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    VBD

    Uploaded by

    Paras Harshe

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    © All Rights Reserved
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    of 130
    SYLLABUS Importance of construction and infastroctare in economic development and growth, Construction ~ a key industry of india, Concepts of time value ‘of money, Discounted cash flow, Intema rate of return, Numerical problem based on calculation of IRR. js a mae industry ongoat the wold accounting fr a steele propartion of most counties, Gress Domestic Product (GDP) an Gross ‘National Prsuet (GNP) The snpertace ofthe constrstion sets i ty related {os sce but also tits ole in economic owt An ida sectr this ig coud ‘et havea impact on the economy, In relation othe kaportance of the consrction seciorm bots nations! ord economies, cure! knowledge of iit poor At s polcy-makers may be misguided or even desinictive.Esonomic growth = caren an sve of global concem as most eecoomies ae finding i to creme the necessary employment opernitee and achieve meaninglgronth, This esearch mobilizes ee economic growth theres in tying 1 in the elaiaship between tbe consruton sector and economic row IMPORTANCE OF CONSTRUCTION AND DEVELOPMENT AND GROWTH Q.1. State the role of construction and infrastructure in economic evelopment of « country. ‘Ans. Role of construction and infrastructure © The construction sector is visualized to play a powerful role in evonomic growth, in addition to producing structures that add 10 productivity and quality of life. © Construction and infrastructure are important parts of the development and modernisation process, While it is closely Cconelated with cconomic growth, it does not follow that providing incentives and increased spending on projects necessarily leads to ‘economic growth * Construction is labour intensive, when the sector is working at full capacity, linge sections of the country's work force are active. Different standards are used inthe categorization or classiication of economics of the countries as low income, middle income and high ‘income, 02, There is evidence of the existence of a very song relationship beiwcen constuction activity and economic growth ‘Asn investment sector, consinvetion has the potential o impact peoitvey on short-run growth, Construction can thus be regarded as a major component of investment programmes, particularly for developing economics like India ‘Construction sector plays a powerful role in economis growth, in Addition wo producing te siructures that add to productivity and auality of fe ofthe county ‘The government stimulaes the economy to achieve economic wove so that this will help to reat jobs Increased economic activity requires a corresponding increase i provision of roads, and other infrasuucture Considering the funtameniat significance of the construction an infrastructure sector in employment creation, capital formation an ‘ts aggregate dop over effects, itis clearly an important sector in th economy. What is the major role played by the today's infrastructure t the National development? anomie development isa tem that esonomiss, politicians, a others have use frequently in the 20h century. This concept, hasbeen in existence in the West for centuries Modernization, westemication, and especially industelization a ‘ther terms people have used while discussing econom evelopment. Seonomie development has a direct relationship with environment. CONST, ECO. & FINANCE (B.6. Vil 4 cof infrastructure 18 080 IMPOFAR fo yRD © Government ice stably, hgh empleyment, and susininable growth vr undertaking to mcet broad economle objectives such de financial and econcmnie polices, regulation oF tots cae financial financla instntos, trade, nd pices. puns thal provide fnrsirctre mn services sech + upapada Rousing ime prevention sion and pesevion tru specie fora in business inane, et, smal bases ing bealty devekepnen, workforce deel ce and expansion, lechncogy trams, aed “Ths in eategory Ha primary few of economis dee veal ete develope evelopment profesional nent isthe (One growing understanding in economic: development promocion of regional clusters and Bviving metropoiun economy, In today's global landscape, location is vitally important and Decomes key in compete advantage Economic developments a poicy intervention endeavour wit aims ‘of economic and social well-being of people, eccnomic growth isa ‘phenomenon of matket productivity and rise in assets management 03, How could you determine the growih of the economy by considering infrastructure development? Ans ‘+ Ezonomic development ypically involves improvements ina vavicty of ndcatos such as Mercy rates, Ife expectancy, and poverty ras. + “tasiructre’ i actualy 2 diverse term which encompasses social infastnctare” such as schools, universities, hospitals, prisons, community housing, bus terminals, parks, et. + As “economic infasrucue” such as utilities and amenities like ‘ney, water, transport, reads, highways, railways, subways, trafic lights and sce igs, dams, walls and culverts, drainage systems, ‘ignion faites, the airports, bus terminals, bridges, even digital communication, Francial institutions, markets, et, * So, basically Infiastructre refers to all the ‘physical structures used ‘by society and industry for enhancing is productivity or for the production of goods and services, * County's economic development is related to its inftstuctre and furan developmen, which encompass, among other thing, health education and employment CR Reo ery os. Ams. Developme sand development those countret ar in ‘ grow mernaional wade and participation In Olebal (VCs) nnd international financial markets Infrasuciure Development could A180 000 1 financial small-scale producer Write «short mote on Economie Development, Why “uterent development indeators and indices? Economie development: Feamomie development usually refers 10 the adoption of technologies, uansiion from agriculture based, economy and general improvement in living Standards: When cour is ina state of economic development puting ou te produc athe ight time can lead to huge profits, eonomic development i proctially equivalent to indus fut to say that ecmomic development is only indus oul ot be correct Because besides involving the sf por ng technology in production, it also involves labour mebilty,exensge educational system ete. The substaal consumption of economic gods is pone ay when theres substantia! production of economic good nd stantial production, these days depends upon preter we technologies ‘As per the economic development, if suppose Inraswucture electricity, roads, imports, water systems telecommunications are the foundations of modern economies suchas have s huge multiplier effect When we establish a power plant, we, can not enly employment directly through construction and operations Powerplant, but also create an industrial base around the plan \would want to tap the power. ‘AS per this way we can say that improvements to inf should mandatory for increased economic activites development of a country, ‘There are various types of macroeconomic and indicators or “metrics” used by economists and 6 SSK the telave economic advancement of 8g ‘mally he Weld Baas “Wert Developmen nts” we come from ofc resngiz terion souren wince ation region sn stl estnten camer devepment depends on he allewing nice: Correa waking on big econnui objectives sch as erating Mo roving 08 aconomy Thee ntaives canbe secompte Jovi redtons, nda incesive ciel Programs that provide infasiacture and services such a8 DgBet oh miter ® highways, community parks new tehool programs and ici public libeaviee or swimming. pools, new hospitals, and ctime prevention itive, (ii) 40> creation and business retention trough workforce development programs to help people get the needa skis and education they eed This lg inchates small netcr: with the small businesses, struction sector: ‘The construction industry of India is en important indiatcr of the development as it creates investinent opporturities across various ‘elated sectors, In india Construction has accounted for around 40 per een ofthe development investment during the past $0 years. ‘The industry is uneven, with » handful of major companies involved in the construction activities across all segment contractors who ‘work on the subcontractor basis and carry out the work in the felt ‘Around 16 per cent of the Indi’s working population depends on ‘construction for its employment “The sector is labour-intensive and, including indirect jobs, provides ‘employment to more than 35 milion people. ‘The Indian construction industry employs over 30 million people ‘and creates material goods worth over 200 billion “The share of the Indian construction sector in total gross capital {formation (GCF) increase fom 34 per cent in 1970-71 t9 60 per cent in 1990.01. There has been drastic increase in the share of the ‘construction sector in GDP and capital formation, “The main reason for this i Ue increasing emphasis on involving the private sector tnfastucnre development trough publicprvale pasnerships and mechanisms like Bil Operate-Transfer (eon. POPS nk oni ee ean 13 7. Ans. ® CONST. ECO. & FINANCE (B.