill Training.
)nduction and 'rientation,
1lant 1ractice Jectures,
,asic 7ngineering Jectures,
1lant %pecialized Training,
/anagement evelopment,
'n the Uob Training,
/ulti %killingD%<1> and /entoring.
C#"p#"ate St"ategic 3anage!ent 7CS35%
C%/ is a .think tank0 of the organization. The epartment is
engaged in formulation of B/' (Bision, /ission T 'b(ectives) of the
organization and developing the strategy to achieve B/'. )t has various
wings which inter6alia includes Qnowledge /anagement Cell (Q/ Cell).
)t has also developed the Corporate 1lan of *);J. )t takes up strategic
tasks of the organization.
Town Administration & Administration:
Matters relating to Land & State,
Civil /aintenance,
7lectrical /aintenance,
>ater %upply,
*oads and rain /aintenance,
+orticulture and 2fforestation,
1eripheral evelopment and
S.S & N COLLEGE Page ?3
MBA PROGRAMME
1ublic +ealth in Township (<kkunagaram).
)nteract with istrict 2uthorities for various welfare activities, land
ac!uisition matters etc
3ate"ial 3anage!ent Depa"t!ent%
1rocurement of all materials such as *aw materials, %pares and
consumables re!uired for the entire 1lant 'perations.
To enter into long term agreements for supply of ma(or T minor
raw materials with indigenous and imported suppliers.
To effect economy in the cost of materials by purchasing materials
of the right !uality, in the right !uantity at the right time from the
right source at the right place.
To arrange inspection of materials prior to handing over to
1roduction <nits to ensure !uality materials only are issued to
1roduction <nits.
%torage of materials T issue the same to the 1roduction <nits as
per their re!uirement.
To develop and encourage ancillary industries so that the
availability of the materials at right time is ensured.
ACHIE1E3ENTS ' AWARDS
The efforts of B%1 have been recognized at various forums. %ome
of the ma(or awards received by B%1 are in the area of energy
conservation, environment protection, safety, !uality, Circles, *a(bhasha,
/'<, sports and a number of awards at the individual level.
MBA PROGRAMME
%ome of the important awards received by B%1 are4
)%' FGG&4-GGG Certificate for production of comprehensive range of
)ron and %teel products, coke T coal chemicals, other saleable products
and generation of power along with supporting T service departmentsK
marketing of all the saleable products including power in domestic or
export markets.
)ndira 1riyadarshini Briksha /itra 2ward 6 &FF-6F3 ;ehru /emorial
;ational 2ward for 1ollution Control &FF-6F3 T &FF36F8.
771C 7xport 7xcellence 2ward 6 &FF86F9.
C)) (%outhern *egion) 7nergy Conservation 2ward 6 &FF96F=.
:olden 1eacock (&st 1rize) H;ational Wuality 2ward 6 F=H &&/ in
the ;ational Wuality Competition 5 &FF=.
%teel /inister"s Trophy for H,est %afety 1erformanceH 5 &FF=.
%elected for H>orld Wuality Commitment 2ward 6 )FF?H of UZ ,an,
%pain.
:old %tar 2ward for 7xcellent 1erformance in 1roductivity <dyog
7xcellence :old /edal 2ward for 7xcellence in %teel )ndustry.
7xcellence 2ward for outstanding performance in 1roductivity
/anagement, Wuality T )nnovation.
)spat %uraksha 1uraskar (&st 1rize) for longest 2ccident #ree 1eriod
&FF&6F8.
,est Jabor /anagement 2ward from the :ovt. of 21.
%C'17 2ward for ,est Turnaround 5 -GG&.
7nvironment 7xcellence 2ward from :reentech #oundation for
7nergy conservation 5 -GG-.
,est 7nterprise 2ward from %C'17, >)1% 6 -GG&6G-.
MBA PROGRAMME
,est 7nterprise 2ward from %C'17 for surpassing /'< targets6
-GG36G8.
