A STUDY ON CAPITAL BUDGETING

(ULTRA TECH)

ABSTRACT

An proficient share of capital is the most essential monetary feature nowadays. It entails the
choice to commit the company’s budget to lengthy-time period property. Such selections
generally have a tendency to find out the charge of commercial enterprise/firm through influence
its boom, productivity and hazard.

Investments choice is typically called capital budgeting alternatives. it's far smart alternatives to
invest in long term property looking forward to lengthy-time period benefits enterprise’s funding
picks may want to commonly encompass enlargement, achievement, renovation, and opportunity
of lengthy-term assets.
Capital Budgeting is the methodology of creating speculation picks in capital use. Capital
consumption might be characterized as use introduced approximately for gaining or upgrading
the steady property. The advantages of which might be expected to be received over numerous
years in predetermination.
Capital budgeting is normally referred to as steady asset control, whilst included with the
financial manager’s aim of attending proper aggregate of property (i.e., most useful asset
combo), regular asset assumes a superb deal of significance. regular belongings are also regularly
termed because the ‘earning asset’ of the company for the purpose that they generally generate
big returns. when you consider that property are the belongings of income generation for the
organization and fixed asset its most important resources, it appears logical that destiny earnings
growth is closely correlated with the enlargement of capital fees

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 CHAPTER-1
INTRODUCTIONTO THE STUDY

The sector of capital budgeting is every complete and hard. It's far without a doubt performs an
important role in assigning maximum organization organizations to gain their numerous dreams
(e.g., profitability, growth, balance, chance reduce price, social desires, and lots of others) it's
been carefully allied to the financial problem. This is rather extensively defined because of the
allocation of scarcer sources amongst competing alternatives.
Capital budgeting may be defined as the planning, evaluation, and preference of capital
expenditure belief as prominent from strolling yr, capital prices constitute outlay whose essential
advantages are probably identified over longer time period. Decision relating to capital fees in
preference to the ones for taking walks expenses is generally irreversible and they require
cautious desire techniques and techniques.
Capital budgeting is typically called constant asset control, whilst protected with the monetary
supervisor’s purpose of attending a proper combination of property ( i.e., maximum awesome
asset mixture), steady asset anticipates an outstanding deal of importance. Steady belongings also
are often termed because of the ‘incomes asset’ of the firm because they generally generate
massive returns. For the reason that assets are the assets of income generation for the agency and
fixed asset its number one source, it seems logical that future earnings boom is heavily correlated
with the growth of capital costs.

DEFINATION
A capital budgeting choice may be described due to the fact the firm’s to creating an investment
it's a budget maximum overall performance within the long time assets in anticipation of
predicted flows of blessings over an immoderate of years.
The employer’s investment choice might in all likelihood typically expiation. Acquisition
modernization and the possibility of the extended-time period property. as a stop result the
system of capital budgeting is employed to assess expenditure choices, which encompass
contemporary-day outlays, however, are possible to provide blessings over a term longer than
three hundred and sixty-five days. the blessings of the one maybe every in the shape of
progressed charges or reduced sales. the overall development of a firm is based totally upon

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marketplace improvement, access in the new product line, termination of ma product, it's miles in
declining diploma, enlargement of the plant trade of the region and so on.
NEED FOR THE STUDY

A task is an interest sufficiently self-contained to permit monetary and enterprise analysis. In

maximum cases, obligations constitute expenditure of capital budget through pre-contemporary
which wants to increase or enhance their operation.
In the latest, an assignment is a hobby in which, we're able to spend cash in enlargement of
returns wherein logically appears to guide itself planning. Financing and implementations as a
unit, is a specific hobby with a selected factor and a specific ending issue meant to accomplish a
specific aim of the have a observe.
An efficient allocation of capital is the maximum critical finance characteristic inside the current
times. It includes decisions to commit the agency’s charge range to the prolonged-time period
assets. Capitals budgeting for investment selections are of massive significance to the business
enterprise because of the fact they have a tendency to decide its fee through influencing its boom,
evaluation of capital budgeting picks.
A capital budgeting picks can be defined because the enterprise’s selection to invest is price
range maximum successfully & successfully within the long time assets in anticipation of an
expected go with the flow of benefits over a sequence of years. The lengthy-time period
belongings are those that have an effect on the firm’s operations past the simplest three hundred
and sixty-five days length. The company’s funding picks might typically consist of enlargement,
acquisition modernization and opportunity of long term assets. The sale of a department or
enterprise is likewise a funding choice. selection similar to the alternate within the methods of
earnings distribution or a commercial advertising campaign or studies and improvement software
have prolonged-term implications for the company’s expenditure and blessings, and
consequently, they need to moreover be evaluated as investment choices.
The motive underlying the capital budgeting decisions performance. because of this, an
organization have to replace worn and out of date plant and equipment, gather consistent
property for and new merchandise and make strategic funding alternatives. this can allow the
organization to achieve its intention of maximizing profits both by means of manner of
accelerated sales or price reductions. The wonderful of these alternatives is stepped forward with
the aid of way of capital budgeting. Capital budgeting selection may be of kinds:
1) To those which expand sales, and
2) To the ones which reduce prices.
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 OBJECTIVES OF THE STUDY

 To offer a theoretical framework regarding capital budgeting

 To evaluate the effectiveness of capital expenditure picks of Ultratech the company.
 To provide aid so that you can complete the overall purpose of the capital budgeting
device of the commercial enterprise employer
 To assess the factors recall through using the of the employer enlargement challenge.
 To offer findings, pointers & quit based totally at the examination.

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 SCOPE OF THE STUDY

They have a look at capital budgeting in Ultratech Cements LTD includes studying the
investment desire of the company. As full-size portions are tied up in such selection, it desires
cautious evaluation and right manipulate that permits you to decrease the manufacturing prices
and maximize its earnings. because the statistics to be had are confined and the assignment is
excellent the have a study is blended to well-known capital budgeting techniques accompanied
by the company.

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 IMPORTANCE OF THE STUDY

 Capital investments, representing the developing edge of a business enterprise, are

deemed to be very vital “3” interrelated factors.
 The impact of company growth in the long term results capital funding options has a
huge effect on what the corporation can do within the future.
 They have an impact on the threat of the firm; it's miles tough to opposite capital
investment decisions due to the fact the marketplace for used capital investment in ill-
prepared or most of the capital equipment offered by means of manner of a firm to
fulfill its specific necessities.
 Capital investment selections comprise huge outlays.
 Ultratech Cements ltd, capital budgeting is more or less a non-stop system and it's far
achieved by means of one-of-a-type sensible regions of control consisting of
producing, advertising, monetary management and so forth., all the relevant
functional departments play a critical function within the capital budgeting choice
approach.

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 RESEARCH METHODOLOGY

Technique is a scientific device of amassing facts in order to investigate and confirm a

phenomenon. the gathering of information is precept assets. They’re mentioned as
I. Primary statics
II. Secondary statistics
Primary statistics
The number one data desired for the check is amassed via an interview with involved officers and
employees, both for my part or together, some of the records has been validated or supplemented
with remark conducting non-no private interviews with worried officials of the finance branch of
“ULTRATECH Cements LTD”.
SECONDARY facts
The secondary facts wished for the have a look at growing to be collected from posted assets
collectively with, pamphlets of annual critiques, profits, and inner records, reference from
textbooks and magazine manipulate.
In addition statistics wanted for the check modified into collected from:-
 Collection of required information from the annual facts of the company.
 Reference from textbooks and journals relating to monetary control.

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DIAGRAMATIC REPRESENTATION OF RESEARCH METHODOLOGY

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 LIMITATIONS OF THE STUDY

The subsequent restrictions of the have a look at:

 The mission must be completed with be had information given to us.

 The period of examining this is forty-five days isn't always sufficient to conduct the test

of the project

 The observe is carried basing on the facts and files furnished by the use of the enterprise

employer

 There was no scope of amassing current-day information, as the auditing has no longer

been finished thru time of challenge art work.

 The way needs to be completed with the available facts with us.