£. Vil SEM. For finding Deiter Publ Private Parierhip (PPP) construction management is required for optimizing resources and maximizing rodvetivity and eiciency, Money has me valve, 8 a rupes today is more valuable than a year hence 1 ison this concept “the ie vale of money” is based. The recog of the time value of money and risks exremely very importa in financial decision making and ter asset criteria Sound deision-makng ques that he cash lows wich fr is ‘expected give up over period should be lgialy comparable ‘cash ms become logically comparable when they aft approprnsy adjusted fer Uc ferences in iming and sk “The welfre of owners would be maximised when Net Present Value is creed fom making a Onacial decision tas why tne vale oncept which is important fr Sana essions. Ii esogniacs hit he Yale of money is ifferent teen points cftine Since money cane put 10 productive us, is valve i different ‘depending vpon whens veceived or pad ‘Te va of cetin amount of ney day more valuable than sve tomorrow: I is not beense ofthe insecurity involved with Lime but pursy on azount of ting The dterence in the vl of money today and tomorow sefered as time valve of money “Thus we cam say tat time vlc of money is central to the concept offi What are the different reasons for value of money? Give example, Following ae the reasons which shows that moneys time velue tecase of ik, and) uncerta ty + Faure is always oncerain and iy COatlow of ess n ur con es peyrents to parties re made by us. There i no ceri for fun cash inflows. Cash itlows ete Aenepdcrt ut on oor Creda, Bank cc. As an individ of refers ecciving cash now. not certain about fare cash receipts i ofa book is punishable under Jaw 8. Ans 0 one received ty, re fer wan he woney to be eee ie: pry pe ti petrol psig power thin # HEE # =H 0) Cmeempon | ey carn sama mmmentepprtmiis ¢ Ae foes cm promt enooy + Tnee oO sindy 1 ve higher vet be eve orn oF fi + cermin pod ine Example 1: fan individuals given an alemative either to recive as 16,000 now or after one year, he will prefer Rs. 10.000 now, she i cause, todey, he may be i a postion 1 purskase more goots wits mony than what ei ing 0 gt forse save eon flere Ye eanple 2A poet aceds a iia investment of RS. 100,00. ss expected to give ftum of Rs 20,000 pet anu atte end of coc yea, for six years. The projet thus involves cash cutow of Rs. 100,000 te eer year’ and cash slows of RS. 20,000 por Jeat, far sx years In order to decide, whether to aceplo ret the project. it necessary that the Present Value of cash inflows recived annvally for six years ascertained and compared withthe inal ivesimcst of Rs, 10,000, The Fem will acept the project ly when the Present Vive of cash inflows a the deste rate of fees: enced the il investment or at east equals the inal invesiment of Rs 10,000, State dierent techniques for adjusting the concept of Time ‘auc of Money. Expila with an example. ‘There re weiques for adjusting time valu of mone as given telow ‘Compousding techeigue/fture vale techniques ‘The provéss of investing money as well as reinesting incest carne thee on is called compounding, But the way it has gone ‘shout calulting the fture vale will prove tobe cumbersome i the future value overlong maturity periods of 20 years to 30 years i 19 be calculated compounding period: ss met teres cared oe il rn cco prof bu principal at a endef i period Dis sing Present value techniques ‘ne worth of money today that receivable OF Payable tg gue i ald Present Va. In tis concep, the intrest, ine amount becomes the hump sum amount afer IDE Yalue apr meres guned for particular time period txample: Suppose you invest RS. 1000 Fr Ie year in secur that pays 10 pe ent interest pe year Ire let or imerest income be reinvested, Cur invest wit py 1s follows DASIC CONCEPT OF THE TIME VALUE OF MONEY, Principal athe beginning Tnierest forthe year 1000 First year (Rs, 1,000 0.1) Principal atthe end Principal atthe Beginning, Tnterest forthe year Second year (Rs, 1,100 « 0.10) Principal a the end Principal a the beginning 120 Interest forthe year 7 Third year at (Rs. 1210 * 0.10) Principal atthe end ‘The value of money at a Fuute date with a given interest rate is called future value. n this concept, the inerest earned on the initial Q9. Ans. Explain the meaning and importance of valuation concept. How ‘does valuation concept help in decision making Valuation concept: Wis a process of determining the current worth of a asset ompany, There are many techniques that can be used to alue, some are subjective and others are objectives. Troon te bred way Bo an event aye 36 pr ya at sets sy cmpouning tht ere of rn wf be 5% On the thr of cies an eee ngs erty th the rel ter tan 2 ‘Th cre fr np serine the een a wl be und on 1 can be sid that effetve ae of return is useful in determining nha amount of money wil be gained or fost on an investment ang sven course of time ‘he amount he can be ost or gained might be profit, met income, Interest of los Im this way, the francal analysts ae able 19 calculate what wnount of gun of loss they will be bom over the amount of money ha they have lavested in a paricolr thing over a certain tine period Now cquuig the rate of imerest, suppose, an option is given os rANT FORM ‘Pure valve oF motile cash how ry,-ry(14) Vy = Pure value aller ‘a! year w Y= Presen value of money today 1m = Number of tis compounding is done i a year, fesive intrest rate ir-(iet) 1 IK = Esfective Rate of meres ® {P= Nerina rate oF interest 1m = Frequoacy of compounding per yer. The formula to caleulte the EflectiveInerest Rat it, sr-(i 2)". Where, IR ~ Etve Rate of erst 1 Nominal Rat of rest early intrest Rate) m= Frequeney of compounding pr year While computing the effective rt of tres itis neccsary wo tke folowing [ Bissorcompounding ] tmerestrae | Yeuty 10% Hategeady rr Monty 15% a ane mm (©) Quarery any ofers 12% rate of interest on deposit, Waa y the fective rate of interest ithe compounding is done on? (2 Monty (i) As an alternative, me following rates of for ehoee, Which bas 10 be nccepted ? ‘asis of compounding Interest Rates : ‘nominal erste she base and dou the comparable rte of fcr fr halen, quay and monthly bss and sleet hat hich is most aractive SSS Te co [Metir [ae] Gun Tae ee 0 ‘The forma for calculation of effective interest sas below y ire(o o o w ‘When the compounding it dane on hye basis air (1-222) : 1096 = 136%, ) When the corresponding is done on quarry bass an (1-222). = o12ss: = 125s When the compounding i dns ct monthly bak: . = 01268 = 168% ‘Hasso compo Tmierestrate | EIR Yeats 1% i Hale yay im 1230 ‘Moly 1 1255% Quarry 12% ne When the compounding is done on half-yearly basis: (ey 0.1209 120% When the compounding ix done on quart bass (ee) =0.1200 =12% ‘When the compounding is dane on monthly basis sons -1H% “Thus, out ofall interest ae, intrest ate of 11.75% on haga compounding works ut to be the highest ete inert rt 12.09%, s0 this option isto be aecepied. CONST, ECO, & FINANCE (0.6. Vi SEM, Pret val then opener 10s te ban fr oc ply en lag. nei ating. tanking Insure, eon fe salen and even try pao Iveco for he ta money wo rev aye be ive iy to xm return eb wort ne vl cot fr time ve of “The process of determining presem value of » future payamen cr receipls or a series of ture payments or recelps is called as iscounting “The compound inerest ate used for discounting cash hws is abso called sth scout ate, “The present value of future eash inflow oF outflow is the amount of ‘amen cash that of equivalent valve tothe decision maker Present valu, als called “discounted valu isthe current worth of 1 fire sum of money or steam’ of cashflow given specifi ae cof tua Future cash lows ae discounted at the discount ate he hig the Aiscount rae, the lower the present valu of the future-cash flow. Deermining the appropriate discount rate i the Key 19 property ‘valuing tre cash Dow, whether dey re earings of requirements. Yo caleuite resent valve, oF the amount that we would have to invest tony, we anust subract the (hypothetical) accumulated Ierest fiom the Rs, 10000. To achieve tis, we can. discount the fanure payment amount (Rs 10000) ty the interest rate for the period (Q.14. What Is the major difference betmeen simple and compound Interest? Give an example. Ans. Sr. Simple laterest Compound Interest No. Tip | im smple erst, no interest | In compound intrest, ach is eamed on iterest. The | ierest payments investment cams only simple | reinvested to ea further interest. ‘eters in future periods. 