)%T 2ward for H,est +* 1racticesH 5 -GG-.
1rime /inisters Trophy for H,est )ntegrated %teel 1lant 6 -GG-6G3.
H>orld Wuality Commitment )nternational %tar 2ward0 in the :old
category conferred by ,usiness )nitiative irections, 1aris.
H'rganizational 7xcellence 2wardH for -GG36G8 conferred by
);%%2;.
;ational 7nergy Conservation 2ward, -GG8 and %pecial 1rize from
/inistry of 1ower, :ovt. of )ndia.
The above awards are besides a number of awards at the local, regional T
national level competitions in the area of Wuality Circles, %uggestion
%chemes etc.
S.S & N COLLEGE Page ?=
MBA PROGRAMME
DATA ANAL8SIS AND INTERPRETATION
Table 4& P"#ducti#n Pe"*#"!ance 7<<< T#ne5
8ea" H#t 3etal Li-uid 3etal Saleable Steel
2005-2006
-9&G ---9 -&F3
2006-2007
-F83 -=9= -3A-
2007-2008
3&=9 -FGF -9G?
2008-2009
38A9 3GA3 -?9?
2009-2010
3F8& 339= 3G9=
2010-2011
8G99 39GA 3&=F
2011-2012
3F-G 39=G 3&?3
2012-2013
8&93 3=G3 3-3?
S.S & N COLLEGE Page ??
MBA PROGRAMME
Table 4- CO33ERCIAL PER$OR3ANCE
7Rupee in C"5
8ea" Sale Tu"n#+e" D#!etic Sale E2p#"t
2006-2007
3G3? -=?? -F9
2007-2008
383= 3&-- 3--
2008-2009
8GA& 3?&G 3?&
2009-2010
9G9F 8833 =-=
2010-2011
=&?8 98G= ?=A
2011-2012
A&A& ?F33 -8A
2012-2013
A8=F AG-= 883
S.S & N COLLEGE Page ?A
MBA PROGRAMME
S.S & N COLLEGE Page ?F
MBA PROGRAMME
Table %> $INANCIAL PER$OR3ANCE
7Rupee in C"5
8ea" G"# 3a"gin Ca( P"#*it Net P"#*it
2005-2006
&9 638=
2006-2007
-9- 6&3G 69=-
2007-2008
9G8 &93 6-F&
2008-2009
=FG 8GG 6?9
2009-2010
&G8F F&9 9-&
2010-2011
-G?3 -G-8 &98?
2011-2012
3-?& 3-=G -GGA
2012-2013
-3A3 -388 &-9&
S.S & N COLLEGE Page AG
MBA PROGRAMME
Table 48 3anp#0e" at a Glance in 1SP
=<<C&<D =<<D&<E =<<E&;<
A #n >;6>6=<<D A #n ><6<B6=<<E A #n >;6<?6=<;<
E2ecuti+e
W#", P"#.ect
3ine Ot(e"
>=?C
;EEB
;B?
?;
>==?
=;B=
==C
?>
>?=<
=;B<
==C
?>
4uni#" #**ice"
W#", P"#.ect
3ine Ot(e"
;=??
E=?
=;
=<
=D<
;;<?
CCF
=C
==
=D<
;;<B
CC?
=C
==
=D<
N#n E2ecuti+e W#",
P"#.ect 3ine
Ot(e"
;=;<;
;<CCD
C>
=DE
;;E>=
;<FC>
CB
=D;
;;E=>
;<FCF
F=
=D;
T#tal W#", P"#.ect
3ine Ot(e"
;FF;>
;>FEC
=>E
>F<
=>;C
;F?F;
;>?E<
>=D
>?F
==DC
;F?BC
;>?E;
>;F
>?F
==DB
S.S & N COLLEGE Page A&
MBA PROGRAMME
3anp#0e" at a Glance in 1SP
=<;<&;; =<;;&;= =<;=&;>
A #n >;6>6=<;; A #n >;6<>6=<;= A #n >;6<>6=<;>
E2ecuti+e
W#",
P"#.ect
3ine
Ot(e"
>DF<
=>F=
=F>
?F
;;CE
B=<D
=?CC
=C?
