CHAPTER -1INTRODUCTION

1. INTRODUCTION

A Budget is a comprehensive plan of action which expressed in physical and financial terms. It is a blue print of the company's financial estimates for the future. Budgeting forms the most important part of the planning function. It's a system of planning and control covering all the segments of an organization and also giving a sense of direction to the goals and objectives of an organization. Budget constitutes the principal instrument for projecting the future cost revenues, which form an essential part of the management accounting and the foundation of an organization's financial control.

A budget system should be such that it becomes imperative for the management to establish goals and objectives, define policies, allocates resources, set targets, and try to take corrective action if there are any deviations. A management is said to be effective if it can accomplish the objectives efficiently with minimum amount of resources utilization.

In order to attain these set goals within a given set of constraints is a difficult job; hence with the help of a proper budget one can achieve the organization goals and objectives.

DEFINITION:

The term capital budgeting refers to "long term planning for proposed capital outlay and their financing. It includes raising long term funds and their utilization. It may be defined as a firms formal process of acquisition and investments of capital. It also defined as decision making process by which the firm evaluates the fixed assets.

CONCEPT OF BUDGET:

"A budget is a financial and quantitative statement. Prepared and approved prior to a defined period of time, of be pursued during that period for the purpose of attaining a given objective". It may include income, expenditure and the employment of capital". in other words, a budget is a systematic plan for the better utilization of man, machine, material and money. In a business organization a budget represents an estimate of the future cost and revenues.

ESSENTIAL FEATURES OF A BUDGET:

1. It's a written plan of activities for future period of time.

2. It is expressed in quantitative form, physical or monetary units or both.

3. It relates to the income and expenditure of individuals functions of the business.

4. It is prepared for a definite period of time, usually for one year.

5. It relates to future period for the objectives or goals have already been laid down.

6. It is prepared in advance and is derived from the long-term strategy of the organization.

OBJECTIVES OF A BUDGET:

Budget serve has a "Blue print" of the desired plan of action.

Budget helps in reduction of wastage and losses by revealing them in time for corrective action.

Budgets serve as means of communication. The organization communicates the policies and targets to the managers in the organization and all the responsible to carry out the plan.

Budget serves as the benchmark for the controlling ongoing operation.

Budgeting facilitate centralized control with delegated authority and responsibility.

Budgeting brings out the efficiency and improvement in the work of the organization as all the details are clearly spelled out.

The capital budgeting decisions are difficult to make because it involves the assessment of future events which are difficult to ascertain.SCOPE OF THE STUDYThe scope of the present study includes the following:

Understanding the importance of capital budgeting in MSN Laboratories. Evaluating an investment proposal of setting up facility at MSN Laboratories. for manufacturing NEW DRUG 30 for supplies directly from bulk units.

RESEARCH METHODOLOGYThe primary data needed for the project analysis has been collected through unstructured interviews and discussions conducted with the finance department. The secondary sources of data are annual reports, brochures and web resources. A case study approach has been used for the study of capital budgeting at MSN Laboratories.LIMITATIONS The study was conducted with the data available and analysis was made accordingly.

Due to the confidential financial records, the data is not exposed so the study may not be detailed and full fledged.

Since the study is based on the financial data that are obtained from the companys financial statements, the limitations of financial statements shall be equally applicable.

ASSUMPTIONSSales and operational levels have been assumed to evaluate the investment proposal of manufacturing NEW DRUG 30 in MSN Laboratories.

CAPITAL BUDGETTING PROCESS

The process of capital budgeting involves generally the following steps:-

1.INVESTMENT SCREENING AND SELECTION :

Project consistent with the corporate strategy are identified. But projects don't simply walk into corporate headquarters. he firm must have some system for seeking or generating investment opportunities. Identifying investment opportunities is not necessarily the task of the financial managers.

2.THE CAPITAL BUDGET PROPOSAL :

A capital budgeting is proposed for the project surviving the screening the and selection process. The budget lists the recommended projects and the rupee amount of investment needed for each. This proposal may start as an estimate of expected revenues and costs.

3.BUDGETING APPROVAL AND AUTHORIZATION:

Projects included in the capital budget are authorized, allowing further fact gathering and analysis, and approved, allowing expenditures for the projects, the projects are authorized and approved at the same time.

4.PROJECT TRACKING:

After a project is approved, work on it begins. The manager reports periodically on its expenditures, as well as on the any revenues associated with it. This is referred to as project tracking, the communication link between the decision makers and the operating management of the firm.

5.POST- COMPLETION AUDIT :

Following a period of time, perhaps two or three years after approval, project are reviewed to see whether they should be continued. This re-evaluation is referred to as a post- completion audit. Thorough post-completion audits are not usually performed on every project since that would be too time consuming

TYPES OF CAPITAL BUDGETING DECISIONS:

REPLACEMENT

DIVERSIFICATION

RESEARCH AND DEVELOPMENT

EXPANSION

MISCELLINIOUS TECHNIQUES OF CAPITAL BUDGETING:Non-discounted cash flow criteria

Discounted cash flow criteria

Payback period

Accounting rate of return

Net present value

Internal rate of return

profitability index

Discounted payback period

Net terminal value

TRADITIONAL/NON-DISCOUNTING TECHNIQUES:PAY BACK PERIOD:- The payback period is one of the most popular and widely recognized traditional methods of evaluation investment proposals. It is defined as the number of years required to recover the original cash outlay invested in a project. If the project generates constant annual cash flows, the payback periods can be computed by dividing cash outlay by the annual cash inflow.Payback period = Initial Investment / Annual cash inflow

AVERAGE/Accounting Rate of Return:-

The Accounting rate of return (ARR) is known as average rate of return and also return on investment (ROI). It is found out by dividing the average after tax profit by the average investment. The average investment would be equal to half of the original investment of it is depreciated constantly. Alternatively , it can be found out dividing the total of the investments book value after depreciation by the life of the project.

Accounting rate of return = Average income / Average investment

Average investment = Original investment - Scrap value / 2ACCEPTANCE RULE: This method will accept all those project whose ARR is higher than the minimum rate established by the management and reject those project which have ARR less than the minimum rate. This method would rank a project as number as project as number one of it has higher ARR and lowest rank would be assigned to the project with lowest ARR.Discounted cash flow criteria:PARIECULARS123N

Cash/revenue------------

(-) Cash operating------------

CIBT------------

(-) Depreciations------------

Taxable income------------

(-) Tax (EAT)------------

(+) Depreciations------------

CIAT------------

(+) Salvage value in Nth year------------

(+) Recovary of the W/C------------

NET PRESENT VALUE:- The net present value (NPV) method is the classic economic method of evaluating the investment proposals, It is method in which we can convert future cash profits to today's cash profit based on the interest rate is nothing but cost of capital or the inflation rate or the rate expected by the investors. If the rate of interest is not given, in India maximum return expected is 10% so find out the NPV at10% only. If the NPV is +ve, we will get projects. Accordingly accept/reject decision will be taken.