19 seme, mare prs ole Foe va = Peet ae (1 Mae of enter) Remon 1801+ 5 1a) 1.0 ‘PEN Pom hit, we enol he pow encod mre. ramp 1841000 reed @ 12% spe nto, $e wi The owing le ms hw on inveaten f R120 ows overtime ‘sip ne wl a cepa eres when the itr a 12 Year | Simple interes Compoued Tnereu Stating Balance + Ineren_| String Balance + mero ~ Ending Batance ~ Ending Balance 000 +100 1,100 1 | 1000+ 100=1,100 § | 1400 = 100=1 300 10 | 1900+ 100= 2.000 1464+ 5= 610, 2358+ 6-259 20 | 2500100 =3.000 6 lsat ae era +61 6728 106,718 10672 7117390 10 | 10909100 12827829 12327 = 137612 | O18. Write short notes on (1) Discouated Cas Flow (OCF) @)Shortcomiegs Ans 1) Discounted Cash Fw : . et how DCP) andrei 6 met ofvting 4 POS compe Faancl bene sng te concep of he ine value of moacy. © SMG cat Sows wy eimncdoa Sscoe ty ng son of Apt ive thi present values (PVs), Tener Oa eae chow, th coming snd oe. Net Prat Vl (9, ich sk we vata cr reo he ‘ath flows in problem statement + DCF is eaealied as - pore Fi, Ch, |e 50) O08 eye asad + DCP i ao known whe Discounied Cth ws Medel, + Tere ae several vavinons when it comes signing ‘cash flows and the discount rate + DCF analysis. But while ‘cio incre we compe, e pape of DCF ana Spy le etme the money an investor woud retne. tom ag invesiment, adjusted for the time vaiue of money. q 2) Shéricomings + Commer barks ave widely wed scumed cath ow wg ‘mcd of lung commercial el ese contruction poet, Tig Practihas to Substantial shortcomings. The ict se asunpton chs on te markt fr competing inv he ie ofthe ani, which would ely change rerhaps anata, over ime, and (i) Stsgh ine esunpbens abou income inceating ove ten years we ‘evry based upon Risorc increases in make ret bat never factors i e cyclical mare of many rea exate markets + Pomel ch ow mode ae power bu tey > har soncomings. DCF is merely a mechanical valuation to, which makes it sje ‘the principle “garbage in, garbage out” Sia changes ining can res in re cangs he aa of envy Untead of tying wor te Cth fos nay, ‘ein vale techniques ee oe sed tonto ser tea te Duroid Caa c ‘teen hold ony be wed aa whe feel aan ig Spec wid Pchbl, tough rot seccmaiy sai, eal Que Aas. oO ° o o ow. Ans 10 “rae ain et ah Hot wie oe re co she enn be ety yb re i Dc nya rt Het rma Yale (HPV Ah a inh lw seus wl ve on fetes ing ae tela en of BC come she aoe widely we ectepnn, ono ncaa onto vt 1 a peice (present Yale) ssn vest rc, ee “rhe opposite process takes ch owe un ate, Th ed in bod hows, provides cute ic pokes tin the ya ion metiod is wily wed bn re Discumted Cosh Flow va sector uc Us ang matare companies in stale ‘he sme tine, hb eto fen api © vakaton of hgh roth chon compos. invatang young companis without mh cash flaw Wack record the Disoased Cah Flow mod may te applied « suber of ines to ass numberof posible fone cutcones, such a the test, worst and must kl eae see naros. je? Wa ‘whats cant by Discount oes reflect count ate: coon reise irs rat charged to commescal banks and ier depository insitions for loans vseived dm the Reserve ‘Bank's sou window. ‘Te discount lo fefers othe Intestate wed in dsouned cash ow (OCF) amas 0 determin he present alc of furs caer tows ‘The dacoum te DCF analysis kes ino wezoun ot js tbe ime ‘alu of mony, ba aso te rik or uncerinty of ure ash ows, the pater the uncertainty of fue cash flows, the higher the discount me ‘tind meaning of the term “discount rae” Ue ae used by person plas and instance companies for dacouming. their aii. The icout rate usd is generally the tem that i appropriate ‘cited average costo eapital (WACC) ht rele the sk of he cash fw The most widely used method of discounting exponential lacountng, which values future eash flows as “now much money 0 ” Ans. 0 0) wn 0 “wo Tra w be invested ore, Mw IYER mH Of vet, 0 ue te aah flown fit Inte folowing things owen, “Time value of money (rates rate) Neconding Wo he toon ie reference, vero would rather have cus Ime tn Fring to walt wd mut erefive be ccmmperted by pi or Ore dele, ‘ik prembi 1 Reflects he entre ret invests ema boom thoy want tobe eampennated forthe rk tt the cach hen mi sot become vise wes Sate diferent methods statements which are wae for mpprsial ta company or projet or these valuation purposes, a number of Bernt OCP meshes sumerent ae itis The dea ae they 10 vary depend om the cpa snare ‘he company. However suposed nthe pana ep he ety ‘sccut rte and he projection ofthe es oye tbe chive) te ‘hey 1 be te a important asthe presie adele oth the income seam selected wed the asocinedcont of epi rote deteine te vluaton result obtained with exch mato ‘Thi one reson thes vation methods ae formally refed ts the Discos Fore Econ Hcore mets ‘There me thee main metodo determining performance ‘The fist iv the wat mebod, in which managers lock tm employee's specific waitin relation to the job, sch wt fiendies to he customer “Te behavioural tho ook in vi hon wihinaseci {po Compmatve methods compare one employee with oe employees. Resuht method te focused on employee accomplishes, oc ether or not employes met quota Wain he eteorie of performance appeal thre ae tno aspects to wprasa methods Pit, the ctteria we the specs the employer is sctaly be clued on, which shold be ted directly to the employee's description wl ened we each rer (1) Se hig the fae ‘ petemanc eration ample Seal 1, ey rng, yuo aig. Tle he tng ad oro te welhing each em wl be ren, For example remmunieia” an inaction With een et eter a ration "0 ect ny be weed me than convection. depending othe jo ope Q.19, Differentiate beeen Equity and Entity Approach. Ans. Equity Approach ity Approach No (1) | Buity approach i als irmed | Envity approach hr aso ‘ows to equity approach | termed as the Adjued Te, Present Value approach ary). 2) | Discount the cash flows Discount the easb ows ‘alle foe holder of | before allowing forthe debit ity capt ater aiowing | capil (bt allowing ore for con otservicing money | ta eit obtained on the ing capita ‘money owing capita ) | ls mdvanape is that, trates | 1 simpler apply ira api llowance forthe cost specie project is being ‘Whe ental roof sos tal 6 a pela eventing wil en die fom is estimated BR rte, with a ubstaially higher IKK. value than cAher available op would il provide w much beter chance of stoma promt (One popuinr use of Ks in comparing the prothabii ‘sablishing new operations wih that of expanding old ones Jn theory, any project with ms RR reser than is cot of cai Profitable one, and thus Hi nw company’s intrest 10 unde such projects In planning investment projects, fems wil often establish» rege tate of retun (RRR) to determine the minimum acceptable re Fercentage thatthe investment in question rows en inorder to worthwhile ‘ Any projet wih an IRR that exceeds the RRR. will fikely deemed & profitable onc, although companies will not necesar urs a project on this basis alone. Rather, they will likely pars Merce between RR and RRR, Projects with the highest chances are these will be the most profitable. For example, an energy company may use IRR in deciding whet 40 open 8 new powerplant or lo renovate and expand » previous ‘sting one, While both projects are likely wo ad value to th company, it likely that one will be the more logical decision RR calculations rely on the same formula as NPV docs. Of debit copia Yalued which does not have Prescribed by IRR. ‘carmarked debt capital foance x Nev=y—G. (0) | Disadranage incites; | Disadvantage w ba ‘quires judgement on choice | requires judgement on of discount rate, ‘hoiee of discount rate: no plicit 0.28. Whats toterna Rate of Return (RR)? Give formal, ‘Ans, Internal Rate of Retura (IRR) ; * IRR Gefine othe metic wedi epi ging mesering the Profabilty of petal investments. tena re of tetum is 4 acount rte that makes the Net Present Valve (NPY) of all esh ‘flows from a particular project equal to zero, ml UM a Where, Cy "net cash inflow during the pti C, = total initial investment costs 1 discount rate, and ‘umber of time periods ~\ 24 (ie at cect aye 2 ow IRR D8 | yeing oe nil rvennen oh ‘igh Net Pst Was, aig that white the np! ot wish he comny cb ei om ha ree may show, he prt ay ae Be MAINE 8 ‘pest deaf earl alan the company. Lit se aie when sng (RR to sompave projets of eee es ‘pvt with IR is ot ne rly atl he ci ‘common ian RR [Users may assume that, when positive cash flows are generated ‘uring the course of a proest (not atthe end), the money wil be reinysted atte projets rate of rtm Miscalculaingwsing IRR, inthis way may te to the belie hat» project