FB
;=E<
B?>B
=CB?
>;F
C;
;B<=
4uni#" #**ice"
W#",
P"#.ect
3ine
Ot(e"
D;B
??E
;D
==
=;?
CF;
?FB
;<
=;
;FF
FDB
?<B
;>
==
;B?
N#n E2ecuti+e W#",
P"#.ect
3ine
Ot(e"
;;C=C
;<?>>
FB
=C>=
D?C
;;BBE
;<><=
F;
=F>
D=>
;=<<C
;<BCF
F>
=FC
;=<;
T#tal W#",
P"#.ect
3ine
Ot(e"
;FB<;
;>B?B
>B?
>?;
==?;
;FB;F
;>BB>
>BF
>BD
==CE
;C==?
;>C=?
>E=
>F<
=CBD
S.S & N COLLEGE Page A-
MBA PROGRAMME
$IG%B ORGANIGATION CHART H 1ISA@HAPATNA3 STEEL PLANT
S.S & N COLLEGE Page A3
ED (WORKS)
I/C
Jt. GM
(Stee)
CHAIR3AN H CU3 H 3ANAGING DIRECTOR
DIRECTOR
(PERSONNEL)
DIRECTOR
(OPERATIONS)
DIRECTOR
(COMMERCIA
L)
DIRECTOR
(!INANCE)
CVO
ED
(TI)
C"##.
$t
(CIS!)
GM
(CBS)
AGM
(CA) %
C"#.&e
'
Jt. GM
(Stee %
''$)
Jt. GM
(B!)
Jt. GM
(M(&)
DGM
(I)&t %
DGM
(SSD)
ED
(#*()t.
)
GM
(&e+)
ADDL.
GM(T%
R)
ED (#()e&)
DGM (&,&)
I/'.
GM
(C"+-.-()
..)
GM
(P+"/e't&)
EDMM
Jt. GM
(M0t.)I
Jt. GM
(! % A)I/C
AGM
(!%A)
ED (HRM)
GM ('"+-.
-e+& % '"
"+$.)
DGM
(P%A) I/'
DGM (T+.)I/'.
JT.GM
(HRD)
DGM
(M %
HS) I/C
DGM
(MS)I/'.
MBA PROGRAMME
Capital Budgeting tec(ni-ue)
$ig%?
C*-(t* B1$.et().
Te'2)(31e&
DC! C+(te+(* N") 4 DC! C+(te+(*
NPV I.R.R. P. I
P*,5*'
0
-e+("$
A''"1)t().
R*te "6
Ret1+)
MBA PROGRAMME
N#n DC$ C"ite"ia%
Pa/ bac, pe"i#d 7PB5
The pay back period (1,) is one of the most popular and widely
recognized traditional methods of evaluating investment proposals. 1ay
back is the number of years re!uired to recover the original cash outlay
invested in a pro(ect.
)f the pro(ect generates constant annual cash inflows, the pay back
period can be computed by dividing cash outlay by the annual cash in
flow.
1ayback period @ C
G D
C
C
o
4 )nitial )nvestment
C 4 2nnual Cash in flow
)n case of un e!ual cash inflows, the pay back period can be found
out by adding up the cash inflows until the total is e!ual to the initial cash
outlay.
Acc#unting Rate #* Retu"n 7ARR5
The accounting rate of return (2**) also known as the return on
investment (*')) uses accounting information, as revealed by financial
statements, to measure the profitability of an investment. The 2ccounting
rate of return is the ratio of the average after fax profit divided by the
average investment. The average investment would be e!ual to half of the
original investment if it were depreciated constantly.