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 REVIEW OF LITERATURE

Klammer, Thomas P. (1972) studied an example of 369 partnerships from the

1969 Compustat rundown of creating organizations that showed up in immense business
offices and made at any rate $1 million of capital charges in everything about 5 years 1963-
1967. Respondents had been mentioned to comprehend the capital planning systems being
used in 1959, 1964, and 1970. The impacts showed an all-encompassing utilization of
systems that ensured the present worth (Klammer, 1984).1 and 2

Fremgen James (1973) studied an irregular example of 250 office firms that were
inside the 1969 rendition of Dun and Bradsheet's Reference digital book of big business
oversee. The poll changed into sent to organizations occupied with assembling, retailing,
mining, transportation, land improvement, delight, open utilities and combinations to take a
gander at the capital planning designs utilized, degrees of the capital planning device, and the
procedures used to direct for threat. He put that organizations considered the inward charge of
return model to be the greatest basic model for determination making. He also verified that
the vast majority of organizations improved their benefit necessities to modify for possibility
and

Frivolous J William, Scott David P., and fowl Monroe M. (1975) inspected
reactions from 109 controllers of 1971 Fortune 500 (through pay dollars) bunches concerning
the systems their associations used to evaluate new and present product strains. They
concluded that the inward cost of returning will turn into the technique supported for
assessing all obligations. in addition, they situated that present value methodologies were
utilized more noteworthy regularly to evaluate new product offerings than present item
lines.four
Gitman Lawrence G. and John R. Forrester Jr. (1977) investigated the
reactions from 110 organizations that answered to their review of the 600 gatherings that
Forbes expressed as having the best stock expense blast over the 1971-1979 interims. The
study containing questions identified with capital planning procedures, the part of the
commitment for capital planning choices, the greatest crucial and most extreme troublesome
degrees of capital planning, the cutoff charge and the methodologies used to evaluate chance.
They found that the DCF procedures were the most systems for looking at activities,

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particularly the IRR. notwithstanding, numerous enterprises regardless of the truth that they
utilized the PBP approach as a reinforcement or optional methodology. the overall population
of the offices that answered to the overview showed that the Finance branch changed into at
risk for perusing capital planning duties. Respondents moreover showed that challenge
definition and coins go together with the stream estimation altered into the most extreme hard
and greatest significant level of the capital planning way. most of the associations had an
expense of capital or cutoff rate among 10 and 15%, and the most generally balanced for risk
by method for building up the base important pace of the detour again on capital
obligations.five
Kim Suk H. and Farragher Edward (1981) studied the 1979 Fortune 100 CFO
about their 1975 and 1979 usage of procedures for assessing capital planning undertakings.
They established that during the two years, most of the organizations relied upon a DCF
system (each the IRR or the NPV) on account of the main technique and the restitution as the
auxiliary method.6 Marc Ross (1986) In an in-power have a check of the capital planning
errands of 12 gigantic assembling partnerships, he concluded that paying little mind to the
way that methodologies that secured limited money accept the way things are have been
utilized to a point, associations depended rather eagerly on the oversimplified recompense
model, uniquely for littler activities. correspondingly, while limited income methodologies
have been utilized, they were normally streamlined. for instance, a few gatherings' improving
suppositions incorporate utilizing the equivalent money related ways of life for all activities
anyway reality that genuine lives may be amazing. moreover, associations regularly didn't
alter their assessment for possibility. Overviews outcomes additionally infer that endeavor
endorsement at numerous companies (in 8 out of twelve offices contemplated) view really
absolutely unique benchmarks depending at the locus of the choice.7
Wong, Farragher, and Leung (1987) surveyed a sample of massive
organizations in Hong Kong, Malaysia, and Singapore in 1985. They located that PBP
modified into the most well-known famous number one technique for evaluating and ranking
obligations in Malaysia. In Hong Kong, they found PBP and ARR to be in addition the most.
They concluded that, in assessment to US organizations wherein DCF techniques are notably
extra famous than now-DCF techniques as number one assessment measures, groups in Hong
Kong, Malaysia, and Singapore choose to use several strategies as number one measures in
evaluating and ranking proposed investment tasks. it's also placed that agencies in Hong
Kong, Malaysia and Singapore do no longer undertake masses hazard assessment, neither
attempting to verify chance nor modify assessment standards to reflect threat. The most
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 famous danger evaluation strategies have been sensitivity assessment and situation evaluation
(excessive-medium-low forecasts).8
Stanley (1990) has studied capital budgeting strategies utilized by small
commercial enterprise corporations within the Nineteen Nineties. regular with Eugene
Brigham, in his ebook ‘basics of Financial control’ inside the bankruptcy “Capital Budgeting
inside the Small enterprise groups”, capital budgeting can be greater critical to the smaller
firm than its huge opposite numbers due to the dearth of diversification in a smaller enterprise
employer. He says that a mistake in a single mission may not be offset by using successes in
others. His motive of the take a look at is to ascertain wherein small groups stand nowadays
in regard to capital budgeting techniques rather than earlier a long time. He determined on
850 small corporations out of which he acquired 232 usable responses to the have a study. As
constant collectively together with his findings, some of the styles concerning capital
budgeting by means of way of smaller agencies are nicely really worth being conscious. The
agencies remain dependent on the payback approach due to the fact the number one technique
of evaluation. This is not commonly proof of an absence of sophistication, as an entire lot as
it's miles a reflection of the financial pressures placed on the small enterprise business
enterprise proprietor with the beneficial resource of financial establishments. The query to be
replied isn't constantly how worthwhile the project is, however, how fast a loan may be paid
decrease returned. Small commercial enterprise proprietors have prolonged sophistication as
over 27% use discounted cash go along with the flow due to the fact the number one approach
of evaluation. Stanley opines that their conclusions can also, at instances, be without a doubt
deceptive due to an beside the component good deal fee. Small corporations take chance very
seriously this is pondered by the manner of a higher required rate of skip lower back for
unstable tasks. 9
Run and Srivastava (1991) convey direct careful confirmation of the capital orchestrating
strategy trouble to a layout of remarkable Canadian associations. They investigated various
difficulties viz., utilizing capital orchestrating procedures, pay checking strategies, chance
assessment systems and methods used to evaluate the cost of capital and the cost of gigantic
extremely worth. His disclosures are greatest partnerships utilized various capital orchestrating
strategies to take a gander at capital hypotheses; DCF systems had been used by over 75% of our
respondents to assess attempts, for instance, improvement existing endeavors, increase new
physical exercises, outside assignments, and renting. obviously the inclination to utilize DCF
frameworks increments with the eccentrics of the choice of the DCF systems, IRR diverted into
utilized more prominent every now and then than NPV a remarkable a piece of the time, of the
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two direct rules, he watched little utilization of ARR. reward is utilized amazingly extra as often
as possible as potential related to DCF structures. As appeared by method for them, utilizing
DCF frameworks has gotten a standard in Canadian organizations and that stand-out evaluation
criteria are when uncertain normally utilized. The board's dynamic assessments are utilized as
ordinarily to make a paid bet as quantitative systems. Affectability assessment is the most
amazing structure among quantitative frameworks used in pay estimation, potentially mirroring
the acknowledgment of PC fundamentally based spreadsheet applications. The estimation of the
expense of capital besides is obviously amassed extra constantly with respect to judgment than
on any genuine styles. limitless partnerships use non-standard markdown cites, i.e., cites beside
the WACC and individuals utilizing it appears to rely upon basic or non-well known forms for
estimation at their cost of broad definitely justified even despite, the typical procedures being
either the CAPM or the advantage advancement model. showed up in an alternate manner with
respect to past appraisals, he decided the use charge for DCF systems is higher. In any case, the
utilization of dynamic, essential and nonstandard systems in the estimation of pay rates, risk
assessment and the estimation of the fitting charge of capital keeps up being high.10
WHAT IS CAPITAL BUDGETING?
Capital organizing is a crucial legitimate device. One duty of a budgetary supervisor is to
pick undertakings with incredible profit and paces of return. Right now, cash related boss must
have the decision to pick whether an undertaking legitimizes project and have the choice to pick
dexterously among at any fee wonderful choices. To do that, a sound method to assess, have a
look at, and select responsibilities are required. This gadget is referred to as capital
masterminding.

Capital is a constrained asset

As either commitment or well worth, capital is a very obliged resource. there might be a
breaking element to the amount of FICO assessment that the cash related structure could make
inside the monetary framework. endeavor banks and the inverse crediting establishments have
bound shops from which they could drive money to people, affiliations, and governments. In like
way, the Federal Reserve framework requires each monetary foundation to protect up some bit of
its shops as shops. Having obliged property to create, driving foundations are express in
removing up credits to their customers. in any case, independent of whether a monetary
organization switched into to remove up enormous advances to an alliance, the connection of that
affiliation would need to review the impact that expanding advances could have on the general
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cost of financing. No ifs, and or buts, any firm has restricted getting the property that should be
novel a portion of the top of the line idea choices. One may also fight that alliance can give a
basically incomprehensible amount of in vogue stock to raise capital. growing the level of parts
of affiliation stock, regardless, will serve just to dissipate a relative extent of critical worth
among a continuously basic number of theorists. Around the day's end, as the measure of bits of
an affiliation develops, the affiliation obligation with respect to specific examiner may decently
lessen.
FEATURES OF CAPITAL BUDGETING DECISION:
 Possibly colossal predicted benefits.