more profit a it cn si ei Modified Intsmat Rate of Ret (MIRK) aunts the IRR to covet these isis, incorporating cost of capital ws the rats a which cash Rows are reinvested, and existing as a single value + For example, a proect of shor duration may have high IRR, aking it appear to bean excellent investment, Dut may als have & dove NPV. Conversely longer project may havea low IRR, coming tums slowly and steady, but may add large amount of value to, the company overtime MIRR's correction of the former issue of IRR, # project's MIRR vill often be significantly lower than the same projects IRR. Internal rate ofretur Nov. Baa Cy CC, =net cash inflow during the period ¢ ctl inital investment costs r= discount rate, and = number of time periods TINIERICATS PROBLEM BASED ON CALCULATION OF IKK CONST, ECO. & FI Te machine would have no salvage value, Aer Ivtaation, inachine wood Increase cas tntows by Re. 20,80 per ye¥r present yale of the ‘CommructAqus i interested to know th machine to acceptor eject ne neste, The minima required rate of retorm of the company t 167% om oll cap 1) Compute net preset va of the machi, {ay Int acceptable to purchase the machine? Soin. (1) Net present value computation ‘Amount of| ‘resent vale 16% Deseripton | Years ows of eash ows Factor ws) ms ‘Anal cash iow ‘o,000 | 434° 190320 Thiel cost of the Now 10,200 | 1,000 10,700 rmachine ‘Net present valve 49,620 te Sa a + Yatue fom present value of an annuity Of RS 1/+in arrears clus 2) Parease decision | The postive vet present valve (computed above) incates Wat the invesiment is profitable; therefore the machine should be purhascd INTERNAL RATE OF RETURN METHOD 23, A machine can reduce annual coat by Rs 40,040, The cont of me 222,000 and the useful Wife Is 15 years with zero residual value, Required: (1) Compute internal rate of retura of the machine, be investment If cost oF capitals 16% 2) Is an acer Sata. NET PRESENT VALUE METHOD : (1) Anternal ate of return (IRR) computa Amermal aie of retary factor ® Net annual cash inflow investment (922. ConstructAqua company needs» machine fr manufacturing. ee aen proce The cost ofthe new machine Rs 80,700 The expected = 223.000 25 57504 useful feof the machine Is 8 years. AC the ‘end of & years period, aa 412 (65794) 1 year, te ding Ne ‘ee nc fe cer ne eevee eel 116 mera mi of een (a) Condens “The ivetnen ett Dune eae tary prom chin lt ot fai of th compan COMPLETE LIST OF FORMULAE (1) Fase sta = Pring + tore Faire yale = Present vale [16 Number of yours « Itres vat (0) Fate ytue oF wutipe cash Now ) re vali arn yeas ny, y= 02, PROBLEMS FOR. PRACTICE ; / CONST, ECO. & FINANCE (BE. Vil SEM, roan at 1.08% rte of intrest fr six months, How mach sum would you receive ae 9 Yea? sore: “An instr ones 11Y% rate of inerest on deposits, What ig 1s done on: ate of intrest if the compound (e) Monunty affective () Quarterly _ the following rates of interest are ofere pasis gives the highest rate of interest tha is wo 5) Malyerty ‘ns an alter fs choice Which accepted? Basis of Compounding Interest Rates ‘Basis of Compounding | Interest Rate % Yearly Py reset value of mongy tay Nurer of tus compounding is dane ina yea, (4) Efective interest ete EIR = Effective Rate of intrest. = Nomina! rat of interes 11 Frege of compounding pe year (5) Discount cashflow, eae oT pers. Gn GF Imveral rat f return nev=3) Fito C= nt cash inflow daring the period t (= numberof time periods. [Net annual eashinfion, (7) ermal rate of return fcr Investment equied Ans. Ans, 10.75% Tal yerly 09.50% ‘Mentily 10.25% Quarry ‘of Compoundiag | Interest Rave | FIR Yearly nm De 10.75% 103% 50% 10.25% Walt yeary Meaibiy 9% Quarter 10% ‘yeas peclod, ie machine Would have no salvage value, instalation, tye machine would increase cash inflows by’ er year InfoGravity imerested 19 know the net present valve of ‘machine 1o acsep or reject this investment. The minimam, ‘ate cf rium of the company is 14% on all capital investments NPV=10749,958 1 120,500 and the useful life is $ years with ‘side! value. Calculate the rate of internal es IRR = S45 ‘on calculation of Rae of Retwm and Net Present Value Fredcion ithe a of rating et vale or‘ that can satiny» want et cl The Act may oF may ot nla feo of production ete ha abu Any io dace ovata he elcion deed pred serve aed? for a te perirmance ef ch sts roduton Prin sym aay poten solving ebigae hat decompones tem int ts component pce fo the pert of tain Now wel hae component parts wrk ad er ccnp fe pre, Accordingly systems analysis "he poss fshayin » proce asin one tient goals and prpner and rete sytem ad rocednes ha wi chive hem ina ficient ay Analyst and synthesis, as scientific methods, always go hand in tnd they complement one another Every symthesis is built upon the reste fa preceding analysis, and every analysis requtes& subsequent synthesis is order to verify and correct its resus. This feld is closely related to requtements analysis or operations research itis slo “an explicit formal inquiry caied out w help someone (referred to at the decision maker) deity 8 beter course of action and make a betet decision than he/she niga eoerise have made * Q.1. Explain the term produetion. OR What are the different forms of production? + Production is process of combining various matcrial inputs and immaterial inputs (plans, know how) inorder to make something for constrpton (coup). isthe act of cretng out, a ood or service which ha value and const tothe uit f individuals, + Economic well-being is ereated in» production process, meaning all economic activities that aim directly or indirectly to satisfy human eed, SYLLABUS ‘cers of prodecton with special reference 1 censzvton indir, dentin and nature of unk construction projets, numerical problem bed “The depee te which the needs ave satisfied is fen accep ws 8 ressure of economic wel being. In production, there wre 40 featres which explain Increasing cconomie well-being. They ae improving quality griceatio of ‘cds and services and increasing incomes from owing and more ‘lfcrert matt production “The mos importan! frm of production me Market production Public production Housel prouction In order wo understand the origin of the econcmic wel-bcing. we ‘must undertand thee vee production prcestes All of em rode commodities which have valu and conta © well-bing ofindividuas ‘The satisfaction of needs originates ffom the use ofthe goods and services which reproduced. ‘The nec satsfiction increases when the quality prie-raio of the 004s and services improves and more satisfaction is achieved at tes cont Improving the quality-price-atio of goods and services is 10 producer an estertal way 19 enhance the prodveton performance ‘bt this kind of gains distributed to customers cannot he measured with production data Economic welhbeing als increases doe tothe growth of incomes that are gained from the growing and more efficient market production. Marke production 6 the only precision feom which creates and iste incomes to stakeholders Public prodaction and houschold production are financed by the incomes generated in market production. Thus market production thas a double role in creating well-being, ie. the rle of producing ood and services and the rol of erating income. za LG, cw: on avverent has H8 own graph of the produ - What is production growth? Focat on the term production is roms, modcton acs nay expr a wt peep deci rout oft el etn ov + Tere ou th weave ef pect paced in aration et np fom the el ont we he rea phen we ant te cone + Theres outpat andthe rel income we generated by the ral procest 0 production frm he rea ins + The ral proces can be described by means of the prodion furcti. The production function 1s graphic! maltematia ‘expression showing the eationhip between the inputs ased in ‘odution an he cusp achieved + Both graphic! and mathematical exresions are presnted and en of he demonstrat. The production function i simple deen ‘mechanism of income getration in production proces. It consists OF two components These components ae a change in production Input and change in productivity Output volume Growth caused by reductvity increase Growth caused by Increase of input volume Tnput volume Fig. Components of economic growth The Fig states aa income generation process (exaggerated for laity) * The vale T2 (vale tte 2) epcscns te growth incuput fom value 71 (value atime 1) Tinh time of me fant fo hatte (ne sts ines. The output measured atime 2 is eeaer than the Output measured time ane for both of the components of growth an inte of nya ant an increase of productivity. ‘The poston of growth caused by the inrease in inputs is shown oy tine {and does not change the relation between inputs and cup, ‘The portion of growth caused by an increase in productvy