MBA PROGRAMME
2 * * @ x &GG
DC$ C"ite"ia
Net P"eent 1alued 3et(#d 7NP15
The ;1B present value (;1B) method is the classic economic
method of evaluating the investment proposals. )f is a C# techni!ue that
explicitly recogniges the time value at different time periods differ in
value and are comparable only when their e!uipment present values6 are
found out.
; 1 B @ 6 C
o

( o r )
; 1 B @ [ 6 C
o

>here
; 1 B @ ;et present value
C
fi
@ Cash flows occurring at time
k @ The discount rate
n @ life of the pro(ect in years
C
o
@ Cash out lay
Inte"nal Rate #* Retu"n 7IRR5
S.S & N COLLEGE Page A=
A7e+*.e ()'"#e
A7e+*.e ()7e&t#e)t
C
8
9 C
:
9 C
;
9 < < <
9 C
)

(890) (890)
:
(890)
;
C
(

(890)
(
n
i @ G
MBA PROGRAMME
The internal rate of return ()**) method is another discounted cash
flow techni!ue which takes account of the magnitude and thing of cash
flows, other terms used to describe the )** method are yield on an
investment, marginal efficiency of capital, rate of return over cost, time6
ad(usted rate of internal return and soon.
; 1 B @ [ L
>here
C
fi
@ Cash flows occurring at different point of time
k @ The discount rate
n @ life of the pro(ect in years
C
o
@ Cash out lay
%B T >C @ %alvage value and >orking Capital at the end of the n years.
( o r )
) * * @ J L (+ 5 J)
>here
J 4 Jower discount rate at which ;1B is positive
+ 4 +igher discount rate at which ;1B is negative
2 4 ;1B at lower discount rate, J
, 4 ;1B at higher discount rate, +
P"#*itabilit/ Inde2 7PI5
S.S & N COLLEGE Page A?
C
=
SV9WC

(890)
(
(890)
)
n
i @ G
A

(A 4 B)
MBA PROGRAMME
Ret another time6 ad(usted method of evaluating the investment
proposals is the benefit6 cost (,DC.) ratio or profitability index (1))
1rofitability )ndex is the ratio of the present valued of cash inflows, at
the re!uired rate of return, to the initial cash out flow of the investment.
1 ) @
>here 1B 4 1resent Balue
B)D) C#t E**ecti+e Anal/i
)n the cost effectiveness analysis the pro(ect selection or
technological choice, only the costs of two or more alternative choices
are considered treating the benefits as identical. This approach is used
when the ac!uisition of how to minimize the costs for undertaking an
activity at a given discount rates in case the benefits and operating costs
are given, one can minimize the capital cost to obtain given discount.
B)E) P"#.ect Planning
The planning of a pro(ect is a technically pre6 determined set of
inter related activities involving the effective use of given material,
human, technological and financial resources over a given period of time.
>hich in association with other development pro(ects result in the
achievement of certain predetermined ob(ectives such as the production
of specified goods T services.
1ro(ect planning is spread over a period of time and is not a one
shot activity. The important stages in the life of a pro(ect are4
S.S & N COLLEGE Page AA
PV "6 '*&2 ()>"?
I)(t(* C*&2
"1t*,
MBA PROGRAMME
)t"s )dentification
)t"s initial formulation
)t"s evaluation (>hether to select or to pro(ect)
)t"s final formulation
)t"s implementation
)t"s completion and operation
The time taken for the entire process is the gestation period of the
pro(ect. The period of the pro(ect. The process of identification of a
pro(ect begins when we are seriously trying to over come certain
problems. They may be non6 utilisation to overcome available funds.
1lant capacity, expansion etc.,
C#ntent #* t(e p"#.ect "ep#"t
&. /arket and marketing
-. %ite of the pro(ect
3. 1ro(ect engineering dealing with technical aspects of the
pro(ect.
8. Jocation and layout of the pro(ect building
9. ,uilding
=. 1roduction capacity.