Net present value = (summation of present value of cash inflows in each year) (the summation of present values of the net present value of two mutually exclusive project X and Y.)NPV < 0 RejectNPV > 0 Accept

Net Present Value Decision Rule :

IfThis means thatAnd you

NPV>0The investment is expected to increase share holder wealth.Accept the project

NPV cost of capital

Reject - if IRR < cost of capitalINTERNAL RATE OF RETURN DECISION RULE:

The internal rate of return of decision rule is to invest in a project if it provides a return greater than the cost of capital. The cost of capital. The cost of capital. in the context of the IRR, is a hurdle rate the minimum acceptable rate of return,

Internal rate of return (IRR) is that rate which the discounted cash inflows match with discounted cash outflows.IRR DECISION TABLE :IfThis means thatAnd you

IRR>1The investment is expected to increase shareholder wealth.Accept project

IRR PVOs ACCEPT

PVTs < PVOs REJECTProfitability Index Decision Rule :

If This means thatAnd you

P1>1The investment return more than Rs. 1 p/v for every Rs.1 invested.Should accept the project

P11 (ACCEPT)

PI k

Reject if IRR < k

Project may be accepted if IRR = k

NPV>ZERO (accept)

NPV minimum rate

Reject if ARR < minimum rate

7025

_1298128058.xlsChart1

223.73

292.13

360.53

428.93

497.33

Sales

NPV

30 Tns for 5yrs

ARR1

(Rs in Mns)

AVERAGE RATE OF RETURN

Operation Level30 Tns per month

Sale price Rs per kg900850800750700

1Avg.income136.56118.56100.5682.5664.56

2Avg.investment10.810.810.810.810.8

700750800850900

ARR [(1/2)*100]1264109893176459859876493110981264

Interpretation:

The ARR more than the pre-specified rate of return is accepted. The company requires a rate of

return of 20%. Therefore, ARR of the project which is greater than 20% as specified by management

is accepted but most viable is at a price of Rs.900 with respect to quantity of 30 Tn per month or 360

Tns per annum.

ARR1

Sales

ARR

30 Tns

ARR2

(Rs in Mns)

AVERAGE RATE OF RETURN

Operation Level20 Tns per month

Sale price Rs per kg900850800750700

1Avg.income86.7674.7662.7650.7638.76

2Avg.investment10.810.810.810.810.8

ARR [(1/2)*100]803692581470359700750800850900

359470581692803

Interpretation:

The ARR more than the pre-specified rate of return is accepted. The company requires a rate of

return of 20%. Therefore, ARR of the project which is greater than 20% as specified by management

is accepted but most viable is at a price of Rs.900 with respect to quantity of 20 Tn per month or 240

Tns per annum.

ARR2

Sales

ARR

20 Tns

ARR3

(Rs in Mns)

AVERAGE RATE OF RETURN

Operation Level10 Tns per month

Sale price Rs per kg900850800750700

1Avg.income36.9630.9624.9618.9612.96

2Avg.investment10.810.810.810.810.8

700750800850900

ARR [(1/2)*100]342287231176120120176231287342

Interpretation:

The ARR more than the pre-specified rate of return is accepted. The company requires a rate of

return of 20%. Therefore, ARR of the project which is greater than 20% as specified by management

is accepted but most viable is at a price of Rs.900 with respect to quantity of 10 Tn per month or 120

Tns per annum.

ARR3

Sales

ARR

10 Tns

PBP1

(Rs in Mns)

COMPUTATION OF NET INCOME PER ANNUM

1Operation Level30Tn per month

2Sale Price Rs per Kg900850800750700

3RM Cost Rs per Kg485485485485485

4Sales Income ( 1 * 2 )27.0025.5024.0022.5021.00

5Variable Cost - RM Consumed ( 1*3 )14.5514.5514.5514.5514.55

6Contribution ( 4-5 )12.4510.959.457.956.45

7Other Fixed Costs ( Utilities, Labour ,and QC Costs )1.071.071.071.071.07

8Net Income ( 6-7 )11.389.888.386.885.38

9Total Net Income per annum ( 8* 12 months )136.56118.56100.5682.5664.56

10Investment21.6021.6021.6021.6021.60

(Rs in Mns)

PAYBACK PERIOD

Operation Level30 Tns per month

Sale price Rs per kg900850800750700

1Investment21.621.621.621.621.6

2Net Income136.56118.56100.5682.5664.56

Payback Period (1/2)0.160.180.210.260.33

700750800850900

0.330.260.210.180.16

Interpretation:

The payback period calculated for a project is to be compared with some predetermined target period and

payback period less than the target period is accepted. Therefore, target period is 3 years and project less

than that is accepted but the viable is at Rs.900 with respect to the quantity of 30 Tns per month or 360 Tns

per annum.

PBP1

Sales

PBP

30 Tns

PBP2

(Rs in Mns)

COMPUTATION OF NET INCOME PER ANNUM

1Operation Level20Tn per month

2Sale Price Rs per Kg900850800750700

3RM Cost Rs per Kg485485485485485

4Sales Income ( 1 * 2 )18.0017.0016.0015.0014.00

5Variable Cost - RM Consumed ( 1*3 )9.709.709.709.709.70

6Contribution ( 4-5 )8.307.306.305.304.30

7Other Fixed Costs ( Utilities, Labour ,and QC Costs )1.071.071.071.071.07

8Net Income ( 6-7 )7.236.235.234.233.23

9Total Net Income per anum ( 8* 12 months )86.7674.7662.7650.7638.76

10Investment21.6021.6021.6021.6021.60

(Rs in Mns)

PAYBACK PERIOD

Operation Level20 Tns per month

Sale price Rs per kg900850800750700

1Investment21.621.621.621.621.6

2Net Income86.7674.7662.7650.7638.76

Payback Period (1/2)0.250.290.340.430.56

700750800850900

0.560.430.340.290.25

Interpretation:

The payback period calculated for a project is to be compared with some predetermined target period and

payback period less than the target period is accepted. Therefore, target period is 3 years and project less

than that is accepted but the viable is at Rs.900 with respect to the quantity of 20Tns per month or 240Tns

per annum.

