Unit © Copitol Budgeting bel T Management oh Fined pied: decision. + Refers ty int Herm assets Sinceatment + invalves allecaton 9 firme capital +o differe wk eng. berm assets 1 Unese decisions called inves) meut decision or capital budgeting decision 0» ba £ The sione affect the growth Decision i tabion profitability and visk fhe business T in the long yun Cost duction, These lengebeam aasets yield bene fits de ever a long period, usually mere than # ya, | vi a! I Coutingeak Capital Budgehing is a process of long. range es pscfent Medlernization Decision planning invol _tecic decision Complore inwesbmeut 4 funde Jong bem activibies ese benefit awe PEAT eocpectecl over series years —_ ¥ ALS court Dd setting up of fachories Ser 2 2D Vneratti a machin Bees oF DQ Creating additional capacity of we a at which is impertrd fom oubide Replacement Decisi + Re placins a fA. Aus te ny CS: BD. imp. 9 fe ing _o £ te ascels + long beam grastn § effects To prove Vin Jorge arcunt @ funds invelved cfficiewsy § duce cot inye\ ved Risk 2 These clecisions invalve associated with the future cah flow of sk 4 uncersainhy Mad ernisals te chs Since the achiral cash flows mot match the expec cash Flows. Replaci a fh soso legcence decision Aue te dechnoleg ico= eo SS = — F | Accept Reject pecinan / Independeuh _be ct sion — + | empansion pecision ser | dncreming enisting production capacity Sua . nar “_Amereasing oll refining capacity from Looe mT at 2eoo ur *| Contingeut decision / Compliment Ary Deciione oe alsring fivm + | Diversification Decision i t iL _ #| cCopital Qudseting Process i i Al Steg Project P basin: L H| Mutually Exclusive Decision '- + invelves sutificr oh porewvial investment : 21 ne mare _aibemabive prepesals ave apgortunities after camying WoT analy al ch that the acceptance ay one proposal seg out pO ppoy huni ti CA .b. 6 DE) \ caclude + Hoey al bermabs ve ALC. £ “have” poheuKal jnvetment oper: - pre poral _ _ _ | 2.| Stage 2 Proseck Evaluatio Determination st Cash inflows J out Flows A each proposal Selection e\ capital budgrting Technique ¥ ¥1 eo ™ > pd Techniques ot capital prudgelira So Techniques | 8 = | Traditional Technique Discounted cor Flas Tech, _ Non Time adju sr d_ tech, Time adjusrhed Techni jo 3 Proiecl Selechio — Acrounting Rebs Posy back | of Rehinn CARR) period a fe (roject_Implementati { Ty 1 Y y y 1 _I ute ev ARe yanee fae wet ~ ye x x ars Project Combe} | Profan. 4 Colentabion gf Cach Iufleos 2 Ah involves mmunitming the pjed with the hele ot Feecl back reports c Porhenlans | Soles tage 6 Projet Reviey Lege AN exp: excluding Jtpreciahon, cd sy involves viewing tye sutive pool ect Fazvinge before Oegreiaken § Tay CERDT)| Sn te enplain its success failure Less: Depreciahon = Earning before Tax C eet) axe Lees Sncome Tax @ ---- %- xe Eamings after Tax CEAT) = Add degre ao sh floes: Afke Tax CCeAT) a Earnings afke Tar CEAt)) | Holet [fv APR werd ure mebit | _— 2 feet metheds in capital: budge dt ++ — = ARR spe sh Flowsf—___}__( Par) Pay back Period = Fuibial Tuvestmew/ Annual Cash Zn flo D wher the net cosh