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    A Project Report

    On

    CAPITAL BUDGETING

    For

    WESTERN COALFIELDS LIMITED

    Submitted by

    MS. Priti Krishnarao Rasegaonkar

    Under the guidance of

    Mr. Uttam Sapate

    Submitted to

    UNIVERSITY OF PUNE

    IN

    Partial fulfillment of the requirement of the award of the degree of

    MASTER OF BUSINESS ADMINISTRATION (MBA)

    Through

    ALL INDIA SHREE SHIVAJI MEMORIAL SOCIETYS

    INSTITUTE OF MANAGEMENT (MBA)

    KENNADY ROAD, PUNE 1

    YEAR: 2010-2012

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    ACKNOWLEDGEMENT

    Success can never be attained without proper guidance

    A project in an organisation is an experience wherein academic knowledge

    gained is applied in a practical manner. I had an opportunity to complete my

    summer project in WESTERN COALFIELDS LIMITED, NAGPUR.

    The project is great source of learning & a good experience as it made me aware

    of professional culture & conducts that exist in an organization. Inspection &Guidance are valuable in all aspects of life especially in an academic field.

    I would like to express my gratitude to Dr. SINHA, Director, who mentored me

    for successful completion of this project.

    I am also thankful to WESTERN COALFIELDS LIMITED, NAGPUR. For

    permitting me to purse the project in their esteemed concern and also to all the

    employees of western coalfields ltd.

    I express my sincere thanks to Prof. Dr.Uttam Sapate, without his guidance &

    inspiration; I could not have completed my project.

    I would like to express my heart full thanks to company employees (Finance

    department), who gave me all the necessary information and guidance in

    completion of this project.

    I will always carry fond memories of these training days.

    Priti K.Rasegaonkar

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    DECLARATION

    I, Miss. Priti K. Rasegaonkar, a student of AISSMS Institute of Management,

    Kenedy road, Pune, hereby solemnly declare that the project report entitled

    CAPITAL BUDGETING with special reference to Western Coalfields

    Limited, NAGPUR was carried out by me in partial fulfillment of M.B.A.

    Program according to the Pune University rules and norms and had no

    commercial interest or motive.

    Further, I also declare that I have tried to my level best to complete this

    project with almost sincerely, honestly and accuracy, even then if, any mistake or

    error has crept in I shall most humbly request to reader to point out those

    errors,any suggestion regarding this project will be most welcome.

    It is my original work and is not submitted to any other organization for any other

    purpose.

    Date: Priti K.Rasegaonkar

    Place:

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    EXECUTIVE SUMMARY

    Introduction:

    A project is about the Capital Budgeting, A Capital Budgeting is a method which

    is implemented in most of the organization and proper as well as planned

    implementation provides fruitful results i.e. in terms of profit maximization and

    growth of the company in a high competitive environment.

    Reason for Selecting Topic:

    Capital Budgeting is a very crucial part of FINANCE activities for any

    organization and management devote significant amount of time and efforts for

    this activity.

    Scope Of Project:

    This research project aims at studying and analyzing the current practices of capital

    budgeting at Western coalfields ltd. (WCL).The research project would help WCL to implement new and better techniques

    of capital budgeting while evaluating new projects i.e. acquiring new coal mines.Company Profile:

    Western Coalfields Limited (WCL) is one of the eight Subsidiary Companies of

    Coal India (CIL), which is under administrative control of Ministry of Coal.

    Industry Profile:

    Coal India Limited (CIL) is a Schedule 'A' 'Navratna 'Public Sector Undertakingunder Ministry of Coal, Government of India, with Headquarters in Kolkata, West

    Bengal. CIL is the single largest coal producing company in the world.

    Objectives:

    The primary objective of the project is to study the Capital Budgeting techniques

    required for financial investment of company. And to study and understand the c-

    urrent trend, procedure & implementations of capital budgeting techniques at

    WCL.

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    Research Methodology:

    Research is a process of collecting, analyzing and interpreting information to

    answer questions. It is structured enquiry that utilizes acceptable, scientific

    methodology to solve problems and create new knowledge.

    Conclusion:

    After doing study, I came to a conclusion that the projects are evaluated based on

    12% IRR.

    Suggestions and Recommendations:

    After doing a study it is observed that there is hierchy and approval takes very

    long time. The methods of Capital Budgeting may be utilizes in an effective way.

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    CHAPTERI

    INTRODUCTION

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    1.1 INTRODUCTION:-

    A project is an activity sufficiently self- contained to permit financial

    and commercial analysis. In most cases projects represent expenditure of

    capital funds by pre- existing entities which want to expand or improve

    their operation.

    In general a project is an activity in which, we will spend money in

    expectation of returns and which logically seems to lead itself to planning.

    Financing and implementation as a unit, is a specific activity with a

    specific point and a specific ending point intended to accomplish a

    specific objective.

    To take up a new project, involves a capital investment decision

    and it is the top managements duty to make a situation and feasibility

    analysis of that particular project and means of financing and

    implementing it financing is a rapidly expanding field, which focuses not

    on the credit status of a company, but on cash flows that will be generated

    by a specific project.

    Capital budgeting has its origins in the natural resource and

    infrastructure sectors. The current demand for infrastructure and capital

    investments is being fueled by deregulation in the power,

    telecommunications, and transportation sectors, by the globalization of

    product markets and the need for manufacturing scale, and by the

    privatization of government owned entities in developed and developing

    countries.

    The capital budgeting decision procedure basically involves the

    evaluation of the desirability of an investment proposal. It is obvious that

    the firm most have a systematic procedure for making capital budgeting

    decisions.

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    1.2 CAPITAL BUDGETING:-

    Capital budgeting is one of the most important factors in the process of

    corporate decision-making. Data from numerous previous studies show that

    managers prefer the simple payback period method (non-discounted payback

    model)over the net present value method (discounted cash flow model), which

    academicsconsider as superior.

    Capital budgeting is a required managerial tool. One duty of a financial

    manager is to choose investments with satisfactory cash flows and rates of return.

    Therefore, a financial manager must be able to decide whether an investment is

    worth undertaking and be able to choose intelligently between two or more

    alternatives. To do this, a sound procedure to evaluate, compare, and select

    projects is needed. This procedure is called capital budgeting.

    1.3 WHAT IS CAPITAL BUDGETING ?

    The term Capital Budgeting refers to the long-term planning for proposed

    capital outlays or expenditure for the purpose of maximizing return on

    investments.

    The capital expenditure may be:

    (1) Cost of mechanization, automation and replacement.

    (2) Cost of acquisition of fixed assets.

    e.g., land, building and machinery etc.

    (3) Investment on research and development.

    (4) Cost of development and expansion of existing and new projects.

