INTRODUCTION

A proficient portion of capital is the most essential back functioning present day
times. It includes choices to submit company's assets to long-term assets. Such
choices are will in general decide the estimation of organization or firm by
influencing its development, gainfulness and risk.

Investment choices are commonly known as capital planning or capital

consumption choices. It is smart choices to put current in long term resources
expecting long haul benefits company's venture choices would generally
incorporate development, procurement, modernization and substitution of long
haul assets. Such choices can be speculation choices, financing choices or
operating choices.

Speculation choices manage venture of association's assets in Long tern (settled)

Assets and or Short term(Current) Assets. Choices relating to interest in Short term
Assets fall under "Working Capital Management". Choices relating to speculation
in Long term Assets are named "Capital Budgeting" decisions. Capital planning
choices are identified with portion of investible assets to different long haul
resources. They have long haul suggestions and influence the future development
and gainfulness of the firm. In assessing such venture proposition, it is critical to
deliberately consider the expected advantages of speculation against the costs
related with it. Organizations are every now and again looked with Capital
Budgeting choices. Any decision that requires the utilization of assets is a capital
planning decisions. Capital planning is pretty much a consistent procedure in any
growing concern.
Each association regardless of its size and mission can be seen as a monetary
substance the executives of an association. Money related administration centers
around the enhancement of assets as well as on their productive use with the target
of expanding the owners‟ riches. The portion of reserves is in this manner an
imperative capacity of money related administration. The portion of assets includes
the responsibility of assets to resources and activities. There are two kinds of
Investment choice:

1. The board of current resources or Working capital management.

2. Long haul venture choice.

Long haul venture choices are broadly known as capital planning or capital use
planning. It implies with respect to regardless of whether cash ought to be put
resources into long haul venture. This part is committed to an inside and out and
near choice of capital planning/capital use management. A venture is a movement
adequately independent to allow budgetary and business investigation. Much of the
time ventures speak to consumption of capital assets by previous elements which
need to grow or enhance their activity.

When all is said in done an undertaking is an action in which, we will burn through
cash in desire for returns and which legitimately appears to lead itself to planning.
Financing and execution as a unit, is an explicit action with an explicit point and an
explicit completion guide expected toward achieve an explicit objective. To take
up another task, includes a capital venture choice and it is
the best management’s obligation to make a circumstance and plausibility
examination of

That specific undertaking and methods for financing and executing it financing is a
quickly growing field, which centers not around the credit status of an
organization, but rather on money streams that will be created by an explicit task.
Capital planning has its beginnings in the normal asset and framework divisions.
The present interest for framework and capital speculations is being filled by
deregulation in the power, media communications, and transportation areas, by the
globalization of item showcases and the requirement for assembling scale, and by
the privatization of government

Possessed elements in created and creating countries. The capital planning choice
system essentially includes the assessment of the attractive quality of a speculation
proposition. Clearly the firm should have an efficient methodology for making
capital planning decisions. The technique must be steady with the target of riches
expansion. In perspective of the noteworthiness of capital planning choices, the
system must comprise of well ordered examination.
BACKGROUND AND OBJETIVES:

The main objective of the study is to:

1. To study the overall importance of the capital budgeting. Capital planning

choices are most pivotal and significant business models. Extraordinary
consideration ought to be taken in settling on these choices because of the
accompanying reasons.

2. To study the technique of capital budgeting. In perspective of the criticalness

of capital planning choice, it is a totally fundamental that the technique embraced
for examination of capital speculation proposition is a sound one. Subterranean
insect examination strategy ought to give the accompanying:

3. To study the risk and uncertainty of the capital budgeting. Capital planning
choices require expansive capital costs. It is along these lines completely essential
that the firm ought to deliberately design its speculation programs so it might get
the accounts of the opportune time and they are put to most gainful use. An
advantageous speculation choice can give terrific outcomes and then again a less
than ideal and wrong choice can endanger the survival of even the greatest firm.

4. To study the methods of capital budgeting Modified Internal rate of Return

Method: Profitability Index Method: Internal rate of Return Method: Net Present
Value Method: Accounted Rate of Return Method: Discounted payback method:
Payback period method:
TRAINING METHODS AND ACTIVITIES

The project on capital budgeting has been taken to analyze and understand the
overall capital budgeting process further which gives exposure to practical
implication of the study.