j shown on line 2 with a steeper slope. So increased productvay represents greater output per unit oF input The growih of production output doesnot reveal anything shout the performance ofthe production process, The performance of production measures production's abilty 1p enerate income, Because the income fiom production is geacraeg in the real process, we calli the real income. Similan, a th production fuetion { an expression ofthe fe proces, we could socal “income generated by he production function” What meant by absolute income and averag Explain absolute and average income by me Give un example of income change. Ansolute income and average income The production performance can be measuted a an average or an Absolut income Expressing performance both in avage (avg) and solve (abs) quantities is helpful for understanding the wea fects of production For measurement of the average production performance, we use he known productivity rio Real output / Real input The absolute income of performance is obtained by subtactng he ‘sl input fom the real ouput as follows Real income eb) = Real output - Rea input ‘The growth of he real income is the increase ofthe economic vale ‘hich canbe distibted between the production stakeholders Win the ad ofthe production model, we can pefomn the ser fand absolute accounting in one calculation, Real output ‘Masimaing woducton perfomance require ning eae ewes he el incrme at is « rteron fpoduton efor “Te difeenes beeen he sbshie and aeragepflomance menses te ited by he faowiey gah showing marin! end svete reewctiny The figure Wa vane! expres of average prodcivay and margin “The maximum for production performance is achieved athe volume ‘where marginal productivity is 210 The maximirn for production performance is the maximum of the real incomes, ahs aa 1 example, the maximnam real income is achieved, when the production volume is 7.5 un The maximum average productivity i reached when the production volume 3.0 units Ie is worth noting that the maximum average prod vty 4 aot the same a the maximum of rea income 25 20 18 werage “a productivity ° Warginal productivity ° i Oeeaiane aiaaaaa See 7AM LO HO) Reel input Fig figure above is @ somewhal exaggerated depiction because the whe production faction i shown n practice, decisions ae make ina limited range of the production functions, but the principles sf the same; the maria real income some fr ‘An important coreluson can be drawn. When we try {9 maximize the welare effects of production we have 19 maximize rel income ommation, Maximizing productivity leds 10 8 suboptiman, i to losses of incomes. As per Indian Cop’ 2 Qa. oR Ans. ‘CONST ECO: 8 Fi ‘person obtaas a jb in marke or example, when a jobless roduction we ray sure J ow prodtvity job As eal average productivity decreases bat the real income pet capita inesass Furermore the well-being ofthe society aso Bows, “Tis example reveal he dict to interpret the otal productivity change conc “The combination of volume increase ad total productivity decrease teas in this cape to the improved performance because we ae om ‘he “wiminishing rts” aes of he production Fnction. if we aren the part of “icreasing fetus” on the prodution function, te combination of production yolume increase and total productiviy increase leds to improved production performance Unforunaey, we do not know in pace on which pat of he production function we re, Therefor, a correct interpretation of 2 performance change i obtained only by measuring the ral neome chang: Explain ¢ifferent production models wed ie construction industries. Write short notes om (Production Production models: [A production model is 2 numerical dese ion ofthe production process and is based on the pries and the quanites of pats and uirts, There are two main approaches 10 operationalize the concept of prution function ‘We vse some mithmetival models because they are Hke the models cof management ecounting, ilasaive and easly understood and lid in practice. Farhermore they are igri io manegerent accountng, which ta practical advantage. [A major advaniage ofthe arithmetical models ae its capebity to ‘epic production fantion as 0 part of production process. Consequently production function can be understood, measored, and examined asa part of production process Bri ena mesenement the tn evhion of Fase x wt bi poe eri: The vot Iman Ct ot Fa cen cs semen et rc nb ml wan . regure ht rey hem of apts ipl ms pen i escunng bent NOMEN and ve outputs ave not allowed to be agpregatd fn measuring and accounting they are aggregated, tey are no longer Porlod 1 Period 2 ‘Guenilty Price Value Quantity Price Value po00] 720] 1512] 24725[ 710] 1755 20000 700) va0o] 19503] 7.15] 1304 2012 3150 70000] 760] 750] 1500] 770[ 096 000] 800 sae] 7020/ 860] 673 sooo] 160] emo] ano] 185] 06 Capital 160.00| 3.80. 608 184.80] 3.90 643 Input 2648 es Sup valu (abs) 268.00 bane ‘Surphs value (el) 4.101 pac aye ‘The table presents a surplus value calculation. ©The busi example ia simpli prota calcio ved fr usratin and modeling. ven as reduce, it comprises all phenomena ofa al et _ Measuring stvation and most importanly the change inthe outpa-input mix between two periods, ‘enc, the basic example works as an native scale model” of production without any features of rea measuring situation being lost practice, ceca using sumplus value as a eriterion of profitability. srl mens Uundersunding the connection between profitability and productivity or understanding the Production process. Following ae {able shows all the details regarding product completion period andthe cost Mi Energy Capital Input K Surplus value (abs.) 266,00]2604 0 Surplus value (ref) 4.101 --ze7e0 k Change of distribution (abs.); 4-13 1 Distribution index of output, c4/e3 m Distribution index of input; h4/n3 n_ Distribution index, 14/m4 |— Distribution process: p Productivity; 4/4, e7MhT 1.084) a Productivity index, p7/p4 r s Change of productivity (abs.); (@7-1)*c4 Volume index of output, ¢7/c4 Volume index of input; h7/n4 Change of input volume (abs); (t7-1)*(i4+r7) | Real process’ v Change of profitability, (723 0.999) x Change of returns; cTlc3 4,082 2 _ Change of costs; h7/n3 1.083] |_ production process. measurement of tal pretty necesiats considering oll production inp ard the serpin vale ealeution isthe onl eleltion to colorn © the ment seston np in roduc or acome aecoutn, hia mean tht homed OM te wed unbitedly in production without ny cst impact on seeouning the procedure for formulating objective func «+ Formulating the objective function necessitates defining ihe variable to te maximized (or minimized). After that other variables se of dual approsch for the formulation, lain the dual approach for formula considered as constraints. tethe procedure for formulating objective Function «Tre mes familiar objective function i profit maximization which \Vapproaeh for formulation = * also included inthis ease rove the understanding of production | + prof maximization is an objective fonction that stems fom the efficient way 10 ‘oemance is 10 formalale diferent objective Fanctons according yer intrest and al ober variables are consti in raion © re objectives ofthe diffrent interest B°0UPS maximizing of profits vm. ‘root termi sf os +The mas Kg nt te hn of esos mi, Wd li oth Ise bros ore se ange on oe eid Maden tee me anny be me Hii ten ane ‘Tm sw ard the sn as esa Teflon yaa ve Be psn equ i (=) gin te stating pd othe computation ot Ho end of omgrting and puso ia sign (+ sin a aa hat ew be aed sb f thefctn ‘A procs mess er the probe commmuly, labo free, orlety mnt anes, CHjeative ct futons van be expesed ine snle ean ch comely Wher the Tope af he Inrme eveuion, te same dit aad he swuies 0 be sine ‘The clin ysebles income sslomen svg wi the w ‘nce wean and ening wih te bizome dation ‘The income gencrton a he dsbuton we yay ba ance 90 ho thee wncuoeegenl They me the eal isome, the root occa coer comes, Moducer ncome ma one Ince Prot ques bemsse they 1 middle quotes and they an be compa ule eal eal ince nrmaly nota wade W indict to ckeuine 7 tak pps en and ot sii or rnd nce vl enh we fr eho 0 he cg oF _ Seman Hom he anges in cre dation ‘const, £60, FIMANCE (0.