PBP2

Sales

PBP

20 Tns

PBP3

(Rs in Mns)

COMPUTATION OF NET INCOME PER ANNUM

1Operation Level10Tn per month

2Sale Price Rs per Kg900850800750700

3RM Cost Rs per Kg485485485485485

4Sales Income ( 1 * 2 )9.008.508.007.507.00

5Variable Cost - RM Consumed ( 1*3 )4.854.854.854.854.85

6Contribution ( 4-5 )4.153.653.152.652.15

7Other Fixed Costs ( Utilities, Labour ,and QC Costs )1.071.071.071.071.07

8Net Income ( 6-7 )3.082.582.081.581.08

9Total Net Income per anum ( 8* 12 months )36.9630.9624.9618.9612.96

10Investment21.6021.6021.6021.6021.60

(Rs in Mns)

PAYBACK PERIOD

Operation Level10 Tns per month

Sale price Rs per kg900850800750700

1Investment21.621.621.621.621.6

2Net Income36.9630.9624.9618.9612.96

Payback Period (1/2)0.580.700.871.141.67

700750800850900

1.671.140.870.70.58

Interpretation:

The payback period calculated for a project is to be compared with some predetermined target

period and payback period less than the target period is accepted. Therefore, target period is 3

years and project less than that is accepted but the viable is at Rs.900 with respect to the

quantity of 10 Tns per month or 120 Tns per annum.

PBP3

Sales

PBP

10 Tns

NPV1

(Rs in Mns)

Net Present Value of the Project Investment @ discounting rate of 9%

Operation Level30 Tns per month

Sale price Rs per kg900850800750700

1Project Life5 years5 Years5 Years5years5years

2Present Value factor @ 9%3.83.83.83.83.8

3Net Income136.56118.56100.5682.5664.56

4Present Value Net Income for Project Life(2*3)518.93450.53382.13313.73245.33

5Present Value of Investment21.6021.6021.6021.6021.60

Net Present Value of the project (4-5)497.33428.93360.53292.13223.73

700750800850900

223.73292.13360.53428.93497.33

Interpretation:

NPV shows present value of the project. The project is accepted if its NPV is positive and rejected if

NPV is negative. Therefore, NPV of 30 Tns per month or 360 per annum for project life of 5years is

showing positive and viable is at a price of Rs.900 where NPV is Rs.497.33 millions.

(Rs in Mns)

Net Present Value of the Project Investment @ discounting rate of 9%

Operation Level30 Tns per month

Sale price Rs per kg900850800750700

1Project Life10 years10 years10 years10 years10 years

2Present Value factor @ 9%6.176.176.176.176.17

3Net Income136.56118.56100.5682.5664.56

4Present Value Net Income for Project Life(2*3)842.58731.52620.46509.40398.34

5Present Value of Investment21.6021.6021.6021.6021.60

Net Present Value of the project (4-5)820.98709.92598.86487.80376.74700750800850900

376.74487.8598.86709.92820.98

Interpretation:

NPV shows present value of the project. The project is accepted if its NPV is positive and rejected if

NPV is negative. Therefore, NPV of 30 Tns per month or 360 Tns per annum for project life of 10years is

showing positive and viable is at a price of Rs.900 where NPV is Rs.820.98 millions.

NPV1

Sales

NPV

30 Tns for 5yrs

NPV2

Sales

NPV

30 Tns for 10yrs

NPV3

(Rs in Mns)

Net Present Value of the Project Investment @ discounting rate of 9%

Operation Level20Tn per month

Sale price Rs per kg900850800750700

1Project Life5 Years5 Years5 Years5years5years

2Present Value factor @ 9%3.83.83.83.83.8

3Net Income86.7674.7662.7650.7638.76

4Present value Net Income for Project Life(2*3)329.69284.09238.49192.89147.29

5Present Value of Investment21.6021.6021.6021.6021.60

Net Present Value of the project (4-5)308.09262.49216.89171.29125.69

700750800850900

125.69171.29216.89262.49308.09

Interpretation:

NPV shows present value of the project. The project is accepted if its NPV is positive and rejected if

NPV is negative. Therefore, NPV of 20 Tns per month or 240 per annum for project life of 5years is

showing positive and viable is at a price of Rs.900 where NPV is Rs.308.09 millions.

(Rs in Mns)

Net Present Value of the Project Investment @ discounting rate of 9%

Operation Level20 Tn per month

Sale price Rs per kg900850800750700

1Project Life10 years10 years10 years10 years10 years

2Present Value factor @ 9%6.176.176.176.176.17

3Net Income86.7674.7662.7650.7638.76

4Present Value Net Income for Project Life(2*3)535.31461.27387.23313.19239.15

5Present Value of Investment21.6021.6021.6021.6021.60

Net Present Value of the project (4-5)513.71439.67365.63291.59217.55

700750800850900

217.55291.59365.63439.67513.71

Interpretation:

NPV shows present value of the project. The project is accepted if its NPV is positive and rejected if

NPV is negative. Therefore, NPV of 20 Tns per month or 240 per annum for project life of 10years is

showing positive and viable is at a price of Rs.900 where NPV is Rs.513.71 millions.

NPV3

sales

NPV

20 Tns for 5yrs

IRR1

sales

NPV

20 Tns for 10yrs

IRR2

(Rs in Mns)

Net Present Value of the Project Investment @ discounting rate of 9%

Operation Level10Tn per month

Sale price Rs per kg900850800750700

1Project Life5 Years5 Years5 Years5years5years

2Present Value factor @ 9%3.83.83.83.83.8

3Net income36.9630.9624.9618.9612.96

4Present value Net Income for Project Life(2*3)140.45117.6594.8572.0549.25

5Present Value of Investment21.6021.6021.6021.6021.60

Net Present Value of the project (4-5)118.8596.0573.2550.4527.65

700750800850900

27.6550.4573.2596.05118.85

Interpretation:

NPV shows present value of the project. The project is accepted if its NPV is positive and rejected if

NPV is negative. Therefore, NPV of 10 Tns per month or 120 per annum for project life of 5years is

showing positive and viable is at a price of Rs.900 where NPV is Rs.118.85 millions.