The project will show us how the capital budgeting has been using by the industry
and how the company gets capital from various resources.

LEARNING OUTCOMES

1. The above study has given me vast knowledge about the capital budgeting
process.

2. From the above study I have learned how to calculate capital budgeting through
Internal rate of return method, profitability index and internal rate of return.
3. From the above study I have learned how to select best possible project with
predicted profit.

4. As it is necessary for all the organization to go with the profit as to sustain in

the market in long run best possible way is to follow capital budgeting process.

DATA ANALYSIS USING ANALYTICAL TOOLS

1. Net Present Value Method (NPV)

2. Profitability Index (PI)
3. Internal Rate of Return (IRR)

Plan of analysis:
The study is mainly to understand the importance of capital budgeting in the
business. We are going to understand the various methods and technique which are
using in capital budgeting. This study will help us to implement capital budgeting
in practical manner.

PRESENTATION OF THE DATA:

Tables and charts were used for the presentation.

STATEMENT OF THE PROBLEM:

Despite the fact that the venture was finished effectively with a couple of
confinements may.

a) Since the technique and polices of the organization won't permit to unveil
private money related data, the task must be finished with the accessible
information given to us.

b) The time of concentrate that is a month and a half isn't sufficient to direct point
by point investigation of the task.

c) The investigation is conveyed basing on the data and archives given by the
association and dependent on the collaboration with the different representatives of
the particular divisions.

RESEARCH DESIGN:

SAMPLING:
The study has adopted net present value, probability index and internal rate of
return to understand the importance of capital budgeting. For the sample assumed
numbers have been taken to prove the adopted sampling technique.

Sources of data:

Secondary data:

This information is from the quantity of books and records of the organization, the
yearly reports distributed by the organization and different magazines. The
auxiliary information is acquired from the accompanying.

a. Accumulation of required information from yearly records, month to month

records

b. Different books and Journals and magazines

c. Yearly Reports of the organization.

 KEY FINDINGS AND CONCLUSIONS

FINDINGS

 It is shown that the NPV value of the project makes crucial part in the
company since it decides the profitability of the company for the future days.

 From the data analysis we can find that the company project is showing
positive NPV value in the table which means the presented project is having
profitable future for the company so it should consider the project.

 Secondly the profitability index plays very important role in the company as
it decides whether to take or not to take the project in to consideration by
showing the future prediction of loss or profit.

 The above table shows the positive outcome of the project since the
Profitability index value is positive, hence the company should consider the
project.

 The internal rate of return for both the data is good as compared to the data
which is shown in the last table.

 When the IRR rate is lesser than the other two projects it obviously leading
the project in to great loss and the company should ignore the proposed
project as it is shows negative outcome of the project.
 CONCLUSION

As decision, capital planning is a procedure of an organization used to decide if the

activities accessible are worth for seeking after in a long haul adventure, for
example, new apparatus, and substitution of hardware, new plants and new items
for its business. When an organization has the estimations to investigate
conceivable speculation return, they can settle on choices about the long haul
venture of an organization's capital into tasks. Consequently, it is an essential angle
for an organization's money related administration in the long run. Besides that,
capital structure is one of the vital jobs for an organization's monetary
administration.

Capital structure known as a blend of an organization's long haul obligation,

explicit momentary obligation, basic value and favored value. Individuals typically
investigate an association's obligation to-value proportion since it gave
understanding on the strength of an organization. So, it is about how an
organization funds its general activities

We have studied different assessment criteria for Capital Planning.

Generally an impression made that the firm ought to use NPV technique for basic
leadership. Most of the extensive organizations think about every one of the
measures since every one gives to some degree diverse bit of significant data to the
leader.
 RECOMMENDATION

1. The organization may settle the day and age for the capital resource for
substitution.

2. The organization may viably utilize the accessible assets for accomplishing most
extreme benefit.

3. The organization needs to examine the proposition for development or making

extra limit.

4. The organization may plan and control its capital use.

5. The organization needs to guarantee that the assets must be put resources into
long haul venture or not.

5. The organization may assess the estimation of expense and advantage as far as
money streams.
 SUPPORTING DOCUMENTATIONS

1. NET PRESENT VALUE METHOD (NPV):

It is the best technique for assessment of speculation proposition. This strategy
takes into account time estimation of cash.