 A modestly elevated level of peril.

A modestly drawn out stretch of timeframe between the fundamental cost and the predicted
returns.

NATURE OF CAPITAL BUDGETING DECISIONS:

The endeavor decision of a firm is generally known as the capital coordinating or capital use
decisions. A capital arranging decision may be portrayed as the union's decision to put its present
backings most satisfactorily over the long haul assets thoroughly imagining a broad improvement
of central focuses over the advancement of years. The all-inclusive length assets are those that
influence the affiliations operational past the one-year time allotment.
Experience choices by and large join extension, gaining modernization and substitution of the
extended length resource offer of a division or business (divestment) is in like the way a
hypothesis choice. A choice like an adjustment in the technique for deals dispersal or a headway
crusade or an appraisal and causing project to have extended length proposition for the
association's uses and benefits and therefore they ought to in like way be assessed as speculation
choice.
The inquiry that capital is an obliged resource is genuine for capital, whether or not obligation or
worth (a present minute or a critical parcel, fundamental stock) or held the favorable position,
bank liabilities or notes payable, and so forth. Without a doubt, even the most praised firm in an
industry or a system can create it is finding a serviceable pace explicit cutoff. Right when this
half quart has been gone, the firm will either be denied more credit or be charged a higher
financing cost, making ensuring a less captivating way to deal with oversee raise capital.

CAPITAL BUDGETING PROCESS:

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Capital arranging is a perplexing methodology as it incorporates decisions relating to the theory
of current resources for the favorable circumstances to be practiced in the future and what's to
come is continually faulty. Regardless, the going with technique may be balanced during the time
spent capital arranging. There are five stages in capital arranging.

 Identification of investment opportunities:

The capital orchestrating process starts with the particular affirmation of potential undertaking
openings. Generally, the coordinating body (it might be an individual or board filtered through
legitimately or tranquility) makes evaluations of future courses of action which perceiving
required eagerness for plant and contraption.

Obvious check of experience insights it is useful to:

 Monitor outside conditions dependably to scout experience openings.

 Formulate an all-around depicted corporate methodology dependent on a thorough

assessment of attributes, insufficiencies, openings, and dangers.

 Share corporate strategy and individual with people.

 Motivate workers to make suggestions.

 Assembling of experiences

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Experience proposal perceived by the creation division and other offices are regularly submitted
in a composed capital hypothesis suggestion structure. For the most part, the majority of the
proposal, before they appear at the capital orchestrating board of trustees or saw from various
edge. It is like way helps in making an air for recognizing co-courses of action of spread related
exercises.
Speculation recommendations are normally grouped into different classes for encouraging
dynamic, planning and control.

 Replacement speculations
 Expansion speculation
 New item speculation
 Obligatory and government assistance speculation

Decision making:
A course of action of rupee sections commonly depicted capital endeavor dynamic. Under
this structure, officials are vested with the capacity to pay adventure proposals up beyond
what many would consider possible.

Preparation of capital budgeting:

Adventures including tinier expenses and which can be picked by chairmen at lower
levels are as often as possible made sure about by a broad allotment for utilizations action.
Adventures including greater expenses are associated with the capital spending plan after
significant supports. Before understanding up to such errands, a task demand is commonly
required. The inspiration driving this check is fundamental to ensure that the advantages
position of the firm tasteful at the hour of utilization.
 Implementation action:
 Making an interpretation of a speculation proposition into a show venture is a
mind-boggling, tedious and hazard laden assignment.
 Adequate formulation of projects
 The huge purposes behind the delay are recommended a plan of adventures yet in
an unforeseen manner, if basic homework similarly as major thorough and point
by point itemizing of the errand.

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Chapter objective:
This chapter is intended to provide:
A comprehension of the vitality of capital orchestrating in publicizing dynamic.

• A clarification of the various sorts of theory experience.

• A prologue to the money related assessment of experience recommendations.

• The importance of the idea and computation of net present worth and inside the pace of return
in amazing.

•The great conditions and troubles of the compensation technique as a framework for at an
opportune time screening of at any rate two fighting experiences.

Structure of the chapter:

Capital orchestrating is indisputably a significant advancement in business. Titanic totals of cash

can be handily squandered if the theory ends up being incorrectly or uneconomic. The fact of the
matter is hard to see for the most part of the subject ensured about furthermore on account of the
numerical substance included. Notwithstanding, it would like to build up the chance of things to
come estimation of cash which might be spent at this point. It does this by looking at the systems
of net present worth, inside the pace of return and annuities. The masterminding of profit are
basic in new speculation choices right now part takes a gander at this "pay" thought. One issue
which diseases making nations is "developing rates" which can, once in a while, beat 100% per
annum.
Capital budgeting versus current expenditures:

The capital endeavor errand may be perceived as of current uses with two features:

a) Such adventures are commonly colossal.

b) A basic time period goes b/w the hypothesis cost and the receiving to the focal points.

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 Accordingly, most medium evaluated and immense affiliations have made extraordinary
approaches and procedures for dealing through these decisions. An efficient method to
manage capital arranging induces:

a) The separating of extensive stretch objectives.

b) The imaginative excursion for and spotting confirmation of new interest openings.

c) the category of endeavors and confirmation of fiscally and also really a subordinate
thought.

d) The estimation and interpreting of present and predetermination compensation.

e) a reasonable managerial system arranged for moving the basic measurements to the
choice stage.

f) The controlling of businesses and cautious checking of basic parts of task execution.

g) a fixed choice approaches that can disconnect praiseworthy from forbidden decisions is
required.

h) The prop up point (g) is sincere and this is the circumstance of later areas of the part.
Investment projects:
The time value of money:
Review that the joint exertion of advance professionals with borrowers units a concordance
rhythm of intrigue. Picking up is truly gainful if the approach to the improvement outflanks the
estimation of the were given recoveries. Crediting is as a general rule beneficial if the coming is
on any occasion indistinguishable from that which can be gotten from alternatively accessible
open doors in a similar peril polish.
The interest rate received by the lender is made up of:
The time estimation of cash: The receipt of cash is upheld soon. Cash can be utilized to make
sure about more cash. The past the cash is gotten, the more significant the potential for expanding
riches. Thusly, to forego the utilization of cash, you should get some pay.

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II) The danger of the capital whole not being reimbursed: This shortcoming requires a premium
as an assistance against the risk; as needs be the appearance must be similar with the peril being
gotten a handle on.

III) Inflation: Money may lose its buying control after some time. The development authority
must be made up for the declining spending/buying effect of cash. In the event that the
moneylender gets no remuneration, he/she will be even more unpleasant off when the
advancement is reimbursed than at the hour of crediting the cash.
Future values/compound interest:

Future worth (FV) is the motivation in dollars in the long run of at any rate one hypothesis.

The general condition for figuring future worth is according to the accompanying:

VF = V0 (1+r)n

Where

V0 is the basic all-out invested,r is the credit expense,n is the number of periods for which the
theory is to get premium.

Right now can enroll the future estimation of what V0 will gather to in n years when it is
increased each year at a comparative pace of r by using the above condition.

We can surmise the present value(PV) by using the formula:

VF = V0 (1+r)n

By showing Vo by PV we get:

VF = PV (1+r)n
Rationale for the formula:

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As you may see from the accompanying pastime, given the option of shopping 10% on his cash,
a man or woman (or company) have to in no way offer (contribute) greater than $10.00 to get
$11.00 with a warranty in the direction of the yr's give up.
Net Present Value (NPV):
The NPV strategy is utilized for assessing the attractive quality of speculations or tasks.

Where

Ct = the net money receipt toward the finish of year t

I0 = the underlying venture cost

r = the markdown rate/the necessary least pace of rate of profitability

n = the undertaking/speculation's length in years

Decision rule:

Net Present Value vs Interal Rate of Return:

Self-ruling versus subordinate exercises

NPV and IRR procedures are solidly related in light of the fact that:

I. Both are time-alteration extents of profit.

II. Their logical conditions are basically indistinct.

All things considered, which prompts a perfect decision: IRR or NPV?

a) NPV versus IRR: Independent assignments:

Free endeavor: Selecting one foresee doesn't hinder the picking of the other.

With normal livelihoods (- |+|+) no dispute in decision rises; at this moment NPV and IRR lead
to the proportionate recognize/reject decisions.

NPV versus IRR self-governing exercises

If livelihoods are constrained at k1, NPV is sure and IRR> k1: recognize the adventure
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In case livelihoods are constrained at k2, NPV is (-) and IRR< k1: reject adventure

Logical proof: for an assignment to be satisfactory, the NPV must be certain,

i.e., where R is the IRR.