?. >ork %chedule
Detail #* t(e c#t #* t(e P"#.ect%
S.S & N COLLEGE Page AF
MBA PROGRAMME
&. Cost of land
-. Cost of ,uilding
3. Cost of plant and machinery
8. 7ngineering know how fee
9. 7xpenses on training 7rection supervision
=. /iscellaneous fixed assets
?. 1reliminary expenses
A. 1reoperative expenses
F. 1rovision for contingencies
E1ALUATION O$ CAPITAL BUDGETING
S.S & N COLLEGE Page FG
MBA PROGRAMME
Table %? 1ay ,ack 1eriod4
()n Crores)
Rear
)ncome (1rofit 2fter
Tax)
epreciation
Cash
)nflows
Cumulative Cash )n
#lows
& F3=.= 38-.3= &-?A.F= &-?A.F=
- &393.-9 38-.3= &?39.-8 3G&8.-
3 &8-A.A8 38-.3= &A&G.A3 8A-9.G3
8 &8GF.88 38-.3= &?F&.83 ==&=.8=
9 &8-F.F3 38-.3= &A&&.F- A8-A.3A
= &8A8.&- 38-.3= &A==.&& &G-F8.8F
? &99&.-A 38-.3= &F33.-? &---?.?=
A &=&G.A3 38-.3= &FF-.A- &8--G.9A
F &==G.9? 38-.3= -G8-.9= &=-=3.&8
&G &?&?.G= 38-.3= -GFF.G9 &A3=-.&F
&& &??F.3F 38-.3= -&=&.3A -G9-3.9?
&- &A8=.F 38-.3= ----.F9 --?8=.9-
&3 &F&F.& 38-.3= -3G&.GF -9G8?.=&
&8 &FF9.=F 38-.3= -3??.GF -?8-8.?
&9 -G?=.83 38-.3= -89A.8- -FAA3.&-
(a) Cash 'utlay 4 A=F-
(b) 1ayback 1eriod 4
@ 9 L
-=3.=-
&G-F8.9
@ 9.G- years
C"ite"ia *#" e+aluati#n
The pay back period computed for a pro(ect is less than the pay back
period by management of the company, it would be accepted. 2 pro(ect
actual pay back period is more than the determined period by the
management, it will be re(ected.
S.S & N COLLEGE Page F&
MBA PROGRAMME
Decii#n
The standard payback period is set by B)Y2: %T77J 1J2;T Jtd for
considering the expansion pro(ect is fifteen years, where as actual
payback period is 9.G- months. +ence we accepted the pro(ect.
Table 4&& A+e"age "ate #* Retu"n%
Rear )ncome
& F3=.=
- &393.-9
3 &8-A.A8
8 &8GF.88
9 &8-F.F3
= &8A8.&-
? &99&.-A
S.S & N COLLEGE Page F-
MBA PROGRAMME
A &=&G.A3
F &==G.9?
&G &?&?.G=
&& &??F.3F
&- &A8=.F
&3 &F&F.&
&8 &FF9.=F
&9 -G?=.83
2 * * @
2verage profit
x &GG
2verage investment
2verage 1rofit4
Total cash inflows
;o. of years
&A9GF.9&
@ &-33.F=?333
&9
2verage investment4
2verage investment @
investment
L 2d. >C
-
A=F-
L ?G-
-
@ 9G8A
2 * * @
&-33.F=?
x &GG
9G8A
@ -8.88M
* ' ) @
2verage 2nnual
profit
x &GG
Total initial
investment
* ' ) @
&-33.F=?
x &GG
A=F-
S.S & N COLLEGE Page F3
MBA PROGRAMME
* ' ) @ &8.&F=M
2ccording to this method 2** is higher than minimum rate of return
established by the management are accepted. )t re(ect the pro(ect have
less 2** than the minimum rate set by the management.
Decii#n
The standard 2** set by B)Y2: %T77J 1J2;T Jtd management &8M.
The actual 2** is -8.88M is higher than the standard 2** set by the
management, hence we accept the pro(ect. 'n the basis of pay back
period.