£. VIN SEM. CENU) som} Teri | taboo competion aes al eattacame |v sai2 |= Over ncome Ti7| a generation | 842 | Tol atrivoion 0 “wo ww Ww “) ony cage tat eve wo ily te ni price charges of upd dint ad acute el pro pacts ‘The change of teh income is the sum ofthese pots impacts tnd the change of owner Income, This mpproach is cilled the dual seen ners of prices instead of pproch bcme be Samework quae, M 06, What are the aster uduney? There re four main factors of production that can affect a pmituction project: they me Ind, abun, expt come and an coerenue and s Landis defn! as nd compres al mura cccorng resources ote rnp inherently fined Lands axed resource a ther is ‘limi amount, and pre can vary depending on location There types ofan: land «Agricultura land denctes the and suitable fer orca production, both crops and livestock Browaleld SWe/Land: There de abandoned or under asc indus ‘nd commercial facilities avilable ese Expansion ot redevelopment of such a filty may te complicated by rea or Perceived environmental contminatcns Green belts wren belts» policy and land usc designation used Inland se planing o retain aces of targelyundevsloped, wild of icukural ond surounding of neighbouring urban areas, Hnveatment Yond : An Investment land is purchased at one's own ‘ci else may wat sein the ner future oto give ito in. ced a eney wet. Tay ae ms oes dw Ste + me Ba Sesto hd wh te Sewers fnancng rey for the Comoe Yo Om | Hs comet bale 5 racy home” they fame the ructure and fish (Sere Enno we etd car, mee Ta come cen cme tf commonly sed in metcrpors o describe a car Being Id (engine, ramon cic) 1 contrat with vehicle Specie mage: The farm specific usage tumky is ao often used inthe technology ‘inkesty, most commonly to describe pre-built computer "packages" |, ‘which cverything necded to perform 2 cenain type of task (¢@ satio editing) is pu together by the supplier and sold as a bundle, gS Ths cen cs» compue wi r-al ae 97 oth, sd scsi. Such packages we ee . A nets wih retreat slatns md sve congas | yy wo, TET PRESENT VALUE AND RATE OF RETURN ones tt othe components maybe rested on. woud ete ecaion of "uentey howl” which be bing» comes meical cnt with nai medic! | Ans, “eipment comes andr the common ts ak. ‘+ Net present value (NPV) of project isthe potential change in an ‘8 FINANCE (8.E. Vil SEM. wo ad then the sale of the propery 10 Tearing oot tena, and — -Tne buyer is purchasing an investment propery whichis trea of income sme In oniting. the ter indicates an arrangement where a moat fully complete # well up 10 some milestone 10 receive payment in exchangs fr greser compensation pon completion), [Net presen value (NPY) with It signage Invest’ capi case by tha project wile ime vac of money ig eng acount for eqns the present vale of net cash inflows generated by «proj este nia investment om projet Nis one of the mot reliable mens wed in cpt badging because it accounts for time value of money by wing dscomay cash oa inthe cletion, ‘Net present valu caleuaons ake he ollowing wo pats ‘Projected net cash Nows in scce sive pies rom he poet. ‘A tapet rat of tum i. the neat Wher, Net cash Now equals tl cath iow dsrng pro lacking savage valu if any ess cash oulows fom the projet ding te riod. Hurdle rt isthe rate use 10 discount the net cash info Weihed wverage cost of capital (WACK) the mst commonly sed hurdle rate, Significance of NPY : [Net presen vate sescunts for time value of money which makes 8 fonder porch than omer meinen! appraisal sectiqus which do not discount fate cash fs such payback prod and counting rat of rein, Net present vale is even beter than some other discounted cath lows techniques such as IRR. In situations where IRR. ose ie coicting decisions, NPV decision shouldbe prferred. 0 ‘Dewmbacks of NPV [NPY fer a entiation, He serve tn changes in ‘eh ows, snag ve ad ihe ot af apt Net esate eh not ake nn account he eof he roe ame: oj A teu ni mvestmen of Re, min to genre NPY Of. n while # competing project 1 requires Rs, 2 milion inveuiner 10 ‘eneriean NPV of Ra 08 mition. If we base our decision on NPV alone, we will prefer project A because it has higher NPY, but project B has generated more shareholders" wealth per dolla of initial investment (Rs. 0.8 milion! Rs. 2 millon vs. RS. million / Rs. 4 milion), calcula Following ae the methods involved in calculation of NPV “The first step involved inthe caeulation of NPV is the eatimation of rt eh flows fom the project over its ie. “The second step isto discount those cash lows atthe hurdle rate Calculation steps with is significance “The net cash flows may be even (i.e equal cash flows indifferent periods) of uneven (ie. different cash flows in diferent periods) When they ate even, present value can be easily calculated by using the formula for present value of annuity. However, if they are uneven, we need to calculate the present value ‘of each individual net cash inflow separately, ‘Once we have the total present value of all project cash flows, we subtract the initial investment on the project from the total present value of inflows to ative at net present value ‘Thus we have the following two formulas for the calculation of NPY: ‘When cash inflows are eve NPV = RECO" nl invstment ‘Where, R= Net cash inflow expected tobe received in each period, Required rate of rtum per period, CONST. ECO. & FINANCE (B.E. Vill SEM. CE-NU) ‘umber of periods during which the project is expected operate and generate cash inflows. (H) When ensh inflows are uneven: neva Bing Bag elgg cee +a Be Initial investment 0-0 O- O- where, {= Target rate of retu per period, R= Net eash inflow during the frst period, R, = Net cash inflow during the sesond period, fy = The ne cash now drng the hid period nd 009 Decision rules + In-ease of standalone projects, accept project only if t's NPV is ferent between positive jet it if ts NPV is negative and st accepting and rejecting if NPV is 2570, = In case of mutually exclusive projects (ic. competing projects), accept the project with higher NPV. Explain following terms briefly : (0) Rate of return (#) Compound net annual rate (0) Pre-tax rate of return (8) Absormal retara {) Gross rate of return, (0 Rishefece rate of return (g) Time-weighted rate of return ‘ifferent forms of 1 wi OR What is rate of return? Expl breaking down examples. Aas, Rateof retura: + Rate of rtum i ermed a he gain 6 os onan invest ve specified perio, exprested as percentage incase over the i investment cost Gains on investments ae considered t0 be income recived from the security pls realized capital gains. + Arte of etum measurement can be used o measure vill investment vehi, fom rea estate to bonds and stocks 0 fn provided the asset i purchased at one point in time and produces cash flow at sometime in the future mil eure econ dd ae ofthe same pee denine W (9) Compound at anna rate (CRAM) Comp te ta EAR) i tt ‘aking teins ino gomidrten The eompour! nt mv te(CNAR) is much Hike an investments compound an rite excep that a iby akin aecoune. CCMAR is 0 ose rpesentation of invenment retams cause i itr eveso’s acta cian afer tation, rather then jst uncanny or oss. ENA breaking down Fer empl (fan nestor invest RE. 1,000 a one year emit of deposit (CD) with an interest rae of $% paid annually, thir expected annul tum on this investment is Rs, $0. However if Inert income te taved at 30%, the investors compound net annual ‘aie of retum i etually 3.8% or Re 35 (Rs, $0 » Rs. 0.70). As we cca 66, CNAR ives a much more occur real reium for an investor Pre-tac rate of return (PTR) The pretax rae of reurn on an investment that doesnot take the axes the investor must pay on thi eta, ‘ccause individuals we situations differ and different investments nut varying levels of taxation, the pre-tax rate of return is the Imewsure most commonly cited for investments in the financial world ‘Accordingly PTRR since refers wo the dividends on stocks may be {axed at diterem level foe intrest income or capital gains. PRR breaking down example : For example, the pre-tax rate of return enables comparisons 10 be ‘ade cross diferent asset classes. However, i isthe after-tax rte ‘elu thats most important to investors Assuming a capital gains (ax rate of 15%, a stock that provides» $% pretax rte of sctum ould have an afer-ay rate of retum of 4.289% However, suppose ‘that « municipal bond that is te-exernpt and has a pre-tax return of 425% and would therefore also have the same afer-tax rie of © © an Investor necune ofl gener degree of safety and he Fact th im int same as dt of tse more volatile stock, despite te ater having a higher pretax rte of return Nominal rate of return In vominal rae of return (NRK) the amount of money wenerated by es, investment foes and tn investment before expenses such ym are factored in. in ‘on 2. mutusl might show a fund's 1¢ we consider the detailed 10%, but alo show i return after taxes on ominal ate of er istibutions and sale of Fund shaes is only 96 Investors should Jook beyond an investments nominal to pet se idea of what he [RR breaking down exam IRR refers 1 the Municipal bonds only, For example, generally have a lower nominal rate of retin than conporaie bonds, but the ‘omina ctr and the aertaxretum of Munis i wsualy identical since Munis are usually tax exempt, whereas income cared from n. Corporate