Since the numerators Ct are identical and positive in both instances:

Certainly/instinctually r must be more unmistakable thank (r>k).

• if npv=0 then r=k: the association isn't keen on such an endeavor.

• hence, irr and npv lead to a comparative decision at the present time.

B) Npv versus Irr: dependent undertakings:

Npv clashes with irr where absolutely inconsequential errands exist.

Up to a discount pace of k0: adventure b is better than adventure a, right now b is

suggested broaden b.

Past the point k0: adventure an is better than adventure b, their adventure is gotten a kick
out of the chance to expand b.

The two strategies don't rank the endeavors comparable.

Differences in the size of adventure

Npv and irr may give conflicting decisions where exercises differentiate in their size of
hypothesis.
TYPES OF CAPITAL BUDGETING DECISIONS:

Capital arranging decisions are of major essentialness in money related dynamics. In the
number one spot position they impact the profitability of the firm. They moreover have a bearing
on the difficult circumstance of the firm since they relate to fixed assets. The fixed assets are real
products that can, in the long run, be sold for advantage. Generally, the capital arranging of
hypothesis decision fuses development, explanation, alteration, and substitution of fixed assets

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Expansion:
The organization may need to grow its creation limits on records of appeal for its items or
lacking the creation limit. This will require extra capital hardware.
Diversification:
An association may intend to diminish its danger by working in a couple of activities. In
such a case capital endeavor may get significant for obtaining new devices and workplaces to
manage the new thing.
Replacement:
The substitution of fixed assets as opposed to existing assets, either being depleted or get
outdated in view of new development.

Research And Development

Colossal wholes of money may be spent for inventive work if those organizations where
development is rapidly advancing. In such cases huge wholes of money are required for
imaginative work works out. So these are in like manner associated with the recommendation so
Capital Budgeting.
Miscellaneous Proposals:
An organization may need to put cash in ventures, which don't straightforwardly help to
accomplish benefit situated objectives. For instance, the establishment of contamination control
gear might be important because of lawful necessities. In this manner, reserves are required for
such a proposition moreover.

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Technique OF CAPITAL BUDGETING DECISIONS:
There are numerous technique for assessing the benefit of capital speculation proposition. The
different usually utilized strategies are as per the following.
Traditional methods or non-discounted Techniques:

1.Recompense Period Method or Payout or Pay off Method.

2. development of standard Approach to Pay Back Period Method.

3. Rate of Returns Method or Accounting Method.

A time-balanced method or confined Techniques:

4. Net present Value Method.

5. Internal Rate of Return Method.

6. Productivity record Method.

TYPES OF CAPITAL BUDGETING DECISIONS:

23
Capital arranging decisions are of focal noteworthiness in cash related dynamic. Ahead of the
pack position, impact the efficiency of the firm. They furthermore have a heading on the difficult
circumstance of the firm since they relate to fixed assets. The fixed assets are certified products
than can finally be sold for advantage. All around the capital arranging of adventure decision
joins extension, oath, adjustment, and substitution of fixed assets.

Types of Capital Budgeting Decisions:

 Cost decrease program

• Undertaking a promoting effort

• Replacement of benefits

• Obtaining new offices or growing existing ones

• Merger investigation

• Refinancing a remarkable obligation issue

• New and existing item assessment

• No benefit investments(e.g., wellbeing and security)

IMPORTANCE OF CAPITAL BUDGETING:

Capital arranging decisions are among the most fundamental and essential decisions and they
have an enormous impact on the future efficiency of the firm. An uncommon thought should take
while choosing capital decisions, since it impacts all the pieces of an association, for instance,
creation, displaying, workforce, etc various clarifications behind keeping more thought on capital
arranging decisions consolidate the going with:

1.Long term recommendations:

2.Investment of gigantic resources:
3. Irreversible decisions:
4. For the most part difficult to make:
5. Rising of fund

CHAPTER-III
24
INDUSTRY PROFILE

India had essential assets of granite stone, sandstone, Kota stone, quartzite’s, and record. Rock
assets are, taking everything into account, in South India and Granite stores are, so to speak, in
Western India (Gujarat and Rajasthan).

A game plan of stones things like a wide extent of granite, tile, rock, and so forth are accessible
in to the market. The prominence and overabundance of trademark stones things had won as the
most looked for following satisfaction in another structure in making changed floors, dividers,
edges, pieces, chimneys, and washrooms.

These stone things are open in cleaned likewise as the unpolished state. These stone things go
with different worth degrees fitting each individual's cash related limit. They are accessible in
various sizes, shapes, types, thicknesses, and so forth. A touch of these stone things is open in
obstruct, some in territories and some in tile. They are imported every so often and, all things
considered, covertly completed. Stone things are solid, exceptional and can pass on a ton of
weights.

Common stone things are commonly utilized in making and illuminating structure,
organization, industry, affiliations, and so on. These are in addition interestingly made by the
basic and points of interest of the client. They are utilized being created attempts and in an
immense portion of the mechanical areas.

The degree of common stones joins record stone, sandstone, assortment stone, cobble and rock,
marble, rock, reserves and avowed, trademark stones are not concealed, composed, settled or
updated - essentially real cut and cleaned gemstones, or unadulterated unpleasant pearl
substance for your utilization.

Stone tile and marble flooring are great floor materials. Both marble and rock tile are run of the
millstone things, unmitigated solid and recolor safe. Various decisions for floors entwine record
and terrazzo. With or without from terrazzo are presented like finished tile. Marble and rock tile
show a wide level of stain hindrance. Marble is more helpless than rock.

Ordinary magnificence, quality, security from heat and a finish of constant nature are the
indications of a stone tile. Rock is an enormous fundamental and beautifying stone, and due to

25
its high compressive quality and quality, it is used for gigantic essential work. Fine-grained
stone is used for liberal and amazing work similarly with respect to carving purposes. It is the
hardest of fundamental essential stones. Rock tiles are really, as old as the earth, ideal for use in
private and business flooring applications. Stone protuberances are perfect for making rock
edges, flooring, holding dividers and finishing around an inside wellspring/lake.

Marble is a variable stone shaped by the change of limestone or dolomite, a significant part of
the time sporadically tinted by dirtying impacts and utilized particularly in plan and figure.
Marble tiles are reasonable for washrooms, doors and chimneys, living and eating regions.
Marble floor tiles are in like way utilized for both inside and outside ground surface
applications. A piece of the various shades of marble is white, red, lessen, mottled and
accumulated, diminish, pink, and green. Marble flooring adds class to the home and gives it a
vibe of wealth. The best thing about the marble floors is that they credit an especially quieting
cooling contact to the home.
The highest producer of stones

The most noteworthy maker of dimensional stones on the planet addressing over 27% of the
world stone creation.

16.16 million tons of stone creation in the year 2018-19 out of a level out world creation of 61
million tons.

More than 2 million individuals are utilized in the stone portion. Indian Stone Production (In
Thousand tons)

26
(Source: State Department of Mines & Geology and All India Granites & Stones Association)

Marching towards global leadership

 Fare of Stones - US $ 301 million (Rs.13,000 million) in 2008-09

 Indian positions third in world stone passages with a 10.8% idea in 2008 (in
regards to tonnage).
 Indian positions first in Raw Siliceous thing (Granite and Sandstone) convey.
 Indian positions fifth in Raw Calcareous thing (Marble and Flaggy Limestone)
convey.
 Indian positions ninth in charges of finished stone things

 The mass (90%) of the Indian stone charges is by way undesirable stone and marble
squares and pretty much 10% is by technique for regard included or stamped things.
Indian stone industry and the Government have set a target of raising this to half all
through the accompanying 5 years.

 The weight of the Indian stones is made in the Indian states of Rajasthan,
Tamilnadu, Andhra Pradesh and Karnataka. Rajasthan speaks to about 90% of all
the marble conveyed and the other 3states in Southern India produce essentially
all the stone exchanged.

27
 STATISTICAL OUTLOOK

Major Importers

India possesses enormous deposits of all types of natural dimensional stones with a variety of
properties

 Granite

 Marble
 Sandstone
 Kotahstone(Flaggy limestone)

- Dimensional blocks
- Monuments
- Moulded pieces
- Cobbles and pavement stones
- Slabs and tiles
- Architectural and sculptured pieces

28
StoneHandicrafts/Artifacts

MARBLE INDUSTRY

Indian marble is outstandingly acclaimed in the worldwide market World-famous Taj mahal is
the statement of interesting quality snow-white marble from Makrana zone

Accessibility: In regions of Nagaur,Jaipur Sirohi, Udaipur, Banswara, Bhilwara, Ajmer, Bundi,

Pali,Chittorgarh, Dungarpur, Sikar andJaisalmer, Rajsamand, Alwar. Shading and Pattern:
Creamish white, Snow white, White with grayish/dark groups and Wavy examples, pink, pink
with somewhat blue groups, green, yellow, dark, multicolor and so forth. Fare assortments:

29
Snow white - exceptionally fine-grained, pink and green,Indian green is exceptionally valued
and is the most wanted marble sought after the world over.