(Rs in Mns)

Net Present Value of the Project Investment @ discounting rate of 9%

Operation Level10 Tn per month

Sale price Rs per kg900850800750700

1Project Life10 years10 years10 years10 years10 years

2Present Value factor @ 9%6.176.176.176.176.17

3Net Income36.9630.9624.9618.9612.96

4Present Value Net Income for Project Life(2*3)228.04191.02154.00116.9879.96

5Present Value of Investment21.621.621.621.621.6

Net Present Value of the project (4-5)206.44169.42132.4095.3858.36700750800850900

58.3695.38132.4169.42206.44

Interpretation:

NPV shows present value of the project. The project is accepted if its NPV is positive and rejected if

NPV is negative. Therefore, NPV of 10 Tns per month or 120 per annum for project life of 10years is

showing positive and viable is at a price of Rs.900 where NPV is Rs.206.44 millions.

IRR2

sales

NPV

10 Tns for 5yrs

IRR3

sales

NPV

10 Tns for 10yrs

PI1

(Rs in Mns)

INTERNAL RATE OF RETURN FOR 5 YEARS

Opertion Level30 Tn per month

Sale price Rs per kg900850800750700

Investment-21.60-21.6-21.6-21.6-21.6

Net Income per annum for 5years

1136.56118.56100.5682.5664.56

2136.56118.56100.5682.5664.56

3136.56118.56100.5682.5664.56700750800850900

4136.56118.56100.5682.5664.56299%382%465%549%632%

5136.56118.56100.5682.5664.56

IRR632%549%465%382%299%

Interpretation:

The project is accepted if IRR is more than the minimum rate which is 9% for this project. Thus, the

project at a sale price of Rs.900 is getting greater than 40% which is more than the minimum rate of

return of 9% at a quantity of 30 Tns per month or 360 Tns per annum for project life of 5years.

(Rs in Mns)

INTERNAL RATE OF RETURN FOR 10 YEARS

Operation Level30 Tn per month

Sale price Rs per kg900850800750700

Investment-21.6-21.6-21.6-21.6-21.6

Net Income per annum for 10years

1136.56118.56100.5682.5664.56

2136.56118.56100.5682.5664.56

3136.56118.56100.5682.5664.56

4136.56118.56100.5682.5664.56

5136.56118.56100.5682.5664.56

6136.56118.56100.5682.5664.56700750800850900

7136.56118.56100.5682.5664.56299%382%466%549%632%

8136.56118.56100.5682.5664.56

9136.56118.56100.5682.5664.56

10136.56118.56100.5682.5664.56

IRR632%549%466%382%299%

Interpretation:

The project is accepted if IRR is more than the minimum rate which is 9% for this project. Thus, the

project at a sale price of Rs.900 is getting greater than 40% which is more than the minimum rate of

return of 9% at a quantity of 30 Tns per month or 360 Tns per annum for project life of 10years.

PI1

sales

IRR

30 Tns for 5yrs

PI2

sales

NPV

30 Tns for 10yrs

PI3

(Rs in Mns)

INTERNAL RATE OF RETURN FOR 5 YEARS

Operation Level20 Tn per month

Sale price Rs per kg900850800750700

Investment-21.6-21.6-21.6-21.6-21.6

Net Income per annum for 5years

186.7674.7662.7650.7638.76

286.7674.7662.7650.7638.76

386.7674.7662.7650.7638.76

486.7674.7662.7650.7638.76

586.7674.7662.7650.7638.76700750800850900

IRR402%346%290%234%178%178%234%290%346%402%

Interpretation:

The project is accepted if IRR is more than the minimum rate which is 9% for this project. Thus, the

project at a sale price of Rs.900 is getting greater than 40% which is more than the minimum rate of

return of 9% at a quantity of 20 Tns per month or 240 Tns per annum for project life of 5years.

(Rs in Mns)

INTERNAL RATE OF RETURN FOR 10 YEARS

Operation Level20 Tn per month

Sale price Rs per kg900850800750700

Investment-21.6-21.6-21.6-21.6-21.6

Net Income per annum for 10years

186.7674.7662.7650.7638.76

286.7674.7662.7650.7638.76

386.7674.7662.7650.7638.76

486.7674.7662.7650.7638.76

586.7674.7662.7650.7638.76

686.7674.7662.7650.7638.76

786.7674.7662.7650.7638.76

886.7674.7662.7650.7638.76

986.7674.7662.7650.7638.76

1086.7674.7662.7650.7638.76700750800850900

IRR402%346%291%235%179%179%235%291%346%402%

Interpretation:

The project is accepted if IRR is more than the minimum rate which is 9% for this project. Thus, the

project at a sale price of Rs.900 is getting greater than 40% which is more than the minimum rate of

return of 9% at a quantity of 20 Tns per month or 240 Tns per annum for project life of 10years.

PI3

sales

IRR

20 Tns for 5yrs

sales

IRR

20 Tns for 10yrs

(Rs in Mns)

INTERNAL RATE OF RETURN FOR 5 YEARS

Operation Level10 Tn per month

Sale price Rs per kg900850800750700

Investment-21.6-21.6-21.6-21.6-21.6

Net Income per annum for 5years

136.9630.9624.9618.9612.96

236.9630.9624.9618.9612.96

336.9630.9624.9618.9612.96

436.9630.9624.9618.9612.96

536.9630.9624.9618.9612.96700750800850900

IRR170%142%113%84%53%53%84%113%142%170%

Interpretation:

The project is accepted if IRR is more than the minimum rate which is 9% for this project. Thus, the

project at a sale price of Rs.900 is getting greater than 40% which is more than the minimum rate of

return of 9% at a quantity of 10 Tns per month or 120 Tns per annum for project life of 5years.

(Rs in Mns)

INTERNAL RATE OF RETURN FOR 10 YEARS

Operation Level10 Tn per month

Sale price Rs per kg900850800750700

Investment-21.6-21.6-21.6-21.6-21.6

Net Income per annum for 10years

136.9630.9624.9618.9612.96

236.9630.9624.9618.9612.96

336.9630.9624.9618.9612.96

436.9630.9624.9618.9612.96

536.9630.9624.9618.9612.96

636.9630.9624.9618.9612.96

736.9630.9624.9618.9612.96

836.9630.9624.9618.9612.96

936.9630.9624.9618.9612.96700750800850900

1036.9630.9624.9618.9612.9659%88%116%143%171%

IRR171%143%116%88%59%

Interpretation:

The project is accepted if IRR is more than the minimum rate which is 9% for this project. Thus, the

project at a sale price of Rs.900 is getting greater than 40% which is more than the minimum rate of

return of 9% at a quantity of 10 Tns per month or 120 Tns per annum for project life of 10years.

sales

IRR

10 Tns for 5yrs

sales

IRR

10 Tns for 10yrs

(Rs in Mns)

PROFITABILITY INDEX FOR 5 YEARS

Operation Level30 Tn per month

Sale price Rs per kg900850800750700

1Project Life5 years5 years5 years5 years5 years

2Present Value of factor @ 9%3.83.83.83.83.8

3Net income136.56118.56100.5682.5664.56

4Present Value Net Income for Project Life (2*3)518.93450.53382.13313.73245.33

5Present Value of Investment21.621.621.621.621.6700750800850900

11.3614.5217.6920.8624.02

PI (4/5)24.0220.8617.6914.5211.36

Interpretation:

PI is 24.02 which is more than 1 and also NPV is positive hence the project is more viable at a sale

price of Rs.900 with respect to the quantity of 30 Tn per month or 360 per annum for a project life of

5years.