inflewr ary in the nahiwe op a ie Uneven aeneund: 16 foe annual cash jnflow aifler fom ye te yx : eer the Nike span a prefect Atal cumulali Add: Coun salvage yalui 3, Psseh Cash flews a considered . Less: Nel tae profit sal Arete Add: Ten sonia on Lott oft sale Payback fevied + =~ yo 4 / tgs ont Veen “Iste\ chat fer tre lack year Carmack vet taflow J L | Tesibiad Outlay = \eveoo ac} __staternet Showing Cosh ubFlow + | Ay {2000 12000 1 au aeooe + aaee . teryicalana - ame = f1o00 sso Purchase (rice rp Nes Machinery > 44 qreoo + Lor. 0e? Freight carriage 4 tripal” Exp. = | L Workers Training eng a Sy + 33000 x 1a Lusi Sabiidy few ev aD 30008 Aad wee > a sy + 4 Acta” quiipmend a SY 4A Wears 412 days, wthrenchmest cempensabien > IF Leas: Tax on vetrenchmenk eompensabon Co 37 TUNG sah ett [Arm Gah anfine | eamtabve Total cach Oui fle I \ [Re Gh wth | * | etods a evaluation = tt % Prackeals on Payback Pened * A] Poyvack Period Methed: @ 9 © sihiahon | [2 ww the cath in@lows are in the makuwe of Si. Lf the Nel cosh gudlay 4 an Fnvestment sees 4 waiform emt annual cash ia _Ks 20000 § the annual cagh InFfow: Fleurs” are evenly prea Vife_ot project vr rhe S_yr. ave D000 , j20v0, 3008, — Seoo rep Cat back ps ah1 a fl {es | = ort, in cat Beprec i at's. PBR Greet trading Gtids ii considediug He - Op = * t farchase fF a new machine for tne immediant 4 Sepa sien program. There are wee es acl e NSO eoachine ia the marke xf Hii puryere. Their deredls are cos Fellew B dep wee = 83 ae Peokewlaws Se Sn. p ey > eee = 1800 Cosh +4 machine A7 see SVE Bee Qatimated savings in serap per yo. See Sletemeust Shewims Cade Eo Pipoe! €smetd IN in divans HO 287 Sere OT Pert eulavr machine g < HI" cas inclinech mabe) WO Goo Cook of me 170 sos 9 0Se minds —W—— tee _ ee Aad meideance DASE oY OW. caving In revap foo BD ey aupenisen $00 Sr. saving sn an wegen 27 eee ans f& 4 machine Cr) \e c s rer wing im ind: meer: Joo = 25D —| ten © 60h mgm Aid . advise company hich || Waaciine te ways - I a. _ 4 ob ind mak ae x Ada” tetk 4 mmgin e chi mf Gale Da er eager = 0 30000 im Totes iE 5 Seco Seve Eapt o \2000 21000 \ oo: pee — ST aT [4 Cavoe 33800 Gani tne & Los S080 BB000 Ent f Pots + _Go000 - 29000) JGo0o | AAs Pep | = at os _ - — L = 2s ee - Jeers’ [a = pe [oe L - 5 Sy Smonthe e709 I ad —+ > Vee a I‘ ‘, eo s ‘ \, Avg: In? = 04 » govoo00tO_ = 1000000 = a Age iaicjocls mS 2 C44. > Tes0s8 7 ‘Yy Disgeuated Cask Flows Jeclunig veo, = = * Al_Net Presenk Value Cnev) ig WWE nveorment SDE ver” prea value of cass inflow Ie fs coor ok Flere Sheps fox ACA. — E- Rca in flows — Py of Cah ondtw fxg Annual Precih Tato Prt Be jan 9 Bep L- fires Tey Se STP “froparal is ‘gofitable with tve 3 highed ArV - Avg: trvebmert = fw 4h bejinn + attired] Gust) Sueval EM, The mu. budget 4 comp is 280 000 - == I Compure He NEV © 10% cost of capital 5 seqgel Le ; - = Deter egkn chethev The pryect uy griiatl KE Decision Cale: Proposal ir Profitable wilh hiqhob BFA earee E- we [et | ws | wy eS E 4:3.