Number of mining leases: About 3600

Marble the pride of India

• For all intents and purposes ceaseless marble stores - more than 1200 million tons

• Splendid courses of action of white, green, diminish, decrease, pink, yellow

• Physical and mechanical properties adhering to comprehensive guidelines

• Amongst the essential 5 nations in marble passes on

A Marble Industry

o Total Investment - over Rs.40,000 million (US $1,000 million)

o About 4,000 mining leases

o Block creation 3.7 million tons in 1996-97

o About 1,100 current gangsaw units and 50 Automatic tiling plants

o More than 5,000 exchanging affiliations

o Employing around 1 million individuals

o Fast making current motorized quarries

o Over 300 quarries using a valuable stone wire saw and cutting mechanical
assembly shaper quarrying advancement

o Modern and all around furnished plants with forefront Italian advancement for
cutting, planning, cleaning and dealing with

o Marble segment and tile creation: 1300 million sq. ft per annum

30
Impressive Marble Export

Increment of over 300% from the US $ 9 million of each 1992-93 to the US $ 27 million out of
1996-97

• Excellent quality section assortments - Green, Onyx, Indo Italian, White and Pink marble

• High quality cleaned marble tiles and pieces and green and white marble squares relate to
request in the remote market

• High pass on energy for marble meticulous works

• Key marble send out business sectors - USA, Canada, Japan, Singapore, UAE, EC countries

Major Marble Centers of India

 Prominent marble quarrying and processing centers in India are:

Rajasthan
 Andhi (Jaipur) - Jhiri (Alwar) region
 Abu region
 Makrana-Kishangarh region
 Udaipur-Rajsamand -Chittorgarh region
 Banswara - Dungarpur region
 Jaisalmer region

Gujarat
 Makrana-Kishangarh regio

 Ambaji region

GRANITE INDUSTRY

31
Granite
 Positions first in Raw Siliceous Exports on the planet

o Exports regarded at 244 million dollars in 1997-98

o Widespread openness - Andhra Pradesh ,Karnataka, Tamilnadu, Orissa,Utter

Pradesh, Rajasthan,West Bengal, Bihar.

o Estimated Geological Reserves - Over 5,000 million cubic meters

o Important Quarrying and Processing Canters -Warangal,

Bellary ,Bangalore,Hyderabad, Hospet, Chamrajnagar, Chennai, Jhansi, Jalore,
Pali, Barmer, etc.

o Magnificent Varieties -Nagina Green, Merry Gold,Tiger Skin, Royal Gold,

Platinum White, Kashmir White, Mokalsar Green, Rosy Pink, Jhansi Red,
Galaxy Black, Juparana, Paradiso, Cira Gray, Absolute Black, New Imperial
Red, Raw Silk, etc.

.
Sand stone
In India sandstone is completely utilized in private houses, spots of business, business
structures, lodgings, bistros, and exceptional achievements. Collectibles' made of stone -
screens, wellsprings, stages, packages, turns, balusters, railings - have gotten standard. The
present model is to make these stone carvings in the best course with men and machines. The
solid occurrence of the utilization of sandstone screens and pieces was the update of Leela
Palace Goa Resort in Goa, where the American coordinator chose to discharge the present
stone/marble allots to develop the structure and abrogate it with sandstone. Organizers in
Bahrain, Saudi Arabia, and U.S.A have totally activated things made of sandstone. In the whole
Middle East - Oman, Bahrain, UAE, Saudi Arabia, and Kuwait – coordinators have utilized
sandstone cut materials in private blessings. No two ways about it, even the sketchers from the
U.S.A. who are making districts in Saudi Arabia have utilized sandstone carvings. A couple of
modelers from Riyadh are especially enraptured by the Indian sandstone structure. In their
every single new creation, some stone carvings are utilized for their customers. They need
remarkably old stone workmanship to be restored today.
32
  Widespread receptiveness - Rajasthan and Madhya Pradesh.
 Important Quarrying and Processing Centers - Bharatpur, Dholpur, Kota,
Sawaimadhopur, Bundi, Chittorgarh, Nimbhahera, Jodhpur, Bikaner, Jhalawar, Pali and
Jaisalmer.
 Impressive Colors and Patterns: Red, Buff, Beige, Pink, Flaggy sandstone.
 Splendid Varieties: Rainbow, Teak, Modak, Kher, Budh, Bansi Pink, Mandana, Dholpur
Red and Beige, and so forth.
 Estimated Geological Reserves: Over 1,000 million tons
 Production in 1997-98: Over 5 million tons

 FLAGGY LIMESTONE

Broad openness - Andhra Pradesh ,Rajasthan

33
• Shading and model - Greenish Blue, Pale Brown and Black

• Important Quarrying and Processing Centers - Ramganjmandi, Modak, Cuddapah

• Estimated Geological Reserves - Over 2,000 million tons

• Production - Over 2 million tons

• Important Export Varieties: Kota blue, Kota Brown Etc.

Occasion: In districts of Kota, - Chittorgarh and Jhalawar.

Noteworthy centers are Ramganj, Mandi, Suket, Chechat, Morak, Manipura

No. of Mining Leases: 130

ExportPotential:InEurope,USA,Canada,JapanandSingapore.

SLATE
Event: In the locale of Alwar, Ajmer, Bharatpur, Tonk, Sawai Madhopur, Pali, Udaipur, Churu,
Chittorgarh. Be that as it may, record stores of the Alwar region are of exportable quality.

Coloring and Pattern: Grayish dark, multicolor, Brown, Red and so forth.

No. of mining leases: 32

Fare markets: Germany, Holland, Japan, Australia, and Singap

FOCUS ON THE MAJOR CITY: RAJASTHAN

Rajasthan is the significant maker of Marble in India. Rock is created in the conditions of
Karnataka, Tamil Nadu, Andhra Pradesh, Rajasthan, Madhya Pradesh, Orissa, and Uttar
Pradesh.

34
Rajasthan's share in Indian Stone production

35
 INDUSTRY AND COMPANY PROFILE

UltraTech Cement Limited has an annual capacity of 19.2 million tonnes. It manufactures
and markets Ordinary Portland Cement, Portland Blast Furnace Slag Cement and Portland
Pozzalana Cement. It also manufactures ready mix concrete (RMC).
UltraTech Cement Limited has five integrated plants, six grinding units and three
terminals — two in India and one in Sri Lanka.

UltraTech Cement is the country’s largest exporter of cement clinker. The export markets span
countries around the Indian Ocean, Africa, Europe and the Middle East.

UltraTech’s subsidiaries are Dakshin Cement Limited and UltraTech Ceylinco (P) Limited.
Details of UltraTech's production capacities
Location of units Capacity
A Composite plants 19.2 million tpa
Tadipatri (Andhra Pradesh)
Hirmi (Chhattisgarh)
Jafrabad (Gujarat)
Kovaya (Gujarat)
Awarpur (Maharashtra)
B Grinding units
Magdalla(Gujarat)
Ginigera (Karnataka)
Ratnagiri (Maharashtra)
Jharsuguda (Orissa)
Arakkonam (Tamil Nadu)
Durgapur (West Bengal)

36
 C Bulk terminals
Navi Mumbai (Maharashtra)
Mangalore (Karnataka)
Colombo (Sri Lanka)

As part of the eighth biggest cement manufacturer in the world, UltraTech Cement has
five integrated plants, five grinding units as well as three terminals of its own (one Cements, in
Colombo, Sri Lanka). These facilities gradually came up over the years, as

indicated below:
2022
:: Narmada Cement Company Limited amalgamated with UltraTech pursuant to a Scheme of
Amalgamation being approved by the Board for Industrial & Financial Reconstruction
(BIFR) in terms of the provision of Sick Industrial Companies Act (Special Provisions)
2019
:: Completion of the implementation process to demerge the cement business of L&T and
completion of open offer by Grasim, with the latter acquiring controlling stake in the newly
formed company UltraTech
2017
:: The board of Larsen & Toubro Ltd (L&T) decides to demerge its cement business into a
separate cement company (CemCo). Grasim decides to acquire an 8.5 per cent equity stake
from L&T and then make an open offer for 30 per cent of the equity of CemCo, to acquire
management control of the company.
2016
:: The Grasim Board approves an open offer for purchase of up to 20 per cent of the equity
shares of Larsen & Toubro Ltd (L&T), in accordance with the provisions and guidelines
issued by the Securities & Exchange Board of India (SEBI) Regulations, 1997.
:: Grasim increases its stake in L&T to 19.18 per cent
:: Arakkonam grinding unit
2005
:: Grasim acquires 15 per cent stake in L&T. Subsequently increases stake to 18.3 per cent by
October 2003