(Rs in Mns)

PROFITABILITY INDEX FOR 10 YEARS

Operation Level30 Tn per month

Sale price Rs per kg900850800750700

1Project Life10 years10 years10 years10 years10 years

2Present Value of factor @ 9%6.176.176.176.176.17

3Net Income136.56118.56100.5682.5664.56

4Present Value Net Income for Project Life(2*3)842.58731.52620.46509.40398.34

5Present Value of Investment21.621.621.621.621.6

700750800850900

PI (4/5)39.0133.8728.7223.5818.4418.4423.5828.7233.8739.01

Interpretation:

PI is 39.01 which is more than 1 and also NPV is positive hence the project is more viable at a sale

price of Rs.900 with respect to the quantity of 30 Tn per month or 360 per annum for a project life of

10years.

sales

PI

30 Tns for 4yrs

sales

PI

30 Tns for 10yrs

(Rs in Mns)

PROFITABILITY INDEX FOR 5 YEARS

Operation Level20 Tn per month

Sale price Rs per kg900850800750700

1Project Life5 years5 years5 years5 years5 years

2Present Value of factor @ 9%3.83.83.83.83.8

3Net Income86.7674.7662.7650.7638.76

4Present Value Net Income for Project Life (2*3)329.69284.09238.49192.89147.29

5Present Value of Investment21.621.621.621.621.6

700750800850900

PI (4/5)15.2613.1511.048.936.826.828.9311.0413.1515.26

Interpretation:

PI is 15.26 which is more than 1 and also NPV is positive hence the project is more viable at a sale

price of Rs.900 with respect to the quantity of 20 Tn per month or 240 per annum for a project life of

5years.

(Rs in Mns)

PROFITABILIY INDEX FOR 10 YEARS

Operation Level20 Tn per month

Sale price Rs per kg900850800750700

1Project Life10 years10 years10 years10 years10 years

2Present Value of factor @ 9%6.176.176.176.176.17

3Net Income86.7674.7662.7650.7638.76

4Present Value Net Income for Project Life (2*3)535.31461.27387.23313.19239.15

5Present Value Capital Employed in Fixed Assets21.621.621.621.621.6

700750800850900

PI (4/5)24.7821.3617.9314.5011.0711.0714.0517.9321.3624.78

Interpretation:

PI is 24.78 which is more than 1 and also NPV is positive hence the project is more viable at a sale

price of Rs.900 with respect to the quantity of 20 Tn per month or 240 per annum for a project life of

10years.

sales

PI

20 Tns for 5yrs

sales

PI

10 Tns for 10yrs

(Rs in Mns)

PROFITABILITY INDEX FOR 5 YEARS

Operation Level10 Tn per month

Sale price Rs per kg900850800750700

1Project Life5 years5 years5 years5 years5 years

2Present Value of factor @ 9%3.83.83.83.83.8

3Net Income36.9630.9624.9618.9612.96

4Present Value Net Income for Project Life (2*3)140.45117.6594.8572.0549.25

5Present Value of Investment21.621.621.621.621.6

PI (4/5)6.505.454.393.342.28700750800850900

2.283.344.395.456.5

Interpretation:

PI is 6.50 which is more than 1 and also NPV is positive hence the project is more viable at a sale

price of Rs.900 with respect to the quantity of 10 Tn per month or 120 per annum for a project life of

5years.

(Rs in Mns)

PROFITABILITY INDEX FOR 10 YEARS

Operation Level10 Tn per month

Sale price Rs per kg900850800750700

1Project Life10 years10 years10 years10 years10 years

2Present Value of factor @ 9%6.176.176.176.176.17

3Net Income36.9630.9624.9618.9612.96

4Present Value Net Income for Project Life (2*3)228.04191.02154.00116.9879.96

5Present Value of Investment21.621.621.621.621.6700750800850900

3.75.427.138.8410.56

PI (4/5)10.568.847.135.423.70

Interpretation:

PI is 10.56 which is more than 1 and also NPV is positive hence the project is more viable at a sale

price of Rs.900 with respect to the quantity of 10 Tn per month or 120 per annum for a project life of

10years.

sales

PI

10 Tns for 5yrs

sales

PI

10 Tns for 10yrs

_1298129207.xlsChart1

1.78

2.34

2.9

3.46

4.02

Sales

IRR

20 Tns for 5yrs

ARR1

(Rs in Mns)

AVERAGE RATE OF RETURN

Operation Level30 Tns per month

Sale price Rs per kg900850800750700

1Avg.income136.56118.56100.5682.5664.56

2Avg.investment10.810.810.810.810.8

700750800850900

ARR [(1/2)*100]1264109893176459859876493110981264

Interpretation:

The ARR more than the pre-specified rate of return is accepted. The company requires a rate of

return of 20%. Therefore, ARR of the project which is greater than 20% as specified by management

is accepted but most viable is at a price of Rs.900 with respect to quantity of 30 Tn per month or 360

Tns per annum.

ARR1

Sales

ARR

30 Tns

ARR2

(Rs in Mns)

AVERAGE RATE OF RETURN

Operation Level20 Tns per month

Sale price Rs per kg900850800750700

1Avg.income86.7674.7662.7650.7638.76

2Avg.investment10.810.810.810.810.8

ARR [(1/2)*100]803692581470359700750800850900

359470581692803

Interpretation:

The ARR more than the pre-specified rate of return is accepted. The company requires a rate of

return of 20%. Therefore, ARR of the project which is greater than 20% as specified by management

is accepted but most viable is at a price of Rs.900 with respect to quantity of 20 Tn per month or 240

Tns per annum.