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    Capital budgeting is a process used by companies for evaluating and

    ranking potential expenditures or investments that are significant in amount. The

    large expenditures could include the purchase of new equipment, rebuilding

    existing equipment, purchasing delivery vehicles, constructing additions to

    buildings, etc. The large amounts spent for these types of projects are known as

    capital expenditures.

    Capital budgeting usually involves the calculation of each projects future

    accounting profit by period, the cash flow by period, the present value of the

    cash flows after considering the time value of money, the number of years it

    takes for a projects cash flow to pay back the initial cash investment, an

    assessment of risk, and other factors. Capital budgeting is a tool for

    maximizing a companys future profits since most companies are able to

    manage only a limited number of large projects at any one time.

    1.4 INVESTMENT DECISIONS

    The Capital Budgeting decision denotes a decision situation where the

    lump sum funds are invested in the initial stages of a project and the returns

    are expected over a long period. The capital budgeting decision involve the

    entire process of decision making relating to acquisition of long term assets

    whose returns are expected to arise over a period beyond one year, Planning

    and control of capital expenditures is a major decision area in any

    organization.

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    1.5 IMPORTANCE OF INVESTMENT DECISIONS:-

    Capital investments, representing the growing edge of a business,

    are deemed to be very important for three inter- related reasons.

    1. The influence firm growth in the long term consequences capital

    investment decisions have considerable impact on what the firm can do in

    future.

    2. They affect the risk of the firm; it is difficult to reverse capital investment

    decisions because the market for used capital investments is ill organized

    and /or most of the capital equipments bought by a firm to meet its

    specific requirements.

    3. Capital investment decisions involve substantial out lays. Capital

    budgeting is more or less a continuous process and it is carried out by

    different functional areas of management such a production, marketing,

    engineering, financial management etc. All the relevant functional

    departments play a crucial role in the capital budgeting decision process.

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    CHAPTERII

    COMPANY PROFILE

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    2.1 ABOUT THE COMPANY :

    WESTERN COALFIELDS LIMITED

    Western Coalfields Limited (WCL) is one of the eight Subsidiary Companies of

    Coal India (CIL), which is under administrative control of Ministry of Coal. The

    Company incorporate under the Companies Act, 1956 has its registered office at

    Coal Estate, Civil Lines, Nagpur-440001.

    The Company contributes about 11.3% of the national coal production. It

    has mining operation spread over the states of Maharashtra (in Nagpur,

    Chandrapur and Yeotmal Districts) and Madhya Pradesh (in Betul and

    Chandrapur Districts).

    The company is a major source of supplies of Coal Industries located in

    Western India in the States of Andhra Pradesh, and Gujarat and also in Southern

    India in the States of Andhra Pradesh, Tamil Nadu, Karnataka and Kerala. A

    large number of Power Houses under Maharashtra, Madhya Pradesh, Gujarat,

    Karnataka, Punjab and Uttar Pradesh- Electricity Boards are major consumers of

    its coal along with cement, chemical, fertilizer, paper and brick Industries in these

    states.

    The company came into being on 1st

    November, 1975, after re-

    organization of the nationalized coal industry. At that juncture, the operations ofWCL were spread over the States of Maharashtra and M.P. organized into 10

    Coal producing Areas, one workshop to provide services of repair and

    maintenance of Machineries/ Equipment and One Coal Washeries.

    By the year 1985-86, number of mines had increased to 130 and total

    production to 48.89 Million Tonnes. Keeping in view the tremendous growth

    programme the company was bifurcated, with effect from January 1986, into

    South Eastern Coalfields Limited and the present Western Coalfields Ltd.

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    The command area of WCL has reserves of 11079 Million Tonnes of

    coal, out of 2, 45,692 Million Tonnes in India as on 01.01.2004. With 4.51% of

    coal reserves WCL contributes about 13% towards CIL production and 11%

    towards national coal production.

    WCL has made concerted progress rationalizing its manpower. Despite

    increase in production from a level of 22.78 Million Tonnes to 39.53 Million

    Tonnes during the period 1990-91 to 2003-04, WCL is able to gradually reduce

    its overall manpower and increased production and productivity.

    2.2COAL TYPES:

    Chemically Coal is made of carbon, hydrogen, oxygen, nitrogen and some other

    impurities. The main constitute of coal are:

    Carboneous Non-Carboneous

    Vitarin Ash

    Clarin Moisture

    Volatile Matter

    Fixed Carbon

    Basically Coals are four types:

    1. Anthracite2. Bituminous3. Lignite4. Peat

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    WCL is mainly concerned with bituminous coal. These are mainly of two types:-

    1. Coking Coal2. Non-Coking Coal

    Coking Coal is that variety of coal which contains less percentage of ash and has

    high heat value. It can convert into hard coke which is suitable for iron and steel

    industry.

    Non-Coking coal is that variety of coal which contains high percentage of ash

    and has low heat value.

    2.3 METHOD OF EXTRACTION OF COAL:

    Coal is obtained from the earths surface called mines. Mines are of two types:

    1) OPENCAST MINES:

    In this type of mine, attempt is made to reach the level of coal seam with the help

    of technology, by removing the over burden (i.e. after removing everything lying

    above the coal seam). For this heavy machines like HEMM (Heavy Earth Moving

    Machine) are used and the manpower is reduced.

    2) UNDERGROUND MINES:

    In this type of mine technology attempts to reach the coal seam not by removing the

    overburden but through a pit. These mines are in those areas where the coal

    seam is deep. The over burden remains intact and the workers dig the ground.

    The workers are sent to the level of coal seam either through shaft (an in clination)

    or through lift i.e. DOLI. There is optimum utilization of manpower in these mines.

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    In this type of mines, there is high risk of accidents due to the fall of roofs and

    sides. In order to avoid these accidents thrust is given to provide support of green roof

    with steel supports like steel cogs, pit props, roof bolts, W-straps, etc.

    2.4 AWARDS ANDCERTIFICATES :

    WCL is recipient of Vanashree Award from Govt. of Maharashtra for

    afforest ration.

    WCL received Jawaharlal Nehru Memorial Award from International

    Green Land Society for effective implementation pollution control

    measures in the mining areas.

    WCL received India 2000 Millennium Award from World Peace for

    WCLs contribution in motivating the employees on environmental

    protection works at projects and mines.

    WCL received Appreciation Certificates from social forestry

    department Government of Maharashtra for spectacular contribution in

    afforest ration in the Vidharbha region.

    Umrer and Padampur are the first among the coalmines in the country toget ISO-9001: Quality management system certifies certificate from SGS

    United Kingdom Ltd.

    WCL was ranked 87th

    in the list of Indian Globally competitive

    Companies (published in Business World, 17th

    June issue).