37
:: Durgapur grinding unit
1998-2001
:: Bulk cement terminals at Mangalore, Navi Mumbai and Colombo
2000
:: Narmada Cement Company Limited acquired
:: Ratnagiri Cement Works
1998
:: Gujarat Cement Works Plant II
:: Andhra Pradesh Cement Works
1996
:: Gujarat Cement Works Plant I
1994
:: Hirmi Cement Works
1993
:: Jharsuguda grinding unit
1987
Awarpur Cement Works Plant II
::

1983
:: Awarpur Cement Works Plant I

38
Board of Directors
:: Mr. Kumar Mangalam Birla, Chairman
:: Mrs. Rajashree Birla
:: Mr. R. C. Bhargava
:: Mr. G. M. Dave
:: Mr. N. J. Jhaveri
:: Mr. S. B. Mathur
:: Mr. V. T. Moorthy
:: Mr. O. P. Puranmalka
:: Mr. S. Rajgopal
:: Mr. D. D. Rathi
:: Mr. S. Misra, Managing Director
Executive President & Chief Financial Officer
:: Mr. K. C. Birla
Chief Manufacturing Officer
:: R.K. Shah
Chief Marketing Officer
:: Mr. O. P. Puranmalka
Company Secretary
:: Mr. S. K. Chatterjee

UltraTech is India's largest exporter of cement clinker. The company's production facilities are
spread across five integrated plants, five grinding units, and three terminals — two in India and
one in Sri Lanka. All the plants have ISO 9001 certification, and all but one have ISO 19001
certification. While two of the plants have already received OHSAS 19001 certification, the
process is underway for the remaining three. The company exports over 2.5 million tonnes per
annum, which is about 30 per cent of the country's total exports. The export market comprises of
countries around the Indian Ocean, Africa, Europe and the Middle East. Export is a thrust area in
the company's strategy for growth.

39
Ordinary Portland cement

Portland blast furnace slag cement

 Portland Pozzolana cement

 Cement to European and Sri Lankan norms

Ordinary Portland cement

Ordinary portland cement is the most commonly used cement for a wide range of applications.
These applications cover dry-lean mixes, general-purpose ready-mixes, and even high strength
pre-cast and pre-stressed concrete.

Portland blast furnace slag cement

Portland blast-furnace slag cement contains up to 70 per cent of finely ground, granulated blast-
furnace slag, a nonmetallic product consisting essentially of silicates and alumino-silicates of
calcium. Slag brings with it the advantage of the energy invested in the slag making. Grinding
slag for cement replacement takes only 25 per cent of the energy needed to manufacture portland
cement. Using slag cement to replace a portion of portland cement in a concrete mixture is a
useful method to make concrete better and more consistent. Portland blast-furnace slag cement
has a lighter colour, better concrete workability, easier finishability, higher compressive and
flexural strength, lower permeability, improved resistance to aggressive chemicals and more
consistent plastic and hardened consistency.

Portland Pozzolana cement

Portland pozzolana cement is ordinary portland cement blended with pozzolanic materials
(power-station fly ash, burnt clays, ash from burnt plant material or silicious earths), either
together or separately. Portland clinker is ground with gypsum and pozzolanic materials which,
though they do not have cementing properties in themselves, combine chemically with portland
cement in the presence of water to form extra strong cementing material which resists wet
cracking, thermal cracking and has a high degree of cohesion and workability in concrete and
mortar.

40
Theoretical Aspects
CAPITAL STRUCTURE DEFINED:
The assets of a company can be financed either by increasing the owners claim or the
creditors claim. The owners claims increase when the form raises funds by issuing ordinary
shares or by retaining the earnings, the creditors claims increase by borrowing .The various
means of financing represents the “financial structure” of an enterprise .The financial structure of
an enterprise is shown by the left hand side (liabilities plus equity) of the balance sheet.
Traditionally, short-term borrowings are excluded from the list of methods of financing the
firm’s capital expenditure, and therefore, the long term claims are said to form the capital
structure of the enterprise .The capital structure is used to represent the proportionate relationship
between debt and equity .Equity includes paid-up share capital, share premium and reserves and
surplus.
The financing or capital structure decision is a significant managerial decision .It
influences the shareholders returns and risk consequently; the market value of share may be
affected by the capital structure decision. The company will have to plan its capital structure
initially at the time of its promotion.
FACTORS AFFECTING THE CAPITAL STRUCTURE:
 Leverage: The use of fixed charges of funds such as preference shares, debentures and
term-loans along with equity capital structure is described as financial leverage or trading
on. Equity. The term trading on equity is used because for raising debt.
 Debt /Equity Ratio-Financial institutions while sanctioning long-term loans insists that
companies should generally have a debt –equity ratio of 2:1 for medium and large scale
industries and 3:1 indicates that for every unit of equity the company has, it can raise 2
units of debt. The debt-equity ratio indicates the relative proportions of capital
contribution by creditors and shareholders.
 Ebit-Eps Analysis-In our research for an appropriate capital structure we need to
understand how sensitive is EPS (earnings per share) to change in EBIT (earnings before
interest and taxes) under different financing alternatives.
 The other factors that should be considered whenever a capital structure decision is taken
are
 Cost of capital
 Cash flow projections of the company
 Size of the company
 Dilution of control
41
  Floatation costs

FEATURES OF AN OPTIMAL CAPITAL STRUCTURE:

An optimal capital structure should have the following features,

 PROFITABILITY: - The Company should make maximum use of leverages at a minimum

cost.
 FLEXIBILITY: - The capital structure should be flexible to be able to meet the changing
conditions .The company should be able to raise funds whenever the need arises and
costly to continue with particular sources.
 CONTROL: - The capital structure should involve minimum dilution of control of the
company.
 SOLVENCY: - The use of excessive debt threatens the solvency of the company. In a high
interest rate environment, Indian companies are beginning to realize the advantage of low
debt.

CAPITAL STRUCTURE AND FIRM VALUE:

Since the objective of financial management is to maximize shareholders wealth, the key
issue is: what is the relationship between capital structure and firm value? Alternatively, what is
the relationship between capital structure and cost of capital? Remember that valuation and cost
of capital are inversely related. Given a certain level of earnings, the value of the firm is
maximized when the cost of capital is minimized and vice versa.

There are different views on how capital structure influences value. Some argue that there
is no relationship what so ever between capital structure and firm value; other believe that
financial leverage (i.e., the use of debt capital) has a positive effect on firm value up to a point
and negative effect thereafter; still others contend that, other things being equal, greater the
leverage, greater the value of the firm.

42
CAPITAL STRUCTURE DIAGRAM
The Capital Structure Decision Process

EMBED PBrush

43
44
CAPITAL STRUCTURE AND PLANNING:
Capital structure refers to the mix of long-term sources of funds. Such as debentures,
long-term debt, preference share capital including reserves and surplus (i.e., retained earnings)
The board of directors or the chief financial officer (CEO) of a company should develop an
appropriate capital structure, which are most factors to the company. This can be done only when
all those factors which are relevant to the company’s capital structure decision are properly
analysed and balanced. The capital structure should be planned generally keeping in view the
interests of the equity shareholders, being the owners of the company and the providers of risk
capital (equity) would be concerned about the ways of financing a company’s operations.
However, the interests of other groups, such as employees, customers, creditors, society and
government, should also be given reasonable consideration. When the company lays down its
objective in terms of the shareholder’s wealth maximization (SWM), it is generally compatible
with the interests of other groups. Thus while developing an appropriate capital structure for its
company, the financial manager should inter alia aim at maximizing the long-term market price
per share. Theoretically, there may be a precise point or range within an industry there may be a
range of an appropriate capital structure with in which there would not be great differences in the
market value per share. One way to get an idea of this range is to observe the capital structure
patterns of companies’ vis-à-vis their market prices of shares. It may be found empirically that
there are not significant differences in the share values within a given range. The management of
a company may fix its capital structure near the top of this range in order to make maximum use
of favorable leverage, subject to other requirements such as flexibility, solvency, control and
norms set by the financial institutions, the security exchange Board of India (SEBI) and stock
exchanges.

