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CHAPTER 1
OVER VIEW
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Capital investments: Importance and difficulties
Types of capital investments
Phases of capital budgeting
Levels of decision making
Facets of project analysis
Feasibility study: A schematic diagram
ey issues in major investment decisions !bjectives of capital budgeting
Common "eaknesses in capital budgeting
OUTLINE
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Capital Investments : Importance and i!!ic"lties
Importance
Long # term effects
Irreversibility
$ubstantial outlays
i!!ic"lties
%easurement problems
&ncertainty
Temporal spread
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T#pes o! Investments
%andatory Investments
'eplacement investments
()pansion investments
*iversification investments
' + * investments
%iscellaneous investments
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Mahindra & Mahindra to Invest Rs. 4,000 Crore on ChakanPlant Expansion- 28th a!st 20"4
#ltra$e%h Ceent Capex o' Rs. (,000 Crore )or expansion
to*ards expansions, +ro*neld proe%ts and !rindin! nitsat varios plants, !oin! 'or*ard. - a!st 20"4
/itanali /es Plans to Raise Rs. "( Crore 'or Expansion o'diaond and e*eller1 +siness !lo+all1 -!st " ,20"4
3edanta Ma1 Invest Rs. "0,000 Crore on ani!arh Rener1
Expansion- a!st, 20"45esa 5terlite shares !ained over 2 per %ent to Rs. 268.7 on$hrsda1 as the %opan1 !ot nod 'ro the lo%al p+li% to expand%apa%it1 o' its ani!arh rener1 'ro one illion tonne perann tpa9 to six tpa.-:l1 20"4lsto $&; India toda1 said it has +a!!ed a Rs. 200 %rore
order 'ro Po*er /rid Corporation o' India td P/CI9 'orp!radin! !rid s+stations in eastern parts o' the %ontr1.
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Khaitan Electricals Limited, the leading fan manufacturer, is on adiversication spree - foraying into domestic appliances, lamps,switchgear, wire and cables and pumps, aiming at over 100 per cent
growth in the topline in 200-!"
#n $anuary %, 2012, ending months of speculation, one of &ndia's leadingprivate sector companies, (eliance &ndustries, announced a ma)or forayinto the media and entertainment sector" +he company, renamed (eliance
&nfotel, has licenses for all 22 telecom circles .contiguous regions/ inthe country and is epected to start rolling out its service by the end ofthis year"
&n ec, 200!, urat-based tetile rm upta ynthetics Ltd will invest (s22% crore in a diversication pro)ect at its ilvassa unit"
+he pro)ect will be for manufacture of nylon tyre cord fabric .3+45/ andnylon lament yarn .356/, which are 7ey inputs for the tyre, tetile andfurnishing industries"
ept, 201%, aluminum giant 38L4# to invest (s %%,000 crore fordiversication and epansion in a host of sectors including energy toboost its productivity and protability"
ept 201%, Kerala-based 9alabar roup, promoters of )ewelleryretailer 9alabar oldand iamonds, has planned to diversify intodevelopment of townships, commercial hubs, e-commerce and organicfarming among others"
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Capital $"d%etin% Process
&inancin%
Implementation
'election
Anal#sis
Revie(
Plannin%
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)e# Iss"es in Pro*ect Anal#sis
%arket Analysis
Technical Analysis
Potential%arket
%arket$hare
Technical,iability
$ensible Choices
Financial Analysis'isk
'eturn
(conomic Analysis
-enefits and Costs in efficiency
Prices!ther Impacts
(cological Analysis(nvironmental *amage
'estoration %easures
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Levels o! ecision +a,in%
OperatingOperatingdecisionsdecisions
AdministraAdministrativetive
decisionsdecisions
StrategicStrategicdecisionsdecisions
.here is the decision taken.here is the decision taken Lo"er levelLo"er level
managementmanagement%iddle level%iddle level
managementmanagementTop levelTop level
managementmanagement
/o" structured is the decision/o" structured is the decision 'outine'outine $emi0structured$emi0structured &nstructured&nstructured
.hat is the level of resource.hat is the level of resource
commitmentcommitment
%inor resource%inor resource
commitmentcommitment%oderate%oderate
resourceresource
commitmentcommitment
%ajor%ajor
resourceresource
commitmentcommitment
.hat is the time hori1on.hat is the time hori1on $hort0term$hort0term %edium0term%edium0term Long0termLong0term
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&easi-ilit# 't"d# : A 'c.ematic ia%ram
/enerationo!Ideas
Initial 'creenin%
Is t.e Idea Prima &acie Promisin%
Plan &easi-ilit# Anal#sis
Cond"ct +ar,et Anal#sis Cond"ct Tec.nical Anal#sis
Cond"ct &inancial Anal#sis
Cond"ct Economic and Ecolo%ical Anal#sis
Is t.e Pro*ect Wort.(.ile 0
Prepare &"ndin% Proposal Terminate
Terminate
es No
Noes
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$asic Considerations : Ris, and Ret"rn
Investmentdecisions
&inancin%
decisions
Ret"rn
Ris,
+ar,et val"e
o! t.e !irm
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