2. PROFITABILITY INDEX METHOD (PI):

As the NPV strategy it is additionally demonstrates that venture is acknowledged

or not. In the event that Profitability record is higher than 1, the proposition can be
acknowledged.

3. INTERNAL RATE OF RETURN METHOD:

IRR is the rate of restore that an undertaking gains. The rate of rebate determined
by experimentation, where the present estimation of future money streams is
equivalent to the present estimation of surges, is known as the Internal Rate of
Return.

REFERENCES:

BOOKS:

Financial Management - I. M. Pandey

Financial Management - Prasanna Chandra

Financial Management - M. Y. Khan & Jain

Financial Management - Shashi.K.Gupta, R.K.Sharma and

Neeti gupta

Prasanna chandra : fundamentals of capital

Budgeting

Web Sites:

URL: http://www.Paradeepphosphates.com

URL: http://www.google.com

URL: http://www.Wikipedia.com
 INDUSTRY PROFILE

CAPITAL BUDGETING

Idea of Capital Budgeting:

The expression "capital planning" alludes to long haul anticipating proposed

capital costs and their financing. In this manner it incorporates both ascending of
long haul assets and also their use. It might in this manner be characterized as "the
organizations formal process for the securing and venture of capital" .it is the basic
leadership process by which the organizations assesses the buy of major settled
resources. It includes firm‟s choice to contribute its present assets for expansion,
manner, adjustment, and substitution of long haul or settled resources. Anyway it
ought to be noticed that interest in settled resources is likewise to be taken as a
capital planning choice. Ex: another dissemination framework may call for both
new stockroom and an extra interest in speculators. A venture proposition of this
nature must be taken as capital planning choice assessed as a solitary bundle
however not as an interest in a settled resource (i.e. distribution center) and in a
present resource (speculation) independently.
Capital planning is a diserse action. It incorporates scanning for DE 1:1 sort of
increasingly beneficial venture proposition, speculation designing and showcasing
thought to anticipate the result of tolerating the speculation and making monetary
investigation to decide the benefit of every speculation proposition.

 Its essential component can be condensed as pursues:

 It has possibly of making huge foreseen benefits.

 It includes a high level of hazard

 It includes a moderately long haul period between the underlying cost and
the foreseen return.

 Based on the above exchanges it tends to be inferred that capital planning

comprises in arranging the improvement of accessible capital to maximize
the long haul benefit of the firm.

The capital spending assessment process:

Numerous organizations pursue a deliberately endorsed process in capital

planning. The procedure as a rule incorporates the accompanying advances:
Undertaking proposition are asked for from department‟s plants and approve
capital planning. Capital consumption is an expense of money for an undertaking
that is relied upon to create an income over some undefined time frame surpassing
one year. Ex: Investments in property, plant, and hardware, innovative work
ventures, vast promoting organization, or whatever other undertaking that requires
a capital consumption and creates a future income. Since capital consumptions can
be expansive and significantly affect the monetary execution of the firm, incredible
significance is put on venture choice. This procedure is capital planning.

Criteria for capital planning choices:

Conceivably there is a wide cluster of criteria for choosing ventures. A few

investors may need the firm to choose venture that will demonstrate prompt flood
in real money inflow, others may get a kick out of the chance to get long haul
development with little significance on momentary execution.

Seen thusly, it would be very hard to fulfill the contrasting interests of the
considerable number of investors. Luckily, there is an answer. The objective of the
firm is to augment present investor esteem. This objective infers that ventures
ought to be embraced that outcome in a positive net present estimation of the
required capital consumption.

Using Net Present Value (NPV) as a measure, capital budgeting involves selecting
those projects that increase the value of the firm because they have a positive NPV.
The timing and growth rate of the incoming cash flow is important only to the
extent of this on NPV.

Utilizing Net Present Value (NPV) as a measure, capital planning includes

choosing those tasks that expansion the estimation of the firm since they have a
positive NPV. The planning and development rate of the approaching income is
critical just to the degree of this on NPV.