FEATURES OF AN APPROPRIATE CAPITAL STRUCTURE: -

The board of Director or the chief financial officer (CEO) of a company should develop
an appropriate capital structure, which is most advantageous to the company. This can be done
only when all those factors, which are relevant to the company’s capital structure decision, are
properly analyzed and balanced. The capital structure should be planned generally keeping in
view the interest of the equity shareholders and financial requirements of the company. The
equity shareholders being the shareholders of the company and the providers of the risk capital
(equity) would be concerned about the ways of financing a company’s operation. However, the
interests of the other groups, such as employees, customer, creditors, and government, should

45
also be given reasonable consideration. When the company lay down its objectives in terms of
the shareholders wealth maximizing (SWM), it is generally compatible with the interest of the
other groups. Thus, while developing an appropriate capital structure for it company, the
financial manager should inter alia aim at maximizing the long-term market price per share.
Theoretically there may be a precise point of range with in which the market value per share is
maximum. In practice for most companies with in an industry there may be a range of
appropriate capital structure with in which there would not be great differences in the market
value per share. One way to get an idea of this range is to observe the capital structure patterns of
companies’ Vis-a Vis their market prices of shares. It may be found empirically that there is no
significance in the differences in the share value with in a given range. The management of the
company may fit its capital structure near the top of its range in order to make of maximum use
of favorable leverage, subject to other requirement (SEBI) and stock exchanges.

A Sound Or Appropriate Capital Structure should Have The Following Features

 RETURN: the capital structure of the company should be most advantageous, subject to
the other considerations; it should generate maximum returns to the shareholders without
adding additional cost to them.
 RISK: the use of excessive debt threatens the solvency of the company. To the point debt
does not add significant risk it should be used other wise it uses should be avoided.
 FLEXIBILITY: the capital structure should be flexibility. It should be possible to the
company adopt its capital structure and cost and delay, if warranted by a changed
situation. It should also be possible for a company to provide funds whenever needed to
finance its profitable activities.
 CAPACITY: - The capital structure should be determined within the debt capacity of the
company and this capacity should not be exceeded. The debt capacity of the company
depends on its ability to generate future cash flows. It should have enough cash flows to
pay creditors, fixed charges and principal sum.
 CONTROL: The capital structure should involve minimum risk of loss of control of the
company. The owner of the closely held company’s of particularly concerned about
dilution of the control.

APPROACHES TO ESTABLISH APPROPRIATE CAPITAL STRUCTURE:

46
 The capital structure will be planned initially when a company is incorporated.The initial
capital structure should be designed very carefully. The management of the company should set a
target capital structure and the subsequent financing decision should be made with the a view to
achieve the target capital structure .The financial manager has also to deal with an existing capital
structure .The company needs funds to finance its activities continuously. Every time when fund
shave to be procured, the financial manager weighs the pros and cons of various sources of finance
and selects the most advantageous sources keeping in the view the target capital structure. Thus,
the capital structure decision is a continues one and has to be taken whenever a firm needs
additional Finances.

The following are the three most important approaches to decide about a firm’s capital
structure.

 EBIT-EPS approach for analyzing the impact of debt on EPS.

 Valuation approach for determining the impact of debt on the shareholder’s value.

 Cash flow approached for analyzing the firm’s ability to service debt.

 In addition to these approaches governing the capital structure decisions, many other factors
such as control, flexibility, or marketability are also considered in practice.

EBIT-EPS APPROACH:

We shall emphasize some of the main conclusions here .The use of fixed cost sources of
finance, such as debt and preference share capital to finance the assets of the company, is know as
financial leverage or trading on equity. If the assets financed with the use of debt yield a return
greater than the cost of debt, the earnings per share also increases without an increase in the
owner’s investment. The earnings per share also increase when the preference share capital is used
to acquire the assets. But the leverage impact is more pronounced in case of debt because

 The cost of debt is usually lower than the cost of performance share capital and

 The interest paired on debt is tax deductible.

Because of its effect on the earnings per share, financial leverage is an important
consideration in planning the capital structure of a company. The companies with high level of the
earnings before interest and taxes (EBIT) can make profitable use of the high degree of leverage to

47
increase return on the shareholder’s equity. One common method of examining the impact of
leverage is to analyze the relation ship between EPS and various possible levels of EBIT under
alternative methods of financing.

The EBIT-EPS analysis is an important tool in the hands of financial manager to get an insight into
the firm’s capital structure management .He can considered the possible fluctuations in EBIT and
examine their impact on EPS under different financial plans of the probability of earning a rate of
return on the firm’s assets less than the cost of debt is insignificant, a large amount of debt can be
used by the firm to increase the earning for share. This may have a favorable effect on the market
value per share. On the other hand, if the probability of earning a rate of return on the firm’s assets
less than the cost of debt is very high, the firm should refrain from employing debt capital .it may,
thus, be concluded that the greater the level of EBIT and lower the probability of down word
fluctuation, the more beneficial it is to employ debt in the capital structure However, it should be
realized that the EBIT EPS is a first step in deciding about a firm’s capital structure .It suffers from
certain limitations and doesn’t provide unambiguous guide in determining the capital structure of a
firm in practice.

RATIO ANALYSIS: -
The primary user of financial statements are evaluating part performance and predicting
future performance and both of these are facilitated by comparison. Therefore the focus of
financial analysis is always on the crucial information contained in the financial statements. This
depends on the objectives and purpose of such analysis. The purpose of evaluating such financial
statement is different form person to person depending on its relationship. In other words even
though the business unit itself and shareholders, debenture holders, investors etc. all under take
the financial analysis differs. For example, trade creditors may be interested primarily in the
liquidity of a firm because the ability of the business unit to play their claims is best judged by
means of a through analysis of its l9iquidity. The shareholders and the potential investors may be
interested in the present and the future earnings per share, the stability of such earnings and
comparison of these earnings with other units in thee industry. Similarly the debenture holders
and financial institutions lending long-term loans maybe concerned with the cash flow ability of
the business unit to pay back the debts in the long run. The management of business unit, it
contrast, looks to the financial statements from various angles. These statements are required not
only for the management’s own evaluation and decision making but also for internal control and
overall performance of the firm. Thus the scope extent and means of any financial analysis vary

48
as per the specific needs of the analyst. Financial statement analysis is a part of the larger
information processing system, which forms the very basis of any “decision making” process.
The financial analyst always needs certain yardsticks to evaluate the efficiency and
performance of business unit. The one of the most frequently used yardsticks is ratio analysis.
Ratio analysis involves the use of various methods for calculating and interpreting financial
ratios to assess the performance and status of the business unit. It is a tool of financial analysis,
which studies the numerical or quantitative relationship between with other variable and such
ratio value is compared with standard or norms in order to highlight the deviations made from
those standards/norms. In other words, ratios are relative figures reflecting the relationship
between variables and enable the analysts to draw conclusions regarding the financial operations.
However, it must be noted that ratio analysis merely highlights the potential areas of
concern or areas needing immediate attention but it does not come out with the conclusion as
regards causes of such deviations from the norms. For instance, ABC Ltd. Introduced the concept
of ratio analysis by calculating the variety of ratios and comparing the same with norms based on
industry averages. While comparing the inventory ratio was 22.6 as compared to industry
average turnover ratio of 16.2. However on closer sell tiny due to large variation from the norms,
it was found that the business unit’s inventory level during the year was kept at extremely low
level. This resulted in numerous production held sales and lower profits. In other words, what
was initially looking like an extremely efficient inventory management, turned out to be a
problem area with the help of ratio analysis? As a matter of caution, it must however be added
that a single ration or two cannot generally provide that necessary details so as to analyze the
overall performance of the business unit.In order to arrive at the reasonable conclusion regarding
overall performance of the business unit, an analysis of the entire group of ratio is required.
Some times large variations are due to unreliability of financial data or inaccuracies contained
there in therefore before taking any decision the basis of ration analysis, their reliability must be
ensured. Similarly, while doing the inter-firm comparison, the variations may be due to different
technologies or degree of risk in those units or items to be examined are in fact the comparable
only. It must be mentioned here that if ratios are used to evaluate operating performance, these
should exclude extra ordinary items because there are regarded as non-recurring items that do not
reflect normal performance.
Ratio analysis is the systematic process of determining and interpreting the numerical
relationship various pairs of items derived form the financial statements of a business. Absolute
figures do not convey much tangible meaning and is not meaningful while comparing the
performance of one business with the other.
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 It is very important that the base (or denominator) selected for each ratio is
relevant with the numerator. The two must be such that one is closely connected and is
influenced by the other
CAPITAL STRUCTURE RATIOS
Capital structure or leverage ratios are used to analyse the long-term solvency or stability
of a particular business unit. The short-term creditors are interested in current financial position
and use liquidity ratios. The long-term creditors world judge the soundness of a business on the
basis of the long-term financial strength measured in terms of its ability to pay the interest
regularly as well as repay the installment on due dates. This long-term solvency can be judged by
using leverage or structural ratios.
There are two aspects of the long-term solvency of a firm:-
 Ability to repay the principal when due, and
 Regular payment of interest, there are thus two different but mutually dependent and
interrelated types of leverage ratio such as:

Ratios based on the relationship between borrowed funds and owner’s capital, computed
form balance sheet eg: debt-equity ratio, dividend coverage ratio, debt service coverage ratio
etc.,

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 CHAPTER IV
DATA ANYALYSIS AND
INTERPRITATION

DATA ANYALYSIS AND INTERPRITATION

NON DISCOUNTING CASH FLOWCRITERIA

(a) PAY BACK PERIOD (PBP):- (Rs in lakhs_)

The compensation back period (PB) is one of the most outstanding and thoroughly observed
standard techniques for studying speculation suggestion. Benefits is the measure of years need
to recoup the fundamental money cost put resources into an undertaking.