ARR2

Sales

ARR

20 Tns

ARR3

(Rs in Mns)

AVERAGE RATE OF RETURN

Operation Level10 Tns per month

Sale price Rs per kg900850800750700

1Avg.income36.9630.9624.9618.9612.96

2Avg.investment10.810.810.810.810.8

700750800850900

ARR [(1/2)*100]342287231176120120176231287342

Interpretation:

The ARR more than the pre-specified rate of return is accepted. The company requires a rate of

return of 20%. Therefore, ARR of the project which is greater than 20% as specified by management

is accepted but most viable is at a price of Rs.900 with respect to quantity of 10 Tn per month or 120

Tns per annum.

ARR3

Sales

ARR

10 Tns

PBP1

(Rs in Mns)

COMPUTATION OF NET INCOME PER ANNUM

1Operation Level30Tn per month

2Sale Price Rs per Kg900850800750700

3RM Cost Rs per Kg485485485485485

4Sales Income ( 1 * 2 )27.0025.5024.0022.5021.00

5Variable Cost - RM Consumed ( 1*3 )14.5514.5514.5514.5514.55

6Contribution ( 4-5 )12.4510.959.457.956.45

7Other Fixed Costs ( Utilities, Labour ,and QC Costs )1.071.071.071.071.07

8Net Income ( 6-7 )11.389.888.386.885.38

9Total Net Income per annum ( 8* 12 months )136.56118.56100.5682.5664.56

10Investment21.6021.6021.6021.6021.60

(Rs in Mns)

PAYBACK PERIOD

Operation Level30 Tns per month

Sale price Rs per kg900850800750700

1Investment21.621.621.621.621.6

2Net Income136.56118.56100.5682.5664.56

Payback Period (1/2)0.160.180.210.260.33

700750800850900

0.330.260.210.180.16

Interpretation:

The payback period calculated for a project is to be compared with some predetermined target period and

payback period less than the target period is accepted. Therefore, target period is 3 years and project less

than that is accepted but the viable is at Rs.900 with respect to the quantity of 30 Tns per month or 360 Tns

per annum.

PBP1

Sales

PBP

30 Tns

PBP2

(Rs in Mns)

COMPUTATION OF NET INCOME PER ANNUM

1Operation Level20Tn per month

2Sale Price Rs per Kg900850800750700

3RM Cost Rs per Kg485485485485485

4Sales Income ( 1 * 2 )18.0017.0016.0015.0014.00

5Variable Cost - RM Consumed ( 1*3 )9.709.709.709.709.70

6Contribution ( 4-5 )8.307.306.305.304.30

7Other Fixed Costs ( Utilities, Labour ,and QC Costs )1.071.071.071.071.07

8Net Income ( 6-7 )7.236.235.234.233.23

9Total Net Income per anum ( 8* 12 months )86.7674.7662.7650.7638.76

10Investment21.6021.6021.6021.6021.60

(Rs in Mns)

PAYBACK PERIOD

Operation Level20 Tns per month

Sale price Rs per kg900850800750700

1Investment21.621.621.621.621.6

2Net Income86.7674.7662.7650.7638.76

Payback Period (1/2)0.250.290.340.430.56

700750800850900

0.560.430.340.290.25

Interpretation:

The payback period calculated for a project is to be compared with some predetermined target period and

payback period less than the target period is accepted. Therefore, target period is 3 years and project less

than that is accepted but the viable is at Rs.900 with respect to the quantity of 20Tns per month or 240Tns

per annum.

PBP2

Sales

PBP

20 Tns

PBP3

(Rs in Mns)

COMPUTATION OF NET INCOME PER ANNUM

1Operation Level10Tn per month

2Sale Price Rs per Kg900850800750700

3RM Cost Rs per Kg485485485485485

4Sales Income ( 1 * 2 )9.008.508.007.507.00

5Variable Cost - RM Consumed ( 1*3 )4.854.854.854.854.85

6Contribution ( 4-5 )4.153.653.152.652.15

7Other Fixed Costs ( Utilities, Labour ,and QC Costs )1.071.071.071.071.07

8Net Income ( 6-7 )3.082.582.081.581.08

9Total Net Income per anum ( 8* 12 months )36.9630.9624.9618.9612.96

10Investment21.6021.6021.6021.6021.60

(Rs in Mns)

PAYBACK PERIOD

Operation Level10 Tns per month

Sale price Rs per kg900850800750700

1Investment21.621.621.621.621.6

2Net Income36.9630.9624.9618.9612.96

Payback Period (1/2)0.580.700.871.141.67

700750800850900

1.671.140.870.70.58

Interpretation:

The payback period calculated for a project is to be compared with some predetermined target

period and payback period less than the target period is accepted. Therefore, target period is 3

years and project less than that is accepted but the viable is at Rs.900 with respect to the

quantity of 10 Tns per month or 120 Tns per annum.

PBP3

Sales

PBP

10 Tns

NPV1

(Rs in Mns)

Net Present Value of the Project Investment @ discounting rate of 9%

Operation Level30 Tns per month

Sale price Rs per kg900850800750700

1Project Life5 years5 Years5 Years5years5years

2Present Value factor @ 9%3.83.83.83.83.8

3Net Income136.56118.56100.5682.5664.56

4Present Value Net Income for Project Life(2*3)518.93450.53382.13313.73245.33

5Present Value of Investment21.6021.6021.6021.6021.60

Net Present Value of the project (4-5)497.33428.93360.53292.13223.73

700750800850900

223.73292.13360.53428.93497.33

Interpretation:

NPV shows present value of the project. The project is accepted if its NPV is positive and rejected if

NPV is negative. Therefore, NPV of 30 Tns per month or 360 per annum for project life of 5years is

showing positive and viable is at a price of Rs.900 where NPV is Rs.497.33 millions.

(Rs in Mns)

Net Present Value of the Project Investment @ discounting rate of 9%

Operation Level30 Tns per month

Sale price Rs per kg900850800750700

1Project Life10 years10 years10 years10 years10 years

2Present Value factor @ 9%6.176.176.176.176.17

3Net Income136.56118.56100.5682.5664.56

4Present Value Net Income for Project Life(2*3)842.58731.52620.46509.40398.34

5Present Value of Investment21.6021.6021.6021.6021.60

Net Present Value of the project (4-5)820.98709.92598.86487.80376.74700750800850900

376.74487.8598.86709.92820.98

Interpretation:

NPV shows present value of the project. The project is accepted if its NPV is positive and rejected if

NPV is negative. Therefore, NPV of 30 Tns per month or 360 Tns per annum for project life of 10years is

showing positive and viable is at a price of Rs.900 where NPV is Rs.820.98 millions.