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    2.5 WCL AT A GLANCE :

    Number of working mines: 01.04.2011

    Opencast : 38

    Underground : 43

    Mixed (OC+UG) : 02

    Total : 83

    Coal Production Actual Actual

    (Million Tonnes) 2010-11 2009-10

    Opencast 34.95 36.12

    Underground 08.70 09.62

    Total 43.65 45.74

    Manpower (as on) 1.4.2011 1.4.2010

    Executives 2409 2196

    Monthly Rated 12058 12702

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    Daily Rated 39812 41051

    Piece Rated 4182 4494

    Transfers/Casuals and 582 427

    Company Trainee

    Total 59043 60870

    Manpower Reduction 1827 1622

    2.6 FINANCIAL PERFORMANCE :

    The turnover of the company during the year 2010-11 was Rs.7073.44

    crores against budgeted Rs.6765.74 crores. The net profit for the year is

    Rs.1067.97 crores against budget of Rs.386.12 crores. The total sales realization

    during 2010-11 was Rs.7314 crores.

    The company has paid Rs.504.74 crores by way of corporate taxes to

    Central Government during the year 2010-11.

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    0

    200

    400

    600

    800

    1000

    1200

    1400

    1600

    Profit

    Budgeted Profit

    Profit

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    CHATER-III

    INDUSTRY PROFILE IN INDIA

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    INDUSTRY MEANING

    The Production Side Of Business Activity Is Referred As Industry. It Is A

    Business Activity, Which Is Related To The Raising, Producing, Processing Or

    Manufacturing Of Products. The Products Are Consumers Goods As Well As

    Producers Goods. Consumer Goods Are Goods Which Are Used Finally

    By Consumer E.G. Food Grains, Cosmetics Etc. Producers Goods Are The

    Goods Used by Manufactures for Producing Some Other Goods E.G. Machinery,

    Tools, Equipments, Etc. Expansion Of Trade and Commerce Depends on

    Industrial Growth. It Represents The Supply Side Of Market.

    Classification/Types of Industries

    There Are Various Types of Industries. These Are Mentioned as Below:-

    Explanation:

    Primary Industry

    Primary Industry Is Concerned With Production Of Goods With The Help Of

    Nature. It is Nature Oriented Industry, Which Requires Very Little Human

    Efforts.

    E.g.-Agriculture, Farming, Fishing, Forestry, Etc.

    Types of Industries

    Primary

    IndustryGeneric

    Industry

    Service

    Industry

    Manufact

    uring

    Industry

    Constructi

    on

    Industry

    Extractive

    Industry

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    Genetic Industry

    Genetic Industries Are Engaged In Re-Production And Multiplication Of Certain

    Spices Of Plants And Animals With The Object Of Sale. The Main Aim Is To

    Earn Profit From Such Sale.

    E.g.-Cattle Rearing, Poultry, plant Nurseries, Etc.

    Service Industry

    In Modern Times Service Sector Plays An Important Role In The development

    Of The Nation And Therefore It Is Named As Service Industry. The Main

    Industries Which Fall Under This Category Include Hotel Indusrty, Tourism

    Industry, And Entertainment Industry, Etc.

    Manufacturing Industry

    Manufacturing Industries Are Engaged In Transforming Raw Material Into

    Finished Products With The Help Of Machines And Manpower. The Finished

    Goods Can Be Either Consumer Goods Or Producer Goods.E.g.-Textiles, Chemicals, Paper Industry, Sugar Industry, Etc.

    Construction Industry

    Construction Industries Take Up The Work Of Construction Of

    Buildings, Bridges, Roads, Dams, And Canal, Etc. These Types Of Industry Are

    Different From All Other Types Of Industry Because In Case Of Other Industries

    Goods Can Be Produced At One Place And Sold At Another Place. But Goods

    Produced And Sold By Constructive Industry Are Erected At One Place.

    Extraction Industry

    Extractive Industries Is Concerned With Extraction Or Drawing Out Goods From

    The Soil, Air Or Water. Generally Products Of Extractive Industries Come In

    Raw Form And They Are Used By Manufacturing And Construction Industries

    For Producing Finished Goods.

    E.g.-Mining Industry, Coal Mineral, Oil Industry, Etc.

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    Coal India Limited (CIL) is a Schedule 'A' 'Navratna 'Public Sector

    Undertaking under Ministry of Coal, Government of India, with Headquarters in

    Kolkata, West Bengal. CIL is the single largest coal producing company in the

    world and the largest corporate employer in the country with manpower of

    409,332 (as on 1 July 2009). With proven coal reserves of 105.82 Billion Tonnes

    out of total reserves of 267 Billion Tones (as on 1 April 2009) Coal India plays a

    pivotal role in Indian energy scenario.

    CIL contributes around 85% of coal production in India; it is the largest

    company in the World in terms of coal production. Employs nearly 4.25 Lakhs

    persons and is the largest corporate employer in the country. It is one of the largest

    Companies in the country, turn over being around Rs. 386.31 billion in 2007-08. It

    is one of the largest tax payers (Corporate Tax Rs.35.75 billion) in 2007-08

    and has paid Dividend of Rs17.054 Billi on to the Govt. of India in 2007-08.

    Today, Coal India has eight Subsidiary Companies including CMPDI,

    and is one of the largest Corporate Employers of the world, employing about 3.83

    Lakhs people. CIL produced 431.32 Million Tonnes of coal during the year 2010-

    11. Presently, about 90.72% of CIL's production comes from Opencast Mines.

    3.3 ABOUT THE COMPANY

    Name: -COAL INDIA LIMITED (CIL)

    Date of incorporation:-21.10.1975

    Corporate status:-The Company is incorporated under the Companies Act

    1956, and is 90% owned by Government of India and 10% public Share

    holding.

    Business:-Engaged in the mining of coal, coal based products and mining

    consultancy.

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    VISION:

    To emerge from the position of domestic leader to leading global player in the

    energy sector by adopting best practices from mine to market with due care to

    environmental and social sustenance.

    MISSION:

    Produce the planned quantity of coal efficiently and economically with due

    regard to safety, conservation & quality.

    Coal India Limited was formed on 21st

    October, 1975 as a holding company with five

    subsidiaries:

    Bharat Coking Coal Limited (BCCL),- Dhanbad Central Coalfield Limited (CCL),- Ranchi Western Coalfield Limited (WCL),- Nagpur region Eastern Coalfield Limited (ECL),- Asansol Central Mine Planning and Design Institute Limited (CMPDIL),- Ranchi

    Several years Later, FOUR more subsidiaries were added:

    Mahanadi Coalfield Limited (MCL),- Raurkela South Eastern Coalfield Limited (SECL),- Bilaspur North Eastern Coalfield Limited (NECL),- directly under control of coal

    India limited

    Northern Coalfield Limited, Singrauli (NCL),- Singrauli

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    3.4 CORPORATE STRUCTURE:

    3.5 COAL RESERVES IN INDIA

    Coal Reserves in India

    Coal and oil are two primary energy resources in India. Coal forming about 85%

    of coal production in India.