bonds are also corporat bonds wil be subject o tx subject to taxon capital gains when they are sol, giving them an Actua rate of return that may be signfcanly lower than their ominal rate of return Abnormal ret ‘Abnormal return is aterm used to descrite the returns generated by 8 given security oF portfolio over a period of time that ferent from the expected rate of return ‘The expected rate of rium isthe estimated return based on an asst Pricing model, ing 8 long run historical average or multiple valuations ‘Av abnormal cur canbe ether a god or bad thing. a itis merely ‘summary ofhow the actual tums dferfom the predicted retum Breaking down example of abnormal return: For example, caring 30% in a rust fund tat is expected to ‘verge 10% per year would create a postive abnormal retum of 20% Mf on the other hand, the actual retarn was $%, this would fenerate a negative abnormal return of Sé io fath year RS. 2088 vhowsnnd Aven sald pice Re 900 anand ‘scout le 1 Present value floes ‘Ans. Compe the HO othe exra nvenent of Hemet A va ae {it lavestnent = 9000 Yew 2 = 19 (1419) = 07102 Year) = 14 (141194) = 0.6086 ‘iose the Anvestnent ln erively recovered, the KOK = Year d= 14(16 1199" = 05158 50/8000 = 10% 7 Sai ee toe i eran he Minium heel Rat of Ru Racoate | an] | | (MAR wc lvetinet nd ch poet A. Farccneees | an] ae] a | Tmt he Re sans[ erm cum] odin Nec rena Vale (NPV: Mn cs ws we ven Tea Woot Cash Flows i eae NPV @ Rx oe wt — Initial investment Taal Vet mane vo.nes where, = a R= Net ensh inflow expected 10 Be received in each period, ea ite eo Po 4320 : Lasher vest ss mabe of eas dving wi ie poet xed "a Pose nw gee cash ows, 1 2564 mounds Velue pet eee {a When cash inflows are uneven: pve Bge Bay 4 Bt Baca ee Te aa a TH Net Present Value (NPV) ofthe investment as per the discount rte where, 1276 will be Ris 2568 thousand. Rounding it 10 the newest vale Le = Target rate of return per petiod, Rs. 2570 thousand, LANs ay Neteash inflow during the fst period, 14. Aw annist Us given the problem of selecting between 0 1 = Net cas inflow dering the second period, mutually exelusive projets using the rate of return method. One fay = Tene ash noe ding the hed pviod, andsoon only one ofthe projects must be sckcted, The dat for the wa below. The mioimom aceepinre rave oretrs | DR OBLEMS. FOR PRACTICE : fn 99% Using. the rate of return method which sheull You projec 24. Caleatate the vet present vale of a project which requ = wii choose investment of Rs. 143,000 and it iS expected 10 generate @ ch Project B inflow of Rs. 30,000 each month for 12 mones. Assume that Whe Anita see aatvage val ofthe project seo. The target rte of rstum is 12% ‘Annual Net Revenue 2,500 3.000 per annum, Ans, NPV= 12468) mers a re hanes mor 1 wey gets a purrs on roe meted (plan, now) one tomate somthing or CONST. ECO, & FINANCE (B.E. Vil SEM. CE-NU) UNIT - lil SYLLABUS ‘Types of market siructure in corsinicion industry of Inda-monopoly, Oligopoly and Monopalstie competition, Definition of recession, Inflation, Siaflation ad it impact on contraction rsty |NTRODUCTION ‘A "Mathes" is ene of the many varieties of sytems, isitions procetres, social telations and inasiracnss whereby parts engage in exchange While parties may exchange goods and serves by barter, most markets rely om sellers offering thir goods or services (inching abou) in exchange for money firm buyout can be sah A rat the process by which the prices of gods and services reestablished. Markets faeiiate trade and enables the étibutin and allocation of reoutes in 8 sci. Markets allow any tradable itm to be evalusted and pica A markt ‘more oles spontaneously or may be constructed deliberately by human interaction in order to enable the exchange of rights (ownership of services and goods Mares can ier by produ (go, service) or rs ber and a ‘ol, produc iseninion, place which exchanges te cai, buyers tasted, ucsion, sling process, govemiment repltion, tres, sedi, minimem wages rive cllogs, legaiy. of ‘exchange, tigi, intensity of specalaion, sa, cencentaton,inermiion sryrmery, rsiaive price, volaibty and groperie feterson Market paticpanis consi of al the buyers and alle of 8 good whe iflcnce spre, which 3 major tpl of uy of econ has hen ise 6 sever theories and mols concerning he basi make oes of spy and demand, "TYPES OF MARKET STRUCTUREIN CONSTRUCTION LY AND INDUSTRY OF | no MosOPOLY,| oL1coro! Lege ie MONOPOLISTIC COMPETITION 0.1, What is market and elaborate different types of market in construction industy? ‘Ans. Market: «A markt is defined as a group of buyers and sclers, where buyers determine the demand and sellers determine the supply, logeer withthe means whereby they exchange their goods or services. 0 » » © © © o ww, o ‘Markets of varying types can spontaneously arise whenever panty ‘hs interest in good or service that some other party can provide ence there can be a market fo cigarettes in correctional faites, ter for chewing gam in playground, and yet another for contr forthe tre delivery ofa commodity, “Thre canbe back market, where «good i exchange gal, for cxample markes for goods under «command econemy Sespite pressure to eres tem, a viral marks, sucha Bay, in which buyers and sles donot physically interact daring negotiation ‘A uaket can be organized a auction, as private electenic make, commodity wholesale mash, 5 8 shopping cx, 3 complet nshuion such ma sock marke and a> an informal discussion beeen to inaiviuas Markets vary in form, scale (volume and gropaphic each, location, an ps of paripats, a wll wth pes of goods and soviet ded Following are the ciflerent types of markets yea! consumer kets: Food retail markets; farmer's markets, fish markets, wet markets and voce sores. Retail markeplaces: pubic markets, masket squares, bazaars night markets, shopping centers and shopping mall. Big-box stores; supermarkets, ypermarkets and discount stores [Ad hoe auction markets; process of buying and selling goods oF services by offering ther up forbid taking bids and then sting the litem tothe highest bidder. ‘Used goods markets suchas flea markets. “Temporary markets such as firs. rete: Physical business Physical wholesale mavkets; sale of goods or merchandise 10 institutional, or other retailers; 10 industrial, commercial € (Evi co. & FINAN const. €' - os vp © w o “wy © Hatin offerings, and may also include other types of media ‘wehuding newspapers and internet conten Mieret matt (dectonic commerce: tadig in products or Series using compete networks, su ste inert Financial markets ciliate the exchange of quid ase, They are relmed Prossional business uners or 40 other whotexaers and sabontoted ries, Morkts for hermedine goods sedi production of or good sma serve, Loto rh, whee pepe el te abr obsnses n xehre or # Ate ston mie: cet by dig yon ove! by ‘tng ham oy i aking, hen eager te gst it, Tenpory are sch a ee Now-physiea markets: Media markets (broadcast market it is w region where the ‘Population can receive the same (or simila) television and radio Markets created by regulation to exchange rights for 0) 02 on o @ Ans. it is the trade of which, while legal, vv distribution channels which, While Joga) wrrough dist ; 4 or unintended by the original manufac thorized, oF ne n the market fo ic Markets in ilegal goods such asthe market fori 4d products, cigarettes 5014 10 minor arms, plete ne jurisdictions), or the private sae of cigarettes (in som goat ilk What is the market study deseribed by means of its Pxplain the market mechanism and strategies, ‘The market study disciplines Such a6 sociology, ecom cconomie geography and marketing develop novel und markets suadying actual existing markets made up interacting in diverse ways in contrast to. an abstr cncompassing concepts of “The Market" The lem "The Market” is generally used in two ways: “The market” denotes the abstracl mechanisms whereby demand confront each ther and deals are made. feference to markets reflects ordinary experience and Processes and an institution in which exchanges occur "The market” signifies an integrated, atlencompa ‘o1ganized capitalist world economy, Mechanism of Market : Inthis era a marke that runs under Indian dormant polis free market itis fee" from the government, in the sem ovemment makes 0 atempt to intervene trough tn Minimum wages, price ceiings ets However, mae prices may be disined by a sles ors mmenvooly pov or's beyer with monophoey pone istorions can have an adverse effect on market pa ‘silt and reduce the efficiency of mathet outcomes, ‘io, the reluive Level of organization an negotiating Dyes and sles markedly affects the functioning ofthe m Me 8 tysen, and syteas have nna The sine MelMfinetioning. market is dined by the teary of D. om Wellfuntioning markets of the vent work ae