1,1C %1,1 @ *7U7CT7
1,1E %1,1 @ 2CC71T7
1,1 6 );)##7*7;T
MBA PROGRAMME
Table 4= NP1
R72* );C'/7 C#(&FM) ;1B
& &-?A.F= G.A8 &G?8.3-=
- &?39.-8 G.?G= &--9.G?F
3 &A&G.A3 G.9F3 &G?3.A--
8 &?F&.83 G.8FF AF3.F-8
9 &A&&.F- G.8&F ?9F.&F8
= &A==.&& G.39- =9=.A?&
? &F33.-? G.-F= 9?-.-8A
A &FF-.A- G.-8F 8F=.-&-
F -G8-.9= G.-GF 8-=.AF9
&G -GFF.G9 G.&?= 3=F.833
&& -&=&.3A G.&8A 3&F.AA8
&- ----.F9 G.&-8 -?9.=8=
&3 -3G&.GF G.&G8 -3F.3&3
&8 -3??.GF G.GAA -GF.&A8
&9 -89A.8- G.G?8 &A&.F-3
; 1 B @ Total ;1B 5 Total 'utlay
@ AFF3.F98 5 A=F- @ A&.F98
MBA PROGRAMME
C"eta"ia *#" e+aluati#n
)n case of caliculated ;1B is positive or zero, the pro(ect should be
accepted. )f the calicualted ;1B is negetive, the pro(ect is re(ected.
Decii#n
The ;1B of B)Y2: %T77J 1J2;T Jtd is positive. %o the pro(ect
should be accepted.
S.S & N COLLEGE Page F=
MBA PROGRAMME
Table 4? Inte"nal Rate #* Retu"n
iscount rate taken as &AM (in crores)
8EAR INCO3E DC$7;DI5 NP1
& &-?A.F= G.A8? &GA3.-?F
- &?39.-8 G.?&A &-89.FG-
3 &A&G.A3 G.=GF &&G-.?F9
8 &?F&.83 G.9&= AA?.--=
9 &A&&.F- G.83? ?F&.AGF
= &A==.&& G.3? =FG.8=&
? &F33.-? G.3&8 =G?.G8?
A &FF-.A- G.-== 93G.GF
F -G8-.9= G.--9 89F.9?=
&G -GFF.G9 G.&F& 8GG.F&F
&& -&=&.3A G.&=- 39G.&88
&- ----.F9 G.&3? 3G8.988
&3 -3G&.GF G.&&= -==.F-=
&8 -3??.GF G.GFF -39.33-
&9 -89A.8- G.GA8 -G=.9G?
Total F&=-.99?
S.S & N COLLEGE Page F?
MBA PROGRAMME
Table 4A iscount rate taken as --M (in crores)
8EAR INCO3E DC$7==I5 NP1
& &-?A.F= G.A- &G8A.?8?-
- &?39.-8 G.=?- &&==.GA&-A
3 &A&G.A3 G.99& FF?.?=?33
8 &?F&.83 G.89& AG?.F38F3
9 &A&&.F- G.3? =?G.8&G8
= &A==.&& G.3G3 9=9.83&33
? &F33.-? G.-8F 8A&.3A8-3
A &FF-.A- G.-G8 8G=.939-A
F -G8-.9= G.&=? 38&.&G?9-
&G -GFF.G9 G.&3? -A?.9=FA9
&& -&=&.3A G.&&- -8-.G?89=
&- ----.F9 G.GF- -G8.9&&8
&3 -3G&.GF G.G?9 &?-.9A&?9
&8 -3??.GF G.G=- &8?.3?F9A
&9 -89A.8- G.G9& &-9.3?F8-
Total4 ?==8.AF=G=
) * * @ J L (+ 5 J)
) * * @ &A L (--5 &A)
) * * @ &A L ( 8 )
) * * @ &A L G.3&8 (8)
) * * @ &F.-9=? M
S.S & N COLLEGE Page FA
@8A:.BBC D E@A:

@8A:.BBC 4
CAAF.E@B
A

(A 4 B)
FCG.BBC

8F@C.AA:
MBA PROGRAMME
)n this method the pro(ect is accepted when )** is higher than its cost of
capital or cut out rate. )f the pro(ect is not accepted when the )** is less
than cost of capital.