    Coal Production of Last 5 years

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    The resources of Coal India are estimated to be around 43.65 million Tones

    2006-2007 which constitute about 0.8% of global Coal reserves, whereas its

    production contribution is around 7% India today one of the major coal

    producers in the world and ranks at 3rd

    position.

    3.6 Production and Growth :

    Produces over 400 Million Tonnes of Coal annually. Coal production ending

    Financial Year 2011 was 431.32 Million Tonnes (MTs).

    3.8 Cares for Environment :

    Committed to minimize the adverse impact of coal mining on

    environment through well structured Environment Management Plans and

    sustainable development activities. As a part of 'Clean & Green' programme,

    massive plantation has been taken up by CIL wherever land is available. CIL has

    till date planted over 73 million trees. A positive result of this effort towards

    improvement of environment.

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    3.9 Special Achievement :

    1. The Utilization of Draglines, Dumpers and Dozers of WCL is FIRST in CIL,

    while in case of Shovels, it is SECOND.

    2. The Availability of Shovels, Dumpers, Dozers and Drills is higher than same

    period of last year.

    3.10 Core values :

    Commitment.

    Customer Satisfaction. Continuous Improvement. Concern for Environment. Creativity & Innovation.

    3.11 LOCATION MAP :

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    30

    FINANCE DEPARTMENT:- Organization Chart

    DIRECTOR (FINANCE)

    G.M G.M G.M GM G.M C.F.M

    (finance) (corporate (cost & budget) (sales a/c) (internal (corporate

    treasury) audit) a/c

    & tax)

    Dy. C.F.M

    F.M

    establishment Dy.C.F.M

    F.M F.M F.M

    (Administration& (sales a/c) (concurrence)

    concurrance) Dy. C.F.M

    F.M F.M

    F.M F.M (cost& rev. (capital budget

    (Expenditure) (Cash budget) &MIS)

    Section) F.M F.M

    F.M F.M

    (fund mgmt) (derivative F.M F.M

    transactions) (corporate a/c

    (Indirect

    & Tax) tax)

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    31

    CHAPTER -IV

    OBJECTIVES & SCOPES

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    32

    OBJECTIVES, SCOPE OF THE STUDY

    2.1Objectives of the study:-

    1. To study the Capital Budgeting techniques required for financial investment of

    company.

    2. To study and understand the current trend, procedure & implement-ations of

    capital budgeting techniques at WCL.

    3. To analyze the tools and techniques used in preparing capital budget. 4. To understand the nature of capital expenditures.5. To estimate the total capital expenditure requirements for projects.

    6. To approximate & establish the sources of capital to fund these projects.

    2.2 Scope of the study:-

    The scope of this project report is limited to the WCL in Nagpur. Experience of

    working at the corporate level and knowing about various management strategies and

    policies was very fruitful.

    1. This research project aims at studying and analyzing the current practices of capital

    budgeting at Western coalfields ltd. (WCL).2. The research project would help WCL to implement new and better techniques

    of capital budgeting while evaluating new projects i.e. acquiring new coal mines.3. This study would help WCL to find out various ways to fulfill the capital

    requirements of the company.4. It would help the company to improve the profit ability of their projects.5. This study is carried out using actual data and information provided by various sources

    at WCL. CIL has complete monopoly in the production, trade and marketing of

    coal. Hence, this study has a wide scope in the entire coal producing companies

    and other subsidiaries of Coal India Ltd. (CIL).

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    33

    CHAPTER V

    RESEARCH METHODOLOGY

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    34

    5.1 RESEARCH METHODOLOGY

    Methodology used in the study:

    For carrying out this study, a lot of efforts have been made. Through this

    type of vast organization these efforts are normal but not irrelevant. It might have little

    use but it is not so that it has no use. So we tried our level best for carrying out this study

    and used following method to achieve these objectives of the study.

    Research concerns itself with obtaining information through observation that can

    be used to systematically develop logically related proportion so as to attempt to

    establish casual relationship among variables.

    - By Black and Champion.

    Sources of Data

    Data constitutes the subject matter of analysis. The relevance, adequacy and

    reliability of data determine the quality of the study. There are various methods of data

    collection which involves the use of specific recording forms. These are called tools or

    instruments of data collection.

    Data is primarily of two kinds;

    1. Primary Data

    2. Secondary Data

    1. Primary Data:

    Data that is collected for the specific purpose at hand is called as

    primary data. It is customized according to the needs of the researcher and focuses

    exclusively on the current research problem. The collection of the primary data is

    time consuming. It calls for the greater planning and coordination. The primary

    data has been collected by conducting formal & informal discussions with the

    staff members WCL, Nagpur. Personal meeting with senior finance executives.

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    2. Secondary Data:

    Secondary data means data that is already available in various reports, diaries,

    letters, books and periodicals. Secondary data is that, which has been used previously for

    any research and is now in use for the second time, is called Secondary Data. Secondary

    data serves as a reference for the study.

    The secondary has been collected from;

    The companys annual reports

    The companys brochure

    Reference books

    Magazines

    WCL Intranet

    Company Records

    Personal meeting with senior executive:

    After analysis of past records for understanding various things it was very important to

    meet finance executives and managers. To understand the reason behind the increase or

    decrease in profit it was indispensable to talk with the person who are directly involved in

    this process. Therefore, I decided to talk with top officers, senior executives of thefinance and administration department. Thanks to all those managers and executives

    whom I wished to talked and talked. They co-operated with necessary data and talk very

    freely with me. Walk talked about past data, present scenario and even predicted about

    the future.

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    Analysis of Past records:

    Records of last years of trading and profit and loss accounts, balance sheet and cash flow

    statement of WCL are collected.

    Limitation:

    Primary and secondary data has been collected from various resources but it was easy to

    collect all the data due to safety reason and security concern. That is why some problems

    had come in collecting data. I have tried my best for collecting data.

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    CHAPTER VI

    THEOROTICAL BACKGROUND

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    Charles T. Horngnen has defined capital budgeting as "Capital Budgeting is long-

    term planning for making and financing proposed capital outlays."

    In other words, capital budgeting is the decision making process by which a firm

    evaluates the purchase of major fixed assets including building, machinery and

    equipment.

    According to Hamption, John. 1, "Capital budgeting is concerned with the firm's

    formal process for the acquisition and investment of capital."

    From the above definitions, it may be concluded that capital budgeting relates to

    the evaluation of several alternative capital projects for the purpose of assessing those

    which have the highest rate of return on investment.

    Capital budgeting is an assessment, where large finances are invested in the early

    stages of the venture and the profits are expected over an extended period of time. These

    decisions are related to allotment of capital to diverse long-term assets.