51
within the event that the project produces constant every year cash inflows, the reimbursement
returned period can be set up by means of separating cash price by using the every year money
in the stream.

C0 : primary Investment

C : yearly Cash in flow

In case of unequal cash inflows, the pay returned period may be determined out by means of
including up the cash inflows until the entire is equal to the initial cash outlay.

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 PAY BACK PERIOD

Initial outlay = 254955806.95 (lakhs)

254955806.95-210145700.60

Pay back period = 4+

151462214.00

44810106.35

4+
151462214.00

= 4 + 0.296

= 4.30 Months

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Criteria for evaluation:

The compensation back length processed for a task isn't always precisely the reimbursement

returned period set by the board of the business enterprise, it might be acknowledged. An

undertaking actual compensation lower back period is greater than the determined duration via

the administration, it'll be dismissed. the usual restitution time frame is about by way of Emar

social coverage LTD for thinking about the improvement venture is six years, wherein a real

payback period is four.30 months. Hence we take delivery of the assignment

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AVERAGE OR ACCOUNTING RATE OF RETURN

55
56
 Criteria for evaluation:
in line with this system, ARR is lower than the least tempo of return set by way of the agency are
diagnosed. The errand is having dissatisfactory ARR so the employer needs to reject the
endeavor.
Decision:

The standard Average Rate of Return set by Ultratech Cements Ltd the board is 21%. The
genuine ARR is 20.00% is lower than the standard ARR set by the organization; subsequently,
we reject the endeavor in light of the fact that the pace of return of the endeavor is lower than
the standard.

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DISCOUNTING CASH FLOW CRITERIA:

(a) Net Present Value:- Rs in lakhs

The NPV present well worth (NPV) approach is the awesome financial approach for assessing
the undertaking recommendations. in the occasion that may be a DCF approach that expressly
perceives the time an incentive at numerous timespans evaluation in esteem and is tantamount
simply when their gear present qualities are determined.

( o r )

nCi
N P V = ---------- -C0
i=0 (1+k) i

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NET PRESENT VALUE

NPV = 236792947.34 - 254955806 95

= -18162859.61

Criteria for evaluation:

If there should be an occurrence of determined NPV is certain or zero, the undertaking ought to
be acknowledged. On the off chance that the determined NPV is negative, the venture is
dismissed.
Decision:

The Net Present Value of Ultratech Cements Ltd is Positive. So the project should be accepted

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(b) INTERNAL RATE OF RETURN: Rs in lakhs

The internal pace of return (IRR) system is another constrained salary strategy which
evaluates the size and thing of wages, various terms used to portray the IRR procedure are
yield on a theory, minor adequacy of capital, pace of return over cost, time-adjusted pace of
internal return and soon.
i=0 CfiSV+WC

NPV=
 (1+k) i (1+k) n

(or)

IRR = L A + (H-L)
(A-B)

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 INTERNAL RATE OF RETURN

IRR = 12 + 236792947.34-254955806.95 x (12-14)

236792947.34-222028074.10

-18162859.61

= 12 + x2

14764873.24

= 12 + (-1.23* -2)

= 12 + 2.46

= 14.46

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 Criteria for evaluation:

Right now venture is acknowledged when IRR is higher than its expense of capital or cut out rate.
In the event that the venture isn't acknowledged when the IRR is not as much as cost of capital..
Decision:
The venture is acknowledged due to the estimation IRR is higher than its expense of capital.
The expense of capital fixed by the executives is 10%; the genuine is more than its standard.
Consequently, the undertaking is acknowledged.

(C) PROFITABILITY INDEX:

One more time-balanced technique for assessing the speculation proposition is the advantage
cost (B/C.) proportion or gainfulness file (PI) Profitability Index is the proportion of the
present esteemed of money inflows, at the necessary pace of return, to the underlying
money out progression of the speculation.

PV of cash inflow
PI=
Initial Cash outlay

Where PV: Present Value

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 PROFITABILITY INDEX

= 307637088.95

254955806.95

= 1.21

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Criteria for evaluation:

A project can be accepted if its Profitability Index is greater than one. If the PI is less than one we should
reject the project.
P.I> 1= Accepted
P.I < 1= Rejected
P.I = 1= Indifferent

Decision:

Profitability index of proposed expansion project is found our 1.21 this is more than the cash
outflow. Hence we accept the project

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 FINDINGS

1. From the appraisal, it was seen that the pay period is 4.3 years, in any case, the standard
compensation back period by Ultratech Cements Ltd is 6 years. The real prize time range is
lower than the standard set by the affiliation the heap up considering excellent yield from the
undertaking comparatively as higher money inflows during the fundamental broadened lengths
of capital theory period

2. The assessment results uncover that the Average pace of return is fixed by the Emar
helpful organizations Ltd 21%. Regardless, the authentic ARR is 20.00%. The authentic ARR
is lower than Emar therapeutic organizations Ltd. Since the capital hypothesis required is low
undertaking required is exceptionally low speculation, by Ultratech Cements Ltd.

3. It was seen that the attestation rule of net present a propelling power during the hour of
study an undertaking is perceived whether the Net Present Value is certain. The undertaking
NPV is - 18162859.61 (lakhs) for a capital usage of 254955806.95.

4. It was seen that the endeavor hypothesis yields an inside pace of return of 12%. For the
hour of study, which is more than it's Cost of capital of 14%

5. It was seen that the preferred position record of the proposed headway experience is
multiple. Because of the positive NPV. Then the task can be perceived. While P.I is 1.21 lines
that are for each One rupee contributed is the task yields 1.21 rupees

6. The assessment needs found that at the proposal the affiliation utilizing the
remuneration timespan method for reviewing its capital as masterminding recommendation.

65
SUGGESTIONS

1. From the evaluation, it has been prescribed that the affiliation needs to keep up the
Payback period as if it is prevailing at present ten the certifiable PBP isn't really the standard
PBP. So the undertaking is to be perceived.

2. From the evaluation, it has been suggested that the affiliation has it kept up the Average
pace of return everything considered in the current condition. As the authentic ARR isn't
really the standard ARR so the endeavor is to be perceived.

3. It has been recommended that the affiliation needs to kept up positive NPV respect. As
the NPV is sure the undertaking is to be perceived.

4. It has been prescribed that the affiliation needs to keep up the IRR as it is the current
condition while figuring the IRR the expense of capital is taken into thought on the bases of
the weighted customary expense of capital.

5. It has been endorsed that the affiliation needs to keep up the PI for what it's worth in the
current circumstance. As the PI is more than 1 considering the Positive the undertaking can be
perceived.

6. It has been embraced to get a handle on the DCF based CBDT for the recommendation
of assessing its capital hypothesis proposition options.

1. The chose compensation period is 4.30 years. In any case, the standard pay period was
6 years by Ultratech Cements ltd the board.

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 CONCLUSION

Taking into account the assessment in Ultratech Cements Ltd there is gauging adventure pay
incorporates different evaluations and various individuals and workplaces participate at this
moment. The activity of the reserved executive in to sort out the undertakings of various
divisions and get information from them, ensure that the guesses rely upon a great deal of
consistent money related doubts, keep to the action focused on appropriate factors and breaking
point the tendency is a trademark in pay gauging.

In the assessment, I understand that the association is following the payback period. Taking into
account the data shows that the association can use any criteria to get the return on the endeavor.

The assignment "A Study on Capital arranging' in Ultratech Cements Ltd, it is proposed to hold
the association is a comparable situation.

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 BIBILOGRAPHY

BOOKS:

FINANCIAL MANAGEMENT : I.M PANDEY

FINANCIAL MANAGEMENT : M.Y.KHAN&JAIN

WEBSITES

www.google.com

www.ask.com

www.ultratechcements.com

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