Utilizing Net Present Value (NPV) as the basis by which to choose ventures expect
proficient capital markets with the goal that the film approaches whatever capital is
expected to seek after the positive NPV ventures. In circumstance where this isn't
the situation, there might be capital planning process turns out to be progressively
mind boggling. Note that it isn't the obligation of the firm to choose whether to
satisfy specific gatherings of investors who lean toward longer or shorter term
results.

When the firm has chosen the tasks to boost its net present esteem, it is up to the
individual investors to utilize capital markets to acquire or loan so as to move the
correct planning of their own money inflows forward or in reverse. This thought is
critical in the important operator relationship that exists may have their own
individual inclination. The shared objective is that of augmenting the present
estimation of the organization.
Goals of a capital planning :

 It decides the capital activities which can be begun amid the financial plan
subsequent to considering their earnestness and the normal rate of profit for
each venture.

 It assesses the consumption that would need to be brought about on capital

tasks affirmed by the administration together with the source from which the
required assets would be kept up.

 It confines the capital use on activities inside approved cutoff points.

Significance of capital planning:

Capital planning choices are most pivotal and significant business models.
Extraordinary consideration ought to be taken in settling on these choices because
of the accompanying reasons.

Involvement of Heavy Funds:

Capital planning choices require expansive capital costs. It is along these lines
completely essential that the firm ought to deliberately design its speculation
programs so it might get the accounts of the opportune time and they are put to
most gainful use. An advantageous speculation choice can give terrific outcomes
and then again a less than ideal and wrong choice can endanger the survival of
even the greatest firm.

Long Term Implication:

The long haul feel the impact of capital planning choice over a significant lot and
in this way they affect the rate and bearing of the development of the firm.

For instance, if an organization buys another plant for make of another item. The
organization invests in sizable measure of settled expense regarding roundabout
work, for example, supervisory staff compensation and backhanded costs, for
example, lease and so forth in the event that the item does not turn out or turned
out but rather ends up being unrewarding, the organization should bear the weight
of settled cost except if it choose to discount the speculations totally as a wrong
choice. In this way it can demonstrate unfortunate for the long haul survival of the
firm.

Essentially lacking interest in resources would make it troublesome for the firm to
maintain the business over the long haul similarly as an undesirable development.
Irreversible choices:

As a rule capital planning choices are irreversible. This is on the grounds that it is
exceptionally hard to discover a business opportunity for the capital resources. The
main choices will be to scrap the capital resources so acquired or offer than to
bring about a generous misfortune in case of the choice refuted.

The capital planning choice requires an evaluation of future occasions, which are
questionable. It is extremely a troublesome assignment to evaluate the future
occasions, the beneficial advantages and expenses precisely in quantitative terms
as a result of monetary, political, social and innovative elements.

By virtue of these reasons capital consumption choices are the class of division,
which is ideal, saved for thought by the most elevated amount of the executives.
On the off chance that a few sections of it are appointed, an arrangement of
compelling control by the best administration must be developed.

It has just been said that the firm capital planning incorporate both getting ready
for proposed capital costs and their financing. Anyway in this section we are not
managing determination of a specific undertaking out of a few elective activities
accessible. Hence our investigation is confined to the way toward choosing
whether or not to submit assets to a venture whose benefits costs is in consonance
with the benefit amplification.
Capital Investment proposition:

A firm may have a few speculation proposition for thought. It might receive some
of them or every one of them relying on whether they are autonomous or ward of
maguey excusal.

Capital planning – examination techniques:

In perspective of the criticalness of capital planning choice, it is a totally

fundamental that the technique embraced for examination of capital speculation
proposition is a sound one. Subterranean insect examination strategy ought to give
the accompanying:

 A premise of recognizing worthy and non-adequate.

 Ranking of undertaking arranged by their allure.

 Choosing among which is relevant to any covered venture.

 Recognizing the way that greater advantages are desirable over littler one
and each advantage is desirable over longer once.

