17
Prepared By RAJESH GANDHAM (PR) CAPITAL BUDGETING IN
Prepared ByRAJESH GANDHAM (PR)
CAPITAL BUDGETINGIN
Sri Tulasi Rama Chandra Prabhu
CHAIRMAN
Sri. Tulasi Krishna Chaitanya
DIRECTOR
Tulasi seeds pvt ltd Tulasi digital studios Tulasi filling system Tulasi technosoft pvt ltd Tulasi township pvt ltd Tulasiram chits pvt ltd Chandra transports Chaitanya packaging pvt ltd Coastal packaging’s Diehard dies pvt ltd Impec Soft solutions pvt ltd
COTTON SEEDS
VEGETABLE SEEDS
CAPITAL BUDGETING
Feedback
Performance Review
Implementing Proposals
Final Approval
Fixing Priorities
Evaluation of Various Proposals
Screening Proposals
Identification of Investment Proposals
CAPITAL BUDGETING PROCESS
Capital Budgeting Methods
Traditional Methods
Payback Period
Accounting Rate of Return
Modern Methods
Net Present Value
Profitability Index
Internal Rate of Return
CAPITAL BUDGETING METHODS
CALCULATION OF PAYBACK PERIODA. IN THE CASE OF EVEN CASH FLOWS:
Initial Investment Payback Period = ------------------------------- Annual Cash Inflows
B. IN THE CASE OF UNEVEN CASH INFLOWS
Required Cash Inflow After TaxPayback Period = Base Year + ------------------------------------------ Next Year Cash Inflow After Tax
PAYBACK PERIODMERITS: Easy to calculate. Simple to understand. Less time.
DEMERITS: It stresses on capital recovery rather than profitability. It does not consider the return from the project after its payback period.
CALCULATION OF ACCOUNTINGRATE OF RETURN
Average Net IncomeARR = ----------------------------------- × 100 Average Investment
Total Cash InflowsAverage Net Income = ------------------------------- No. of Years
Total InvestmentAverage Investment = ------------------------------ 2
CALCULATION OF NET PRESENT VALUE
SPresent Value = ------------- (1+i)n
Net Present Value = Present Value of Cash Inflows - Initial Cash Outlay
CALCULATION OF PROFITABILITYINDEX
Present Value Cash InflowsProfitability Index = -------------------------------------- Initial Cash Outlay
P1-C0
IRR = L + ------------- P1-P2
CALCULATION OF INTERNAL RATEOF RETURN
DECISION CRITERIA
THANK YOU...