NPV1

Sales

NPV

30 Tns for 5yrs

NPV2

Sales

NPV

30 Tns for 10yrs

NPV3

(Rs in Mns)

Net Present Value of the Project Investment @ discounting rate of 9%

Operation Level20Tn per month

Sale price Rs per kg900850800750700

1Project Life5 Years5 Years5 Years5years5years

2Present Value factor @ 9%3.83.83.83.83.8

3Net Income86.7674.7662.7650.7638.76

4Present value Net Income for Project Life(2*3)329.69284.09238.49192.89147.29

5Present Value of Investment21.6021.6021.6021.6021.60

Net Present Value of the project (4-5)308.09262.49216.89171.29125.69

700750800850900

125.69171.29216.89262.49308.09

Interpretation:

NPV shows present value of the project. The project is accepted if its NPV is positive and rejected if

NPV is negative. Therefore, NPV of 20 Tns per month or 240 per annum for project life of 5years is

showing positive and viable is at a price of Rs.900 where NPV is Rs.308.09 millions.

(Rs in Mns)

Net Present Value of the Project Investment @ discounting rate of 9%

Operation Level20 Tn per month

Sale price Rs per kg900850800750700

1Project Life10 years10 years10 years10 years10 years

2Present Value factor @ 9%6.176.176.176.176.17

3Net Income86.7674.7662.7650.7638.76

4Present Value Net Income for Project Life(2*3)535.31461.27387.23313.19239.15

5Present Value of Investment21.6021.6021.6021.6021.60

Net Present Value of the project (4-5)513.71439.67365.63291.59217.55

700750800850900

217.55291.59365.63439.67513.71

Interpretation:

NPV shows present value of the project. The project is accepted if its NPV is positive and rejected if

NPV is negative. Therefore, NPV of 20 Tns per month or 240 per annum for project life of 10years is

showing positive and viable is at a price of Rs.900 where NPV is Rs.513.71 millions.

NPV3

Sales

NPV

20 Tns for 5yrs

IRR1

Sales

NPV

20 Tns for 10yrs

IRR2

(Rs in Mns)

Net Present Value of the Project Investment @ discounting rate of 9%

Operation Level10Tn per month

Sale price Rs per kg900850800750700

1Project Life5 Years5 Years5 Years5years5years

2Present Value factor @ 9%3.83.83.83.83.8

3Net income36.9630.9624.9618.9612.96

4Present value Net Income for Project Life(2*3)140.45117.6594.8572.0549.25

5Present Value of Investment21.6021.6021.6021.6021.60

Net Present Value of the project (4-5)118.8596.0573.2550.4527.65

700750800850900

27.6550.4573.2596.05118.85

Interpretation:

NPV shows present value of the project. The project is accepted if its NPV is positive and rejected if

NPV is negative. Therefore, NPV of 10 Tns per month or 120 per annum for project life of 5years is

showing positive and viable is at a price of Rs.900 where NPV is Rs.118.85 millions.

(Rs in Mns)

Net Present Value of the Project Investment @ discounting rate of 9%

Operation Level10 Tn per month

Sale price Rs per kg900850800750700

1Project Life10 years10 years10 years10 years10 years

2Present Value factor @ 9%6.176.176.176.176.17

3Net Income36.9630.9624.9618.9612.96

4Present Value Net Income for Project Life(2*3)228.04191.02154.00116.9879.96

5Present Value of Investment21.621.621.621.621.6

Net Present Value of the project (4-5)206.44169.42132.4095.3858.36700750800850900

58.3695.38132.4169.42206.44

Interpretation:

NPV shows present value of the project. The project is accepted if its NPV is positive and rejected if

NPV is negative. Therefore, NPV of 10 Tns per month or 120 per annum for project life of 10years is

showing positive and viable is at a price of Rs.900 where NPV is Rs.206.44 millions.

IRR2

Sales

NPV

10 Tns for 5yrs

IRR3

Sales

NPV

10 Tns for 10yrs

PI1

(Rs in Mns)

INTERNAL RATE OF RETURN FOR 5 YEARS

Opertion Level30 Tn per month

Sale price Rs per kg900850800750700

Investment-21.60-21.6-21.6-21.6-21.6

Net Income per annum for 5years

1136.56118.56100.5682.5664.56

2136.56118.56100.5682.5664.56

3136.56118.56100.5682.5664.56700750800850900

4136.56118.56100.5682.5664.56299%382%465%549%632%

5136.56118.56100.5682.5664.56

IRR632%549%465%382%299%

Interpretation:

The project is accepted if IRR is more than the minimum rate which is 9% for this project. Thus, the

project at a sale price of Rs.900 is getting greater than 40% which is more than the minimum rate of

return of 9% at a quantity of 30 Tns per month or 360 Tns per annum for project life of 5years.

(Rs in Mns)

INTERNAL RATE OF RETURN FOR 10 YEARS

Operation Level30 Tn per month

Sale price Rs per kg900850800750700

Investment-21.6-21.6-21.6-21.6-21.6

Net Income per annum for 10years

1136.56118.56100.5682.5664.56

2136.56118.56100.5682.5664.56

3136.56118.56100.5682.5664.56

4136.56118.56100.5682.5664.56

5136.56118.56100.5682.5664.56

6136.56118.56100.5682.5664.56700750800850900

7136.56118.56100.5682.5664.56299%382%466%549%632%

8136.56118.56100.5682.5664.56

9136.56118.56100.5682.5664.56

10136.56118.56100.5682.5664.56

IRR632%549%466%382%299%

Interpretation:

The project is accepted if IRR is more than the minimum rate which is 9% for this project. Thus, the

project at a sale price of Rs.900 is getting greater than 40% which is more than the minimum rate of

return of 9% at a quantity of 30 Tns per month or 360 Tns per annum for project life of 10years.

PI1

Sales

IRR

30 Tns for 5yrs

PI2

Sales

NPV

30 Tns for 10yrs

PI3

(Rs in Mns)

INTERNAL RATE OF RETURN FOR 5 YEARS

Operation Level20 Tn per month

Sale price Rs per kg900850800750700

Investment-21.6-21.6-21.6-21.6-21.6

Net Income per annum for 5years

186.7674.7662.7650.7638.76

286.7674.7662.7650.7638.76

386.7674.7662.7650.7638.76

486.7674.7662.7650.7638.76

586.7674.7662.7650.7638.76700750800850900

IRR402%346%290%234%178%178%234%290%346%402%

Interpretation:

The project is accepted if IRR is more than the minimum rate which is 9% for this project. Thus, the

project at a sale price of Rs.900 is getting greater than 40% which is more than the minimum rate of

return of 9% at a quantity of 20 Tns per month or 240 Tns per annum for project life of 5years.