There are a few strategies for assessing and positioning the capital speculation
proposition. If there should be an occurrence of every one of these strategies the
fundamental accentuation is to the arrival which will be determined on the capital
put resources into the task. At the end of the day the fundamental methodology is
to contrast the interest in the venture and the advantages got there from.

a) Payback period method.

b) Discounted payback method

c) Accounted Rate of Return Method

d) Net Present Value Method.

e) Internal rate of Return Method

f) Profitability Index Method

g) Modified Internal rate of Return Method

(a) Payback period method:

Compensation period demonstrates the normal number of years required to recoup

the first speculation on an undertaking. This is the most established technique for
capital planning. This technique has a few blemishes

a) It doesn't determine how much cash is made by the venture.

b) It doesn't consider the expense of capital.

c) It totally overlooks the time estimation of cash.

(b) Discounted payback method:

Markdown restitution period is equivalent to pay back strategy, however the
normal money inflows are limited to the present at the expense of capital, which
evacuates one of the inadequacies of the compensation technique.

(c) Accounted Rate of Return Method:

Book keeping rate of profit centers not for money inflows, but rather on project’s
commitment to the firm’s total compensation. It is characterized as normal yearly
salary isolated by normal speculation, where normal yearly pay is characterized as
normal money inflow short normal yearly devaluation and normal venture is given
as expense in addition to rescue esteem partitioned by 2. In spite of the fact that it
is the second least strategies for capital planning, it disregards the time estimation
of cash, and is a book keeping as opposed to a budgetary device and accordingly
may not by any stretch of the imagination be utilized for monetary choices.

(d) Net Present Value Method:

The net present estimation of a task is characterized as the summation of limited

money inflows expected over the life of the venture short the underlying
speculation. The arrival esteem might be sure or negative. On the off chance that
the rupee esteem is negative the undertaking ought to be likely rejected. In this
strategy, the arrival esteem expected for a task considers the time estimation of
cash, and the expense of capital. It is one of three most prevalent techniques, yet
will in general be utilized less by genuine firms yet more by scholastics.
(e) Internal rate of Return Method:

The inner rate of return is the rebate rate at which the limited expected money
inflows of a venture equivalent to the underlying expense might be utilized to
choose fundamentally unrelated activities.

(f) Profitability Index Method:

The productivity record is characterized as the present estimation of activities

expected money inflows separated by the present estimation of all expenses related
with the undertaking.

(g) Modified Internal rate of Return Method:

The altered inward rate of return better mirrors the gainfulness of an undertaking.
Not at all like IRR, have which accepted money inflows from the task are
reinvested at the IRR, though the changed IRR expect that all money streams are
reinvested at the firm’s cost of capital.

A distinction should be made about the uses of these capital budgeting methods. If
the indicators are used solely for an accept or reject decision then the IRR MIRR,
NPV and PI methods can be adopted.

Capital budgeting in coal mining in India:

Achievability REPORT:

The SCCL Board has capacity to endorse the activities underneath Rs 50 crores.
The tasks costing above Rs 50 crores are authorized by Government of India .

Attainability report is an investigation of venture to empower the administration

and Government to take speculation choice. For arrangement of venture reports a
nitty gritty investigation works will be attempted to take speculation choice.

The procedure embraced for planning of plausibility report contrast from Project –
to extend and industry – to – industry. Attainability report in coal part is developed
over some stretch of time watching different rules and proposals issued by the
assessing offices viz; Ministry of coal, Planning commission, Investment load up
and so forth.

Evaluation Of Feasibility Report:

The plausibility report plots the kind of innovation like underground technique,
with subtleties of extractable coal assets, life of the venture and so on. The
plausibility report measures different physical info required viz. arrive, building,
plant and hardware (contribution) with year savvy staging of necessity.
The physical parameters are changed over into money related terms developing the
monetary feasibility of the ventures. The different techniques embraced are:

 Task cost Vs Realization

 Limited money inflow techniques like I.R.R and N.P.V. drawn and
contrasted and required rate of return.

 Restitution period

 Monetary investigation appropriately showing in general advantages to the

country.

Keeping in view the distinctive phases of undertaking cycle accentuation is made

to dissect another from the phase of projection i.e. readiness of the FR.

The structure and substance of the FR in SCCL have been advanced, as expressed
prior over timeframe taking due thought of the rules of different Government
offices and also the administration of the SCCL.

Annual Plans and 5 Year Plan:

The Government of India will set the generation focus of SCCL. The Annual
designs and 5-year designs will be arranged and submitted to India.