    6.3 Features of investment Decisions

    1. The exchange of current funds for future benefits.

    2. The funds are invested in long-term assets.

    3. The future benefits will occur to the firm over a series of year.

    6.4 Importance of Investment Decisions

    Investment decisions requires because of the following reasons: They influence the firms growth in the long run. They affect the risk of the firm. The involve commitment of large amount of funds. They are irreversible, or reversible at substantial loss. They are among the most difficult decision to make.

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    6.5 Types of Investment Decisions

    One classification is as follows:

    Expansion of existing business Expansion of new business Replacement and modernization.

    Yet another useful way to classify investment is as follows:

    Mutually exclusive investment Independent investment Contingent investment.

    6.6 Investment Evaluation Criteria

    Three steps are involved in the evaluation of an investment:

    Estimation of cash flows Estimation of the required rate of return

    Application of a decision rule for making the choice.

    6.7 Three types of capital budgeting:-

    1. Accept and reject decision.2. Capital rationing decision.3. Mutually exclusive choice decision.

    1. Accept and Reject Decision:-

    Proposal in which rate of return is more than the invested rate. i.e. output is

    more that input. In this all independent project are accepted. Independent project are

    those which is not complete with others.

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    2. Capital rationing decision:-

    Capital rationing means distribution of capital in favors of more acceptable

    proposals. A firm determines a certain point for selecting accepted proposals.

    3. Mutually exclusive choice decisions:-

    Mutually exclusive investment serves the same purpose and complete with each

    other. If one investment is undertaken, other will have to be excluded.

    6.8 Importance of Capital Budgeting

    Capital budgeting decisions are of paramount importance in financial decision. So

    it needs special care on account of the following reasons:

    1. Long-term Implications: A capital budgeting decision has its effect over a long time

    span and inevitably affects the companys future cost structure and growth. A wrong

    decision can prove disastrous for the long-term survival of firm. On the other hand, lack

    of investment in asset would influence the competitive position of the firm. So the capital

    budgeting decisions determine the future destiny of the company. Not only the present

    earnings of the firm are affected but the future growth and profitability also depend upon

    investment decisions taken today. So a bad decision today can lead to a downfall

    tomorrow.

    2. Involvement of large amount of funds: Capital budgeting decisions need substantial

    amount of capital outlay. This underlines the need for thoughtful, wise and correct

    decisions as an incorrect decision would not only result in losses but also prevent the firm

    from earning profit from other investments which could not be undertaken. Capital

    Budgeting decisions usually involve large investments of funds but mostly there is a

    shortage of funds at every firm. Hence the funds and the resources need to be controlled

    by the firm.

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    3. Irreversible decisions: Capital budgeting decisions in most of the cases are

    irreversible because it is difficult to find a market for such assets.

    4. Risk and uncertainty: Capital budgeting decision is surrounded by great number of

    uncertainties. Investment is present and investment is future. The future is uncertain and

    full of risks. Longer the period of project, greater may be the risk and uncertainty. The

    estimates about cost, revenues and profits may not come true.

    5. Difficult to make: Capital budgeting decision making is a difficult and complicated

    exercise for the management. These decisions require an over all assessment of future

    events which are uncertain. It is really a marathon job to estimate the future benefits and

    cost correctly in quantitative terms subject to the uncertainties caused by economic-

    political social and technological factors.

    6.9 Capital Budgeting Process

    Capital budgeting is a process that involves making of investment decisions by a

    company as to identify which project is profitable so that the company can invest its

    capital. The crux of capital budgeting is the allocation of available resources to various

    proposals. The crucial factor which influences the capital budgeting decision is the

    profitability of prospective investment. Hence capital budgeting decisions are very vital

    to any organization. It is a complex process as it involves decisions relating to the

    investment of current funds for the benefit to be achieved in the future but the future is

    always uncertain. The following procedure is adopted in process of Capital Budgeting.

    Capital Budgeting Process:-

    1. Identification of investment proposal.

    2. Screening the proposal.

    3. Evaluation of various proposals.

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    4. Fixing priorities.

    5. Final approval & preparation of capital expenditure budget.

    6. Implementing proposal.

    7. Performance review.

    1. Identification of investment proposal:-

    The capital budgeting process begins with the identification of investment

    proposal. The proposal or idea about potential investment opportunities may originate

    from the top of management or may come from the rank and file workers of any

    department or from any officers of the organization. The departmental head analyses the

    various proposals in the light of the corporate strategies and submits the suitable

    proposals to the capital expenditures planning committee in case of large organization or

    to the officers a concerned with the corporate strategies and submits the suitable

    proposals to the capital expenditures. Capital expenditures planning committee in the

    case of large organization or the officers concerned with the process of long-term

    investment decision.

    2. Screening the proposal:-

    The expenditures planning committee screens the various proposals received from

    different departments. The committee views these proposals from various angles to

    ensure that these are in accordance with the corporate strategies or selection criterion of

    the firm and also do not lead to the department imbalances.

    3. Evaluation of various proposals:-

    The next step in the capital budgeting process is to evaluate the profitability of various

    proposals. There are many methods which may be used for this purpose such as payback

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    period method, rate of return method, net present value method, internal rate of return,

    etc. All these method of evaluating profitability of capital investment proposals have

    been discussed in detail separately in the page of this chapter. It should be classified as

    below.

    i. Independent proposals.ii. Contingent or dependent proposals and

    iii. Mutually exclusive proposals.

    4. Fixing priorities:-

    After evaluating various proposals, the unprofitable proposals may be rejected straight

    away. But it may not be possible for the firm to invest immediately in the all the

    acceptable proposals due to limitation of funds. Hence, it is very essentials to rank the

    various proposals and to establish priorities after considering urgency, risk and

    profitability involved there in.

    5. Final approval & preparation of capital expenditure budget:-

    Proposals meeting the evaluation and other criteria are finally approved to be included in

    the capital expenditure budget. However, a proposal involving smaller investment may be

    decides at the lower levels for expenditure action. The capital expenditures a budget lays

    down the amount of the estimation expenditures to be incurred on fixed assets during the

    budget period.

    6. Implementing proposals:-

    Translating an investment proposal into a concrete project is a complex, time consuming,

    and risk- fraught task.

    1. Adequate formulation of projects

    The major reason for delay is insinuate formulation of projects put

    differently, if necessary homework in terms of preliminary comprehensive

    and detailed formulation of the project.

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    2. Use of the principle of responsibility accounting

    Assigning specific responsibility to project managers for completing the

    project within the defined time-frame and cost limits is helpful for

    expeditious execution and cost control.

    3. Use of Network Techniques

    For project planning and control several network techniques like PERT

    (Programme Evaluation Review Techniques) and CPM (Critical Path Method) are

    available.

    7. Performance Review:-

    Performance review, or postcompletion audit, is a feedback device. It is a means for

    comparing actual performance with projected performance. It may be conducted, most

    appropriately. When the operations of the project have stabilized. It is useful several

    ways.