| An Anvestment costing Rs. 20 00 000 hs exp: goers | sosee | \aooce | ecovs f eQeove L to produce foil” pevfit = if 1 DF =f ) | 2 0'909 | [sy woe a? IS 1 VAY Tate) iF : Téo0ee 320000 Béveos [ia ce t OF esos Jia apEe - [ Sa o-7st pel Are = Arn avy. €1 seo eaeea . f Buy av O62 | pans avy cnt 160000 + 2uve0 } 16000 a = [esoeeoya AD pA Wow oor ty nev sev crf 7 ev cor Yovy- Cah outflow] CLF. T 8 230000 - \ 4o00e a ge 0890 3 \20 000 4 { Bo 000 v t a4,0000 , NPV = 464S40- 28000 = 4s 4o]Wwtitabiliry Index Genefir” Cos} Rabie) D yore) Viscounhed cash out flocs Bh measures the present value per vapee invesked, while rv js based” am toe aiee betm pvere $ Fv cof (i - fyere, | I ry cof | Decision Rules “pt project when PL more than t- 1 a i 4 Same qu Ke Ney eae 464540 = | tee] 290000 c Discounted fay back Pesicol : ors “Used te debermine Me prarfitecbi WAY A greed: Gives dus” tab an Inveshreat require Ww wecover wv cosh taking ‘mr consideration Me Hme value a. Preney: DEP = comp, yrs + Amd fh be weoend ty of C16 voy Desision Rule: Sharkey pree _berrer i 1% Fre pref pa bi ity oe enn eeRole 4 Reon meted t- (Inrean 6 A = eR ov wield fv an projec i Aiseh rere : eee 25 3 ep oT Croeed) | 3e0ee | zsv00 | dowoe | a he yan Se che A ‘Ai. DF, = Pee ) £8309 [BRR = Loser Rabe + Nev © lwerra x pitt Te I Dith in O yore iT oe 2 O92 € as He a3 pmmezi7iell O.ef in gales = Higher vale of divwunting | Yes 2483 T= Lecter rake discovting i Yes =o. €at [pie We eV = Ntv @ tome sak — NEV © high take dw Gof cae De fvcif Gm, Pvar 0 \e00ee d i | me Amel co 20000 business ! (20 v00) 2-909 | Cran) CyB ay The cast! capi e yeove ose 2iso = exer dive emupacied 3 B00 o-75) 26295Zp 299457 proposed inv 4 Go000 0-633 a7gzo [es 267] © Wooed 0 621 gare > 163.417 ra a 7 = z Anat 280000 Sdo00 lessees 200000 beep = Gy + Jeovoe- 60267 — 24)s0 + Cof ca € oF pvclé s 4.48 ps earwn 2 4 pp (Cogs Fer D7 Fags o 250000 1 @seeoe) 2 4 pp 5 Aas. \ Sooo 9-895 44250 2 \pocue o- 783 78300 3 aacose 0-682 138600 Erveats RENSD ] I j af gijs r. yy ek at OF evere a —) Con, Ponialawe 9 - Project _P Es fo ase Buried te e 230000 rey Mo ee CaansaeeNtan) H {0008 ae0 008 om - 100000 0694 E3508 es Boe Joost [os 200 9.579) WS ¥e0 z jeseet —— ie & [Boowe Aeoee —_ 22685 : a0 eo? qeooe T. NPV @1% = Pvete — Pvcok t 2 2 611§0 §2 S0000 : —}A a 3 oraea eee e200 — Ts yess SI ool 1 NW Gzey - DLessv~ a Cosco 5 woe econ | i = 238%) = raaioee aaa TABOR TRe se é ervcte® 4E4S4O 2 Lower ale + NPV @leuonk x pith wey f pveae in PH Cor ; Off. in PY rele = 464840 - 2eoev0 2a 4b inse > = [ra 540] / nso CURD a aa ce aoa 4 | Bie Sy cat OF @ ley, Pyat | = fs 33 4T i Zaaee aaa Tai es a { th : a 16 0 Ovo 6: B24. 1321 €o I Bhende thd. plawina ine z eoibes on7st coo 80 [ kudger= 80008 win a alpernaluo % 40000 608 PrEST [| Cmpule NPV @ ey ¢ iaarare 3 62) aaee [ Sengest which prjecd tmey gy rf Tpat, Gee oo) i Niv = pvcze - PvCoF L = _asxoo= AbovoS _ = [ae zee | i P>s- ] of Pom [a : = Seay — S900 : a ’ 7 Awa SAT x 1e0 ie (i EL ise ie Vig Tsv00 Pit 2c os Cum | OVE urd 4 teens] qeqn a [a0 6 © 8797 T2 [| 33as0 hoax 5 [ (4seoeT | gore s I 66250 1226s f i [senery = [ests ye > mm aah T Ben ND nflne ] = 4 4 sve 4ke00 4 acy | A ——— 19960