DR.

VISHWANATH KARAD MIT WORLD PEACE UNIVERSITY

SCHOOL OF BUSINESS

MBA, Semester-2 (Batch 2023-25)

MBA DIV- XV

Financial Management

FAT 2 : Individual Assignment

BATCH 2023-25

Title: Capital budgeting technique of Vizag Capital

Name of the Student: Delisha Shah

PRN NO: 1062231521

Submitted to: Dr. Rajeev Sengupta

Date of Submission: 16-04-2024

 Vizag Steel, also known as Rashtriya Ispat Nigam Limited
(RINL), is a public-sector steel producer based in
Visakhapatnam, India. It is one of the leading steel producers
in the country and operates a large integrated steel plant. As a
capital-intensive industry, Vizag Steel's capital structure and
financial management practices are crucial for its operational
efficiency and competitiveness. The company produces a variety of steel products, including
long products like bars and rods, as well as flat products. Vizag Steel emphasizes sustainable
practices in its operations, including efficient energy use, waste management, and reducing its
environmental impact.
Project evaluation Techniques for RINL to increase its plant capacity to manufacture
liquid steel:

1. Net Present Value (NPV)

The NPV present value (NPV) method is the classic economic method of evaluating the
investment proposals. It is a DCF technique that explicitly recognizes the time value at
different time periods differ in value and are comparable only when their equipment
present values- are found out.

PV =Total Present Value of Cash inflows-Total Outlay

= 15026.62 - 8692
= 6334.62
2. Payback period (PB):

The payback period (PB) is one of the most popular and widely recognized traditional
methods of evaluating investment proposals. Pay back is the number of years required to
recover the original cash outlay invested in a project.

(a) Cash outflow: 8692

(b) Payback Period = Initial Investment/ Annual cash flow
= 3 + (2951/ 3519)
= 3.10 years
Pay Back Period:

Profit earning of the project will start from 2008-09.

Taken consideration of (incremental adjusted cash flow) i.e. expansion Base year, for calculation
PAY BACK PERIOD.

● Estimated profits are taken from the data provided.

● For CIF we have deducted depreciation from profit &then Cumulative profit.

So the projected payback period is calculated as 3.10 years.

 3. Average Rate of Return (ARR):
The accounting rate of return (ARR) also known as the return on investment (ROI) uses
accounting information, as revealed by financial statements, to measure the profitability
of an investment. The Accounting rate of return is the ratio of the average after fax profit
divided by the average investment. The average investment would be equal to half of the
original investment if it were depreciated constantly.

ARR= (Average Profit After Tax / Average Investment) * 100

Average Profit= Total Profits / Number of Years

Average Investment= Initial Investment / 2

ARR = 35.51 %
 4. Profitability Index (PI)

P.I = Cash Inflows/ Cash Outflows

= 15026.62/ 8692
= 1.73

FINDINGS
 It is observed that the payback period for this project is 3.10 years for the company.
 NPV (Net Present Value) for this project is 6334.62.
 It is observed that for this project the present ARR of the company is 35.51%.
 It is observed that the PI (Profitability Index) of the company for this project is
1.73.

Source:

https://www.scribd.com/doc/31670285/capital-budgeting-project-work-in-vizag-steel-plant