    I. It throws light on how realistic were the assumptions underlying the project.

    II. It provided a documented log of experience that is highly valuable for decision

    making.

    6.10 Capital budgeting techniques:

    Techniques of

    Capital BudgetingTechniques

    DCF Criteria NonDCF Criteria

    NPV I.R.R. P. IPaybackperiod

    Accounting Rateof Return

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    selecting capital budgeting proposals:

    Techniques grouped in the following two categories:

    1. Time adjusted (Discounted Cash Flow Criteria-DCF)

    a) Net Present Value Methodb) Internal Rate of Return Methodc) Discounted payback periodd) Profitability Index(PI)

    2. Traditional (Non-Discounted Cash Flow Criteria)

    a) Average Rate of Return (ARR)b) Payback period (PB)

    1. DISCOUNTED CASH FLOW CRITERIA

    a) Net Present Value (NPV) Method:

    The present value is the procedure recognizing the time value of money. Cash flow

    streams at different time periods differ in value and can be compared only when they are

    expressed in terms of a common denominator, i.e., present values.

    The formula for the net present value can be written as follows:

    [ ( )

    ( )

    ( )

    ( )]

    Where,

    C1, C2 .represent net cash inflows in year 1, 2..,

    K is the opportunity cost of capital,

    C0 is the initial cost of the investment and

    N is the expected life of the investment.

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    The NPV Acceptance rules are:

    1. Accept if NPV> 0

    2. Reject if NPV< 0

    3. May accept if NPV = 0

    Example Assume that project X costs Rs. 2500 now and is expected to generate

    yearend cash inflow of Rs. 900, Rs 800, Rs 700, Rs 600 and Rs 500 in years through. The

    opportunity costs of the capital may be assumed to be 10%.

    NPV = [Rs. 900 / (1+0.10) + Rs. 800 /() () )]

    NPV= [818+661+526+410+310]-2500

    NPV= 27252500= 225

    Here, cash inflows (Rs. 2725) are greater than that of cash outflow (Rs. 2500).

    Thus, it generates a positive net present value (NPV=+ Rs. 225). Therefore, it should be

    accepted.

    Advantages:

    Time value: It recognized the time value of money-a rupee received today isworth more than a rupee received tomorrow.

    Measure of truth profitability. Shareholder value: The NPV method is always consisted with objective of

    shareholder value maximization.

    Disadvantage:

    Cash flow estimation: It is quite difficult to obtain estimates of cash flows due touncertainty for NPV method.

    Discount Rate: It is also very difficult in practice to measure the discount rate.

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    b) Internal Rate of Returns (IRR):

    IRR is defined as the rate of discount at which the present value of cash inflow andpresent value of cash outflow are equal.

    [

    ]

    The internal rate of return is defined as the discount rate that gives a net present value

    (NPV) of zero.

    ( )

    Where,

    PVCO = Present value of cash outlay

    PVCFAT = Present value of cash inflows

    R = Either of the two interest rates

    = Difference in interest rates = Difference in calculate present value of inflows.

    IRR Acceptance Rule:

    Accept the project when, r > k Reject the project when, r < k May accept the project when, r = k

    Where, r = internal rate of returns & k = required rate of return or cut off rate.

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    MERITS:

    Time value of money. Profitability measure: it considers all cash flows over the entire life of the project

    to calculate its rate of return.

    Share holder value: It is consistent with the shareholder wealth maximizationobjectives.

    DEMERITS:

    Multiply rate: A project may have multiply rates, or it may not have a unique rateof return.

    Mutually Exclusive Projects: It may also fail to indicate a correct choice between

    multiply exclusive projects.

    c) Profitability Index:

    It is the ratio of the present value of cash inflows, at the required rate of return to the

    initial cash outflow of the investment. A profitability index number greater that 1

    indicates an acceptable project, and is consistent with a net present value greater than 0.

    The profitability index approach measures the present value of return per rupee invested.

    The ratio is calculates as follows:

    Rules for selection or rejection of a project:

    1. If PI > 1 then accept the project2. If PI > 1 then reject the project

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    3. May accept if PI = 1The ratio is calculated as follows:

    For Example,

    If the initial outlay of a project is Rs. 500 and Rs. 200 in year 1 4. We assume rate of

    discount as 10%. The PV of cash inflows at 10% discount rate is:

    Year Inflows 10% DF PV

    1 400 .909 364

    2 300 .826 248

    3 500 .751 376

    4 200 .683 137

    Total PV = 1125

    2. Traditional / Non-Discounted Cash Flow Techniques:

    a) Average Rate of Return:

    The average rate of return (ARR) method is to measures the profitability of an

    investment. It is based upon accounting information rather than cash flows. The most

    common usage of average rate of return (ARR) expresses it as follows:

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    Where,

    The average profit after taxes are determined by adding up the after tax profits

    expected for each year of the project life and dividing the result by the no. of years.

    The average investment is determined by dividing the net investment by 2.

    Accept Reject Rule: This method will accept all those project whose ARR is higher

    than the minimum rate established by the management and reject those projects which

    ARR less than the minimum rate.

    For Example: If an investment proposal considering a cost of Rs. 50,000 having life

    expectancy of 5 years and no salvage value. Assuming the tax rate is 35% and the

    firm uses straight line depreciation. The estimated cash flow before depreciation &

    tax from the investment proposal are as follows:

    Year CFBT Depreciation PBT TAX

    (0.35%)

    EAT

    1 10000 10000 NIL NIL NIL

    2 10692 10000 692 242 450

    3 12769 10000 2769 969 18004 13462 10000 3462 1212 2250

    5 20358 10000 10385 3635 6750

    Total EAT (Earning After Tax) = 11250

    = 9%

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    Advantages:

    It selects alternative uses of fund. It considers saving over the entire life of the project. In addition to measuring the desirability of new investment on the basis of their

    relative cash flow, a comparison is made of expected profitability. This is done

    with the average rate of return, which is a ratio of the yearly average net earnings

    after depreciation and taxes to the average investment.

    Disadvantage:

    The differential timing of receipts is not considered It ignores the time value of funds.

    b) Payback Period Method:

    The pay period method is the 2nd

    traditional method of capital budgeting. It is simple and

    perhaps, the widely employed quantitative method for appraising capital expenditure

    decisions. It is defined as the number of years required. This method answers the

    question How many years will it take for the cash benefits, to pay the original cost of an

    investment. This method is also known as the payout method.

    Advantages

    1. It is an important guide to investment policy.2. It lays a great emphasis on liquidity.3. It is easy to understand, calculate and communicate to the other.4. The method enables a firm to choose an investment which yields a quick return on

    cash funds.

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    5. It enables a firm to determine the period required to recover the originalinvestment with some percentage return and thus arrive at the degree of risk

    associated with the investment.