These multi year plan demonstrates the aggregate sum required amid the
arrangement time frame thinking about different needs. As indicated by creation
plan, prerequisites of assets will be appeared in every year.

Accordingly, yearly arrangement will be drawn distinguishing all tasks –

flourishing, definition, development, and foundation improvement.

Yearly arrangement will be readied thinking about the accompanying:

 Completed mines and existing mines.

 Ongoing activities.

 Projects under plan sitting tight for endorsement.

 Projects yet to be figured and others.

 The aggregate capital necessity for the 5-year plan and for the yearly designs
will be financed as pursues

 Government of Andhra Pradesh value.

 Government of India value.

  Bilateral credit.

 Government of India credit

 Suppliers credit

 Internal assets.

 The aggregate of the above assets is the aggregate expense.

Example of Finance:

The SCCL is tripartite Government Company. Legislature of Andhra Pradesh is

51% value and Government of India‟s 49%

Clearances by SCCL Board of Directors:

FR arranged is submitted for leeway of Technical panel of the Board. After leeway
by the specialized advisory group, the F.R is cleared in the Board of SCCL. The
SCCL Board is assigned to endorse extends up to Rs 50.00 crores. The FR is then
submitted to Government of India after leeway from the Board.
Project cost estimation:

The capital necessity of the task is assessed under the accompanying significant
heads – arrive; Plant and Machinery; Coal Handling Plant and railroad siding,
Vehicles, Furniture and apparatuses, Cost of improvement,

Natural administration plan, Interest amid the executives plan, enthusiasm amid
development, Capitalization of income use. The subtleties of capital estimation
under of an above heads.

(a)Land:

In light of the land prerequisite for mine zone, laying of streets, assistant
administrations, building township and so on are assessed in physical terms. Later
the land prerequisite is distinguished with respect to whether it is private land,
Government land, and woods arrive and so forth., for learning the procurement
cost. Considering the rate winning for various kind of terrains, the expense of
securing of land is assessed. In view of the yearly prerequisite of land, the yearly
capital projections are made for meeting the expense of land.

(b) Prospecting and Boring:

The expense of boring in the squares was at that point caused and booked to
Exploration capital record and the ideological data of the task is set up with the
assistance of drill gaps bored. The expense brought about regarding boring of drill
gaps must be promoted.

(c) Cost of Building:

The capital necessities are evaluated under the accompanying sub gatherings:

 Fundamental plant structure

 Private building

 Assistant structures.

Estimation of expense of generation:

The estimation of year shrewd generation is worked out keeping in view the
dimension of yield, labor, control prerequisite and stores cost and so on.

different components considered in the estimation of expense of generation are

nitty gritty beneath:

 Wages
  Stores

 Power

 Age organization costs

 Post venture ecological observing.

 Enthusiasm on working capital

 Enthusiasm on advance

 Devaluation

 Treatment And compensatory a forestation

 Condition benchmark information age

 Green belt advancement

 Contamination checking hardware

(e) Interest (amid development):

The aggregate capital necessities under the above heads are enrolled with yearly
staging keeping in view the common obligation fairness proportion. The capital
appropriated into credit capital developments time of the undertakings is worked
out by adjusting the overall loan fee @ 17% per annum.

(f) Capitalized income use:

The income idea of use, for example, compensation, stores, control general
overheads anticipated that would bring about till the undertaking is put on to
income account is evaluated year astute. Vital credit will be given for the
generation

in esteem. Amid development period the net income consumption is promoted and
included as a component of capital head in the task cost.

Separate explanations are set up for assessing the expense under each head of
consumption. A rundown of the capital expense of the task is arranged and
included as annexure in possibility report, drawing out the head savvy add up to
prerequisites with yearly expressing for IDs of aggregate undertaking cost.

(g) Vehicles:
Keeping in view the extent of the undertaking and its area, the necessity of vehicles
is assessed. The vehicle head ordinarily covers jeeps, autos, transport trucks,
dangerous vans, fork lifters and so forth the capital prerequisite for vehicles
evaluated considering the overarching market costs. The stating of vehicles was
additionally appeared according to necessity.

(h) Furniture and Fixtures:

The furniture and apparatuses required for the venture are assessed and important
arrangement is made under this head. Regularly singular amount arrangements are
made for tables, seats, filling racks, PCs and so on.