never perfel, Mut asic strciumy eharaccrisics ene approximated for real world smaskets, for exemple (+) Many sal buyers and stir (6) Bays and seers have equal access fo formation. (©) Products we comparable Markets where price negotiations meet equiiviam, but tbe ‘squilibium isnot ficient ace sad 10 experience mark il ovket fer awe fen metocsted with times i pcferonces, tly competitive markets principal problems, etemaiies, or pub good ‘Among the major neji externabes wich can occur ata sik ffs of rodiction ant minke exchange are ar potion (ik-fest_ of smonutct fo Igitics) ad environment dewation (ie fect of Seeing aad wanization, For a market to be competitive there must be more than 2 single buyer or seller It has been suggested that two people may tage, but ‘t takes at east three persons to have a masket, so that there is competition in at least one of is two sides However, competitive markets, ely on much larger numbers of both buyers and seller, market with a single seller and mulliple buyers i, 1a monopoly “Thus according to tit mechanism of the market preview, capitalists ace not enhancing the balance of their team versus the tam of consumer-norkers, $0 the market system needs a “referee” fom ‘uti at balances he game, In this second framework the eof a vreferee™ of the markel system is usualy 10 Be given 10 2 ‘democratic government formation in developing write a note on agricultural market countries Market information stems Market information systems (otherwise Known as market imeligence systems, Market Information servises (MIS) and not 10 te confused with management information syst) ae information systems used in gathering, analyzing and disseminating information about priges and other Information relevant to farmers, animal earrs, traders, processors and others involved in handling griultral procs, ‘Market information systems play an Impertant role im m1s0- Andi om and food supply chains With the advancement of information and Communication ‘Teehnologies for development (ICTs) in developing countries, the Income: generation opportunities offered by market information syiteme have teen sought by flemaional development coxpaniations, Non-Governmental Organizations (GOs) snd boners alike “there anc o wide variety of market information systems or services. tionally emphasised the importance of Some countries have Anformation provision for the agricultural sector, a notable example teing the service provided by the United States Department of Agriculture (USDA). Such systems ae widely used inorder to increase the transparency and tne volume of information flowing through the supply chains for differen agricul products “The ability of matket information sysems to provide a valuable service was strengthened! withthe development of the itemet and the advancement’ of lestonie commerce. (busnes-to-busincss (62), consumer to-consumer, te) Industry structure, product complexity andthe demanding nature of ayicatral transactions are considered determining factors forth development of B2B cleetronic commerce in agricul Agricultural market informati in developing counties In ceveloping cooriies, market information initiatives ae ofen part of broader interventions and part ofthe ariultural marketing and agribusiness development. strategy hal_many govermments a actively engaged in Its commonly understood that long transaction chains, lak of transparency, lock of standards, and insuTciet acess to marks for products has perpetuated low incomes in predominantly agaren economies erly atempis at market information provision in developing countries involved govemment bodies in collecting price Mitre ecm To scninaed v8 Information, and ranging. for ths sewsapers and radio sation: ‘Te information provided war fen ot very accurate and wa reached farmers gone be of practical we men for imvaive proc to levenge the now dein ects mare dtr han tars, ing const, £60, & HNANGH (SEV rm takes Oe pment comes #4 SS ie sehen a iors ce ks oF wie eae ims ‘ougepoly se rarker nich fo 0 BY 9 market shore, mall number of ws togener conto be malo of Monopsony Monopsony occas wren Otigopoty¢ itis a market where ris only single buyer in many sellers can be present But met bayer Monepely = ‘entciency to icrcase continuously with the size of he fi Perfect competition: iso theoretic! marke sructure that Festures mo an united number of producers and consumes, end cetic demand curve hat are the estar of perfect competition? ‘Writes noe on perfect competition. Perfect competion: eric competion is x eortical market sacs nlite cote (No Bair to ete) and of rode an ormaers and eset lati Pere! competion 4 make siete where an in ‘numberof buyers and sellers eperat freely and sel commodity ata uniform price, Features of Perfect competion: Topiney urge number of buyers and ers; ‘When there is very large number of buyers no Inocnce the market price. Similarly when there ar nh of Ste, ech fm or sler in pre a7. oR Ans, a @ ‘What are the features of oligopoly? Write» note om oligopoly Otigopoty: “Tae erm yop means Few aA ehgeply an iat of tae fra pci tk of only ew fro, ot sa = r Sine he Indu compres ony» ew firs, of # few ms ‘hang bn pice and cape ty iid fr tly 1 nese raft and oto thera Gms Features of oigopaly ‘A few firms : Oligopoly asa industry fs compose of few firms oF figs, 7 1 fe large firms coming balk its eu Firms are motually dependent «Each frm in olpepcly marl areilly considers how is ations will act its vas and how Fiala ely to eae This makes the firms uty dependent on cach ee or taking price nd output dessins, Rarriers to the entry of firm: The main cause of fined ‘number f fem in oligopoly is the barirs 4 the entry of fms ‘One barter is that a new firm may requis huge capital fo ener the ney, Patent rights ae another bar. "Non price competition : When there are only m ew firms, they re ‘pormally afraid of competing with each other by Towering the prices ‘it may sian price war andthe firm who sans the price war was may wtimately loose. To avo price war, the frm uses other nays competion like: cusiomer care, advertising, fe its et. such a ompatiton is alle nonprive competition. ‘What are the features of monopolistic competition? ‘Write a note on monopolistic competition. Monopolistic competition : “Monopolistic competition is a situation. in. which the market, , $a competitive market but has some elements of a & FINANCE (B.€. Vil $y) const. CO. Or sclers V6 NOt 8S IATBE a8 thay rach fas ey a ompetition products a die oppistie & brand old by em gy under mom sean hat ae pret 8 «, color, features, ete ockaging 76, 60! in terms of iercotiations isto ereae gy nce of prod he impor i or we buyers at tne rout se BY ang the minds 0! cs " repent ron ant sd ano seller, Produsts we yey siferent fem er but not wentcal This alls sts to cach other, but ‘of another. Due to a large uct of one firm sith proc of ets ting ovale emand OC Pad 1 produets ate close Substiues of ea gp ‘Setting costs : AS the PF er i hey re need to be diferent hs Kms nei eli aang aversencts, le promotions, WATanie serves packaging, cotr are brand efeation (ay tree etry and ext of lm: Like Pere mp and ext of firms is possible under this market form. Sings no baits 19 éniry and exit, fms operating under the ong run, earn only normal profits ‘competition 0.9, Compare perfect competition, monopoly, monopolistic snd oligonoly. Am ; Se] Chara | Perfect | Monopoiy] Monopalisie creates | competition compet [ci ember oF any Jone | Many cms [@) [thes of [Nomozsneous Unique! —[Diterentaed product |Singles imitea (@)}Entry [Very easy |impossibie condition ()Pricing TPrice taker [Price maker a 1, £¢O, BFNANCE [BE.VIISEM: VET! . SL ce ne + tn ings enn wenn a mini CUePErTenncS (0) Balance sheet recession ‘DEFINITION OF RECESSION. INFLATION STA GRATION {qi wants menet by heer cua? Esplale ester erent uribates of he recession, sans Recession Recessions 4 uiness cle contraction I general slowdown sm economic svi) Macroeconomic ideas such a8 GDP (ss exes mest eps egal be im fies Poke emense protec, investment spending. cacy ition, donot ene met rr ne oot) ioe, tines pci and fica fi, wise | Liguity tap ‘pmiruptcics andthe unemployment rae Fe, A aig wg 0 ear ht saben xm Serle «evens gol cccr when tert 2 weed up Pm est rcs each neat eo (a0 trestle Pv) 25 20S Sem eeoet el effectively simulate the eens. | Sci cee tects meet | = er, ereeee, Serene ane fons dk el ka ner ts the igo em bt cover caky mepend to cesses by stoting mE macecrenemie plc, mh 6 ring meme) SN. raicesre like "posing on asing” © One remedy to Tiuiny wap ts expanding the mone SPPEYY _qnmenive esing or ober echniqns ia which mney ecin=y prztd o porchase aes, tereby crating inabonary xpe

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