    6. The method is quite the simplest of all the techniques used by the industry. Ithelps in selection of those projects whose profits are high enough to reply the

    amount invested within a particular number of years.

    Disadvantages

    1. The time value of money is ignored.2. The rapidity of incoming cash flow is the only measure of desirability3. There is no recognition of cash flow variation. One project may have cash inflow

    of Rs. 6000, for the first year, Rs. 8000 for the second year and Rs. 10000 for the

    third year. The second project may have cash flow of Rs. 10000 Rs. 8000 and Rs.

    6000 for three respectively. If both the projects involved net cash outlays of Rs.

    24000, the years paybacks period would yield more cash earlier and may,

    therefore, be considered more valuable. This situation is not properly handled

    under the payback method.

    4. It does not indicate how to maximize value and ignores the relative profitability ofthe project.

    5. It over emphasizes liquidity and ignores capital wastage and the wastage and theeconomic life of an asset.

    6. It is only a rule of thumb method. It is often difficult to judge objectivelywhether one proposed project is superior to another and, if so, by how much.

    7. It may choose highly risks project.

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    1.Depreciation

    Type % of depreciation

    Telecommunication Equipments 15.83Electronic Items 11.31

    Heavy Earth Moving Machineries(HEMMs) 41.28

    Side Dump Loader (SDL) 19.00

    Load Haul Dumper(LHD) 15.83

    0.00

    50,000.00

    100,000.00

    150,000.00

    200,000.00

    250,000.00

    300,000.00

    As on 1.4.2010

    As on 1.4.2010

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    Balancesheet

    Particulars As on 1.4.2010

    A. Fixed AssetsLand Freehold 19,151.83

    Land Leasehold 2,594.67

    Building 58,828.98

    Plant & Machinery 257,299.42

    Office Equipment 4,236.66

    Railway Sidding 3,001.30Vehicles 5,050.20

    15.83

    11.31

    41.28

    19.00

    15.83Telecommunication Eqipments

    Electronic Items

    Heavy Earth Moving

    Machineries(HEMMs)

    Side Dump Loader (SDL)

    Load Haul Dumper(LHD)

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    Particulars

    Additions

    during

    the year

    Deductions

    &

    Adjustments

    A. Fixed AssetsLand Freehold 837.86 12,406.18

    Land Leasehold 545.14 -12,406.18

    Building 1,358.74 49.33

    Plant & Machinery 15,982.94 5,391.98

    Office Equipment 101.43 0.47

    Railway Sidding 0 0.00

    -15000

    -10000

    -5000

    0

    5000

    10000

    15000

    20000

    Additions during the year

    Deductions & Adjustments

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    Vehicles 10.65 70.01

    Particulars

    Total as on

    31/03/2011

    A. Fixed

    AssetsLand Freehold 7,583.51

    0.00

    50,000.00

    100,000.00

    150,000.00

    200,000.00

    250,000.00

    300,000.00

    7,583.5115,545.99

    60,138.39

    267,890.38

    4,337.62 3,001.30 4

    Fixed Assets

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    Land Leasehold 15,545.99Building 60,138.39

    Plant & Machinery 267,890.38

    Office Equipment 4,337.62

    Railway Sidding 3,001.30

    Vehicles 4,990.84

    Particulars As on 1.4.2010

    B.DevelopmentProspecting & Boring 7,359.83

    0.00

    50,000.00

    100,000.00

    150,000.00

    200,000.00

    250,000.00

    300,000.00

    350,000.00

    400,000.00450,000.00

    Prospecting &

    Boring

    Expenditure Nationaliasation Total

    Development

    Development

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    Particulars

    Additions

    during the

    year

    Deductions &

    Adjustments

    B.DevelopmentProspecting & Boring 129.86 0

    Expenditure 2,274.71 -0.24

    Nationaliasation 0 0

    Total 21,241.33 5,511.55

    Particulars Total as on 31/03/2011

    B.DevelopmentProspecting & Boring 7,489.69

    Expenditure 57,572.98

    Nationaliasation 906.56

    Total 429,457.26

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    Particulars

    As on

    1.4.2010

    Additions

    during

    the year

    Deductions

    &

    Adjustments

    Total as on

    31/03/2011

    A. Fixed Assets

    B.DevelopmentPREVIOUS YEAR(2009) 398,699.46 21,793.35 6,765.33 413,727.48

    0.00

    50,000.00

    100,000.00

    150,000.00

    200,000.00

    250,000.00

    300,000.00

    350,000.00

    400,000.00

    450,000.00

    Prospecting &

    Boring

    Expenditure Nationaliasation Total

    7,489.69

    57,572.98

    906.56

    429,457.26

    B.Development

    B.Development

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    050000

    100000

    150000

    200000

    250000

    300000

    350000

    400000

    450000 398,699.46

    21,793.35

    6,765.33

    413,727.48

    PREVIOUS YEAR(2009)

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    A Fixed Assets & B.Development

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    B.Capital Work In Progress(As On 1/4/2010)

    0

    50000

    100000

    150000

    200000

    250000

    300000

    350000

    400000

    450000

    As on 1.4.2010

    Additions during the year

    Deductions & Adjustments

    Total as on 31/03/2011

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    0

    5000

    10000

    15000

    2000025000

    30000

    As On 1/4/2010

    As On 1/4/2010

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    B.Capital Work In Progress(Additions During the year)

    0

    2000

    4000

    6000

    8000

    10000

    12000

    14000 Additions during the year

    Additions

    during the year

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    B.Capital Work In Progress(Deductions & Adjustments)

    -5000

    500

    1000

    1500

    2000

    2500

    3000

    3500

    4000

    4500

    Deductions & Adjustments

    Deductions

    &

    Adjustmen

    ts

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    B.Capital Work In Progress

    0

    5000

    10000

    15000

    20000

    25000

    30000

    35000

    Total as on 31/03/2011

    Total as on 31/03/2011

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    Profit After Prior Period Adjustments

    0

    200

    400

    600

    800

    1000

    1200

    2006-07 2007-08 2008-09 2009-10 2010-11

    PAT

    PAT

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    EVALUATION OF CAPITAL BUDGETING

    8.1 CAPITAL BUDGETING PRACTICES IN WCL:

    The long term investment decisions are in two categories:

    With respect to capital expenditure With respect to project selection.

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    CAPITAL EXPENDITURE:

    A capital budget or expenditure is the estimated amount required by the various

    department, project, and workshop, central and headquarters itself, for the purpose of

    utilizing the amount against the expenditure which are estimated in advance and are of

    capital expenditure in nature.

    Capital budget or expenditure is controlled by the ministry of coal, where the

    proposed capital is sent for approval by the ministry. Based on the budgeted figure,

    capital expenditure is made.