(I) Cost of improvement:

Under this head important cost arrangements are made for improvement exercises,
for example, mine advancement, streets and ducts, water supply and different
conveniences, innovative work and cost of planning of possibility report.

(j) Environmental Management Plan: (EMP)

Under this head fundamental cost arrangements are made for giving restoration to
the dislodged people and for making up for contamination.

(k) Plant and hardware:

The plant and hardware is assessed independently under various gatherings for
regular technique for mining and open cast mining.

The prerequisite of plant and apparatus under the subgroups is touched base based
on mine ability and its improvement plan. To meet the possibilities for the things
which have not been considered in the subgroups, an appropriate level of the
aggregate P and M cost is under possibilities.

With assessing cost of the different plant and gear required for the mine the most
recent in – house process accessible dependent on the ongoing buys orders paced
for comparative things, tenders and citation got from the providers and CMPDIL
value list are received for fundamental process in the venture hardware.

(j) Coal Handling Plant (CHP) and railroad siding:

Considering the limit of the current Coal taking care of Plant in the undertaking
territory, extra prerequisite is surveyed in order to give extra ability to the current
CHP or to give separate CHP. As needs be capital necessity is evaluated and
staging is appeared to coordinate the creation staging of the venture. Arrangement
for satisfactory railroad siding offices will be made in the venture gauge.

.
 DATA ANALYSIS AND INTERPRETATION:

1. NET PRESENT VALUE METHOD (NPV):

It is the best technique for assessment of speculation proposition. This strategy
takes into account time estimation of cash.

NPV= PV of inflows-PV of out flow

EVALUATION OF NET PRESENT VALUE METHOD:

Project with higher Net Present Value should be selected.

Accept if NPV>0
Reject if NPV<0
May or may not be accept if NPV=0

2. PROFITABILITY INDEX METHOD (PI):

As the NPV strategy it is additionally demonstrates that venture is acknowledged

or not. In the event that Profitability record is higher than 1, the proposition can be
acknowledged.

Accepted PI>1

Rejected PI<1

Profitability Index = Total Cash Inflows / Total Cash Outflows

3. INTERNAL RATE OF RETURN METHOD:

IRR is the rate of restore that an undertaking gains. The rate of rebate determined
by experimentation, where the present estimation of future money streams is
equivalent to the present estimation of surges, is known as the Internal Rate of
Return.

IRR = Higher rate –NPV of Higher rate / Difference in cash flows * Difference
in rate

IRR = Lower rate + NPV of lower rate / Difference in cash flows * difference
in Rate

PRESENTATION OF TABLE USING DATA ANALYSIS:

1. The expected cash flows of a project are:-

Year Cash Flows(Rs)

1 20000

2 30000

3 40000

4 50000

5 30000

The cash outflow is Rs. 100,000

The cost of capital is 10%

Calculation of the following:

 Net Present Value

 Profitability Index
 Internal Rate of Return

Calculation of NPV and PI

Year Cash flows PV factor PV of cash flows

 1 20000 0.9 18180

2 30000 0.82 24780

3 40000 0.75 30040

4 50000 0.68 34150

5 30000 0.62 18600

Total cash inflow 125750

Less: Cash outflows 100000

NPV 25750

PI 1.257

Calculation of IRR
 Cash PV Factors PV of Cash PV Factors PV of Cash
Year flows 19% flows 18% flows

1 20000 0.84 16800 0.84 16940

2 30000 0.71 21180 0.71 21540

3 40000 0.59 23720 0.6 24360

4 50000 0.49 24950 0.51 25800

5 30000 0.42 12600 0.43 13110

Total cash inflow 99250 101750

Less cash outflows 100000 100000

NPV -750 1750

Calculation of IRR
IRR = Higher rate –NPV of Higher rate / Difference in cash flows * Difference in
rate

IRR = 19 – 750/2500 * 1

= 18.7 %

Interpretation:

As we can see from the above table presented, we have calculated Net Present
Value, Profitability Index and Internal Rate of Return.

From the above table we can understand that the NPV is greater than Zero and PI
is greater than one.

According to the rules the above project is accepted because the NPV of the
project is greater than Zero and PI of the project is more than one.