Decii#n
The pro(ect is accepted because of the calculation )** is higher than its
cost of capital. The cost of capital fixed by management is &GM, the
actual is more than its standard. +ence, the pro(ect is accepted.
S.S & N COLLEGE Page FF
MBA PROGRAMME
Table 4F P"#*itabilit/ Inde2 3et(#d
R72* );C'/7
& &-?A.F=
- &?39.-8
3 &A&G.A3
8 &?F&.83
9 &A&&.F-
= &A==.&&
? &F33.-?
A &FF-.A-
F -G8-.9=
&G -GFF.G9
&& -&=&.3A
&- ----.F9
&3 -3G&.GF
&8 -3??.GF
&9 -89A.8-
S.S & N COLLEGE Page &GG
1. ). @ Cash )nflows
Cash
'utflows
@
-FAA3.&-
A=F-
@ 3.83
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2 pro(ect can be accepted if its 1) index is greater than one. )f the 1) is
less than one we should re(ect the pro(ect.
Decii#n
1rofitability index of proposed expansion pro(ect is found our 3.83 this is
more than the 1). +ence we accept the pro(ect.
S.S & N COLLEGE Page &G&
P)I J ; K ACCEPTED
P)IL; K RE4ECTED
P)I K;KINDI$$ERNT
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$INDINGS
The calculated payback period is 9 years and one month .,ut
standard payback period was seven years by B%1 management.
The 2** is fixed by B%1 -&M. The actual 2** is -8.88M and its
return on investment is &8.&F=M.
The ;1B is actually getting A&.F98 is positive.
The )nternal rate of return is worked for the pro(ect is &F.-9=? but
the expected )* is&AM is less than the actual )**.
The profitability index is getting actual for the expansion pro(ect is
three times more than the investment.
S.S & N COLLEGE Page &G-
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SUGGESTIONS%
)t is suggesting to B%1 management that the payback period is
fixed for the expansion pro(ect ? years. ,ut the actual is less than
the standard. )t is advisable to fixed payback period is 9 to = years.
)t is suggesting to B%1 management that is better to fix *') is
more than the standard *'). %o it is advisable to maintain same
consideration of pro(ect in the future also.
The ;1B of the pro(ect is positiveK it is advisable to suggest
selecting the same type of the pro(ects.
The expected )* is &AM where as the actual )* is worked for the
proposal is &F.-9=?M, which is below the accepted level. The cost
of capital is taken into consideration on the basis of weighted
average cost of capital.
)t is safer to accept proposal whose 1rofitable )ndex (1)) is more
than one. <nder the present proposal it is 3 time than its
investment so it is advisable to select the same type of pro(ect in
the future also.
S.S & N COLLEGE Page &G3
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CONCLUSION
,ased on the study in Bizag steel plant Jtd there is forecasting
pro(ect cash flow involves numerous estimates and many individuals and
departments participate in this exercise. The role of the finance manager
into coordinate the efforts of various departments and obtain information
from them, ensure that the forecasts are based on set of consistent
economic assumptions, keep to the exercise focused on relevant variables
and minimize the bases is inherent in cash flow forecasting.
)n the study ) know that the company is following pay back
period. ,ased on the data shows that the company can use any criteria to
get return on the investment.
The pro(ect . a study on capital budgeting0 in Bizag steel plant. )t
is suggested to hold the company is the same situation.
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BIBLIOGRAPH8
$inancial 3anage!ent & I) 3) Pande/
$inancial 3anage!ent & P"aanna C(and"a
$inancial 3anage!ent & 3) 8) @(an ' 4ain
URL% (ttp%66000)+iMagteel)c#!
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