    In WCL CAPITAL BUDGET is prepared which is a manual comprising of area

    wise projected Capital Expenditure, prepared firstly at area (LOCAL) level by the GM

    and AGM of concerned area then is sent to head quarters at project and planning

    department where these expected Capital Budget are compiled by the concerned officials

    in the same department.

    Once the Capital Budget is complied & finalized, it is then issued as area book

    showing area wise estimated capital expenditure for each month. Our basis of these

    projected budgets, the monthly Statement of Capital Outlay and expenditure of that

    respectively month along with comparing it with the budgeted expenditure.

    Regarding the payment of this Capital Expenditure, this is mainly done in two levels

    or basis:

    1. At Area Level:

    Area wise payment is done by the remittance received by the Center or

    Headquarter. The payments are made on the basis of release of funds from the

    headquarters as per the estimated and sanctions made thereof:

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    2. At Central or Headquarters Level:

    The payment is directly made from center headquarters for the HEMM.

    The Capital Budget depends either on project report or approved scheme. Thetotal project evaluation is done by the CMPDI subsidiary company of the CIL,

    holding company of CLL. CMPDI prepares the detailed project report and send it

    to the CCL for approval after giving several presentations on some important

    feasibility aspects. WCLs board of directors can approve the project up to 500

    crore and for projects costing more than 500 crore, the respected project has to be

    approved by the ministry of coal.

    As stated earlier, the capital expenditure statement are prepared at regional

    level and also at central level where based on the capital budget the estimated and

    actual are compared and percentage achievement are shown in the statement

    itself.

    PROCEDURE FOR STARTING NEW PROJECT:

    Starting a new project (mine) involved complex and elaborate procedure. These

    can be listed as below.

    1. The area is earmarked and called as a Block. For e.g. Magadh. Then thearea is drilled and coal reserve is proved. Geological Survey is done and raw data

    is made a available: Moisture, quality, etc.

    2. Next step is to prepare a Draft Project Report which is done by Central MinePlanning and Design Institute (CMPDI) LTD. The draft report is thensubmitted to WCL headquarters, project & planning Department (P&P).

    Presentations are then given by CMPDI to the Head of Department (HOD) of all

    departments Excavation, Mining, Finance, etc. As per suggestion, changes and

    amendment are made to the draft PR.

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    3. Empower Sub Committee (ESC) is prepared. It mostly consists of FunctionalDirectors (FDs) and Independent Directors. Presentation are made to them

    suggestion (if any) incorporated.

    4. The Draft PR is then sent to Board of Directors for approval (Up TO 500 crs).Up to 500 crores : Approval by BOD, WCL

    500 crs.1000 crs. : Approval by CIL

    Above 1000 crs. : Approval by Ministry of Coal (MOC)

    5. The DPR is then sent to ESC in Ministry of Coal for approval.

    6. DRP is now sent to Public Investment Board (PIB) and the Draft PIB Note isprepared. The Secretary Expenditure again analyses the project and thereafter

    recommends the project for approval (if any).

    7. Cabinet Committee on Economics Affairs (CCEA) the evaluate the project ADraft CCEF note is prepared.

    8. The final stage is Approval of Project with / without condition (subject to ForestryClearance). Zero Date of project if fixed.

    PARALLEL ACTIVITY: ADVANCED ACTION

    Advanced action consists of activities which are carried side by side while project is

    being studied and evaluated for approval. These activities include.

    I. Land AcquisitionII. Forestry Clearance

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    1. Principally agree with / without condition. Net present value of the land is calculated and the payment is

    made.

    2. Final release of the land.

    III. EMP CLEARENCE

    Environment Management Plan (EMP) is applied one month before the final

    release of the land by forest department.

    It analysis the effect of the project on the following aspects environment and its

    degradation.

    Air Water Noises Land

    1. At this EOR (Form -1) and Term of Reference (TOR) is prepared and submittedto the Ministry of Environment. The ministry analysis the application and then the

    project is finalized for approval.

    2. Public Herring Minutes are given by the Population control Board. They givethere suggestion on whether there should be any chance or on chance in the

    project.

    MINUTES

    Change

    No

    change

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    Then presentations are given by expert committee mining i.e. EC (M) illustrating the

    projects:

    Internal rate of return (IRR)It should be at minimum 12%.

    Internal and extra budgetary resources (IEBR)Gives the details of sourceof capital Investment i.e. whether the company has surplus money to fund this

    project or how the investment could be funded externally through Loans,

    Financial Institution etc.

    Variance Analysis

    CCEA Note (Must)One all the above activities are completed, the project could be started.

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    CHAPTERIX

    FINDINGS & CONCLUSIONS

    9.1 FINDINGS & CONCLUSIONS:-1. WCL is a government organization subsidiary of CIL where the Capital

    Expenditure upto 500 cr is approved at the WCL beyond this limit approved at

    CCL.

    2. It is learnt that the projects are evaluated based on 12% IRR.

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    3. Company has 83 working mines. There are of 38 opencast, 43 areundergrounds, 2 are mixed (OP+U/G).

    4. The machinery required is mostly HEMM, Draglines, Dumpers and Dozers,Shovels, Drills.

    5. Utilization of resources is extremely good at about above 100% based onstandards.

    6. Depreciation on assets has been calculated by straight-line method dependingon the life of equipments.

    7. The profitability of WCL is improving over a period.

    CHAPTERX

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    RECOMMENDATIONS

    10.1 RECOMMENDATIONS:-

    1. There is a burocrasy system. Systems are very slow.

    2. There is hierchy and approval takes very long time.

    3. The methods of Capital Budgeting may be utilizes in an effective way.

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    CHAPTERXI

    LIMITATIONS

    11.1 LIMITATIONS OF THE STUDY:-

    Though the project is completed successfully a few limitations may be there.

    1. Coal India ltd. accounts for 90% of the coal production in India. It has

    complete monopoly in the coal sector. Therefore, the data used for this study

    are confined to CIL and not applicabl e to any other company.

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    2. Assumptions have been taken regarding analysis and interpretations of project

    due to lack of proper data.

    3. Certain data and information given in the research are hypothesized due to

    highly confidential of such information.

    4. Since the procedure and polices of the company will not allow to disclose

    confidential financial information, the project has to be completed with the

    available data given to me.

    5. The period of study that is 9 weeks is not enough to conduct detailed study of

    the project.

    6. The study is carried down on base the information and documents provided by

    the organization and based on the interaction with the various employees of

    the respective departments.

    7. Due to the large size of the organization and busy schedule of the staff there

    was a little scope for frequent interaction with the guide and concerned

    people.

    8. Capital Budgeting Methods NPV, IRR, PI, ARR, Payback Period could not be

    directly employed in the organization.

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    CHAPTER- XII

    BIBLIOGRAPHY

    12.1 BIBLIOGRAPHY:

    A.TEXT BOOK:

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