2. The expected cash flows of a project are:-

 Year Cash Flows(Rs)

1 50000

2 20000

3 60000

4 40000

5 70000

The cash outflow is Rs. 100,000

The cost of capital is 10%

Calculation of the following:

 Net Present Value

 Profitability Index
 Internal Rate of Return

Calculation of NPV and PI

Year Cash flows PV factor PV of cash flows

1 50000 0.909 45450

2 20000 0.826 16520

 3 60000 0.751 45060

PV Factors PV of Cash PV Factors PV of Cash

Year Cash flows 30% flows 18% flows

4 40000 0.683 27320

5 70000 0.62 43400

Total cash inflow 177750

Less cash out flow 100000

NPV 77750

PI 1.7775

Calculation of IRR
1 50000 0.76 38000 0.84 42000

2 20000 0.59 11800 0.71 14200

3 60000 0.45 27000 0.6 36000

4 40000 0.35 14000 0.51 20400

5 70000 0.26 18200 0.43 30100

Total cash inflow 109000 142700

Less cash out flow 100000 100000

NPV 9000 42700

Calculation of IRR

IRR = Higher rate –NPV of Higher rate / Difference in cash flows * Difference in
rate
IRR = 30 – 9000/42700 * 1

= 29.78 %

Interpretation:

As we can see from the above table presented, we have calculated Net Present
Value, Profitability Index and Internal Rate of Return.

From the above table we can understand that the NPV is greater than Zero that is
77,750 and PI is greater than one that is 1.7775.

According to the rules the above project is accepted because the NPV of the
project is greater than Zero and PI of the project is more than one.

CALCULATION OF NPV:

Year Cash flow

 1 20000

2 30000

3 10000

4 20000

5 40000

The cash outflow is Rs. 150,000

The cost of capital is 15%

NPV
Year Cash flow PV Factor PV of cash flows
1 20000 0.869 17380
2 30000 0.756 22680
3 10000 0.657 6570
4 20000 0.571 11420
5 40000 0.497 19880
Total cash inflow 77930
Less cash out flow 150000
NPV -72070

Interpretation:

The above table represents the NPV value of the year.

At this point of view the company should use the Net Present Value rule to
emphasize whether or not to consider this project.

The rule says, if the NPV value is greater than zero accept the project and if the
NPV value is lesser than the zero reject the project.

In the above scenario we can see that the value of the NPV is lesser than zero
which is (-72070) so the company should not consider this project.

Calculation of PI

Year Cash flow

1 20000

2 30000

3 10000

4 20000

5 40000

The cash outflow is Rs. 150,000

The cost of capital is 15%

Profitability Index
 Year Cash flow PV Factor PV of cash flows

1 20000 0.869 17380

2 30000 0.756 22680

3 10000 0.657 6570

4 20000 0.571 11420

5 40000 0.497 19880

Total cash inflow 77930

Less cash out flow 150000

NPV -72070

PI 0.519533333

Interpretation:

The above table represents the Profitability Index of the project.

The profitability index is used to predict the future loss or profit of the company by
taking in to consideration previous year data.

The profitability index rule says when the PI is greater than one the project should
be accepted and when the PI is lesser than one project should be rejected.

In this scenario the project should be rejected since the value of the PI is lesser
than zero as presented above in the table.

Calculation of IRR:
 Internal Rate of Return

Year Cash flow

1 20000

2 30000

3 10000

4 20000

5 40000

The cash outflow is Rs. 150,000

The cost of capital is 15%

NPV -72070

PI 0.519533333

Calculate IRR for the following data.

 Cash
Year flows PV Factors 10% PV of Cash flows PV Factors 1% PV of Cash flows

1 20000 0.9 18000 0.99 19800

2 30000 0.82 24600 0.98 29400

3 10000 0.75 7500 0.97 9700

4 20000 0.68 13600 0.96 19200

5 40000 0.59 23600 0.95 38000

Total cash inflow 87300 116100

Less cash out flow 150000 150000

NPV -62700 -33900

Calculation of IRR

IRR = Higher rate –NPV of Higher rate / Difference in cash flows * Difference in
rate

IRR = 10 – (-62700)/(-33900) * 9

= (- 6.64)