(Rs in Mns)

INTERNAL RATE OF RETURN FOR 10 YEARS

Operation Level20 Tn per month

Sale price Rs per kg900850800750700

Investment-21.6-21.6-21.6-21.6-21.6

Net Income per annum for 10years

186.7674.7662.7650.7638.76

286.7674.7662.7650.7638.76

386.7674.7662.7650.7638.76

486.7674.7662.7650.7638.76

586.7674.7662.7650.7638.76

686.7674.7662.7650.7638.76

786.7674.7662.7650.7638.76

886.7674.7662.7650.7638.76

986.7674.7662.7650.7638.76

1086.7674.7662.7650.7638.76700750800850900

IRR402%346%291%235%179%179%235%291%346%402%

Interpretation:

The project is accepted if IRR is more than the minimum rate which is 9% for this project. Thus, the

project at a sale price of Rs.900 is getting greater than 40% which is more than the minimum rate of

return of 9% at a quantity of 20 Tns per month or 240 Tns per annum for project life of 10years.

PI3

Sales

IRR

20 Tns for 5yrs

sales

IRR

20 Tns for 10yrs

(Rs in Mns)

INTERNAL RATE OF RETURN FOR 5 YEARS

Operation Level10 Tn per month

Sale price Rs per kg900850800750700

Investment-21.6-21.6-21.6-21.6-21.6

Net Income per annum for 5years

136.9630.9624.9618.9612.96

236.9630.9624.9618.9612.96

336.9630.9624.9618.9612.96

436.9630.9624.9618.9612.96

536.9630.9624.9618.9612.96700750800850900

IRR170%142%113%84%53%53%84%113%142%170%

Interpretation:

The project is accepted if IRR is more than the minimum rate which is 9% for this project. Thus, the

project at a sale price of Rs.900 is getting greater than 40% which is more than the minimum rate of

return of 9% at a quantity of 10 Tns per month or 120 Tns per annum for project life of 5years.

(Rs in Mns)

INTERNAL RATE OF RETURN FOR 10 YEARS

Operation Level10 Tn per month

Sale price Rs per kg900850800750700

Investment-21.6-21.6-21.6-21.6-21.6

Net Income per annum for 10years

136.9630.9624.9618.9612.96

236.9630.9624.9618.9612.96

336.9630.9624.9618.9612.96

436.9630.9624.9618.9612.96

536.9630.9624.9618.9612.96

636.9630.9624.9618.9612.96

736.9630.9624.9618.9612.96

836.9630.9624.9618.9612.96

936.9630.9624.9618.9612.96700750800850900

1036.9630.9624.9618.9612.9659%88%116%143%171%

IRR171%143%116%88%59%

Interpretation:

The project is accepted if IRR is more than the minimum rate which is 9% for this project. Thus, the

project at a sale price of Rs.900 is getting greater than 40% which is more than the minimum rate of

return of 9% at a quantity of 10 Tns per month or 120 Tns per annum for project life of 10years.

sales

IRR

10 Tns for 5yrs

sales

IRR

10 Tns for 10yrs

(Rs in Mns)

PROFITABILITY INDEX FOR 5 YEARS

Operation Level30 Tn per month

Sale price Rs per kg900850800750700

1Project Life5 years5 years5 years5 years5 years

2Present Value of factor @ 9%3.83.83.83.83.8

3Net income136.56118.56100.5682.5664.56

4Present Value Net Income for Project Life (2*3)518.93450.53382.13313.73245.33

5Present Value of Investment21.621.621.621.621.6700750800850900

11.3614.5217.6920.8624.02

PI (4/5)24.0220.8617.6914.5211.36

Interpretation:

PI is 24.02 which is more than 1 and also NPV is positive hence the project is more viable at a sale

price of Rs.900 with respect to the quantity of 30 Tn per month or 360 per annum for a project life of

5years.

(Rs in Mns)

PROFITABILITY INDEX FOR 10 YEARS

Operation Level30 Tn per month

Sale price Rs per kg900850800750700

1Project Life10 years10 years10 years10 years10 years

2Present Value of factor @ 9%6.176.176.176.176.17

3Net Income136.56118.56100.5682.5664.56

4Present Value Net Income for Project Life(2*3)842.58731.52620.46509.40398.34

5Present Value of Investment21.621.621.621.621.6

700750800850900

PI (4/5)39.0133.8728.7223.5818.4418.4423.5828.7233.8739.01

Interpretation:

PI is 39.01 which is more than 1 and also NPV is positive hence the project is more viable at a sale

price of Rs.900 with respect to the quantity of 30 Tn per month or 360 per annum for a project life of

10years.

sales

PI

30 Tns for 4yrs

sales

PI

30 Tns for 10yrs

(Rs in Mns)

PROFITABILITY INDEX FOR 5 YEARS

Operation Level20 Tn per month

Sale price Rs per kg900850800750700

1Project Life5 years5 years5 years5 years5 years

2Present Value of factor @ 9%3.83.83.83.83.8

3Net Income86.7674.7662.7650.7638.76

4Present Value Net Income for Project Life (2*3)329.69284.09238.49192.89147.29

5Present Value of Investment21.621.621.621.621.6

700750800850900

PI (4/5)15.2613.1511.048.936.826.828.9311.0413.1515.26

Interpretation:

PI is 15.26 which is more than 1 and also NPV is positive hence the project is more viable at a sale

price of Rs.900 with respect to the quantity of 20 Tn per month or 240 per annum for a project life of

5years.

(Rs in Mns)

PROFITABILIY INDEX FOR 10 YEARS

Operation Level20 Tn per month

Sale price Rs per kg900850800750700

1Project Life10 years10 years10 years10 years10 years

2Present Value of factor @ 9%6.176.176.176.176.17

3Net Income86.7674.7662.7650.7638.76

4Present Value Net Income for Project Life (2*3)535.31461.27387.23313.19239.15

5Present Value Capital Employed in Fixed Assets21.621.621.621.621.6

700750800850900

PI (4/5)24.7821.3617.9314.5011.0711.0714.0517.9321.3624.78

Interpretation:

PI is 24.78 which is more than 1 and also NPV is positive hence the project is more viable at a sale

price of Rs.900 with respect to the quantity of 20 Tn per month or 240 per annum for a project life of

10years.

sales

PI

20 Tns for 5yrs

sales

PI

10 Tns for 10yrs

(Rs in Mns)

PROFITABILITY INDEX FOR 5 YEARS

Operation Level10 Tn per month

Sale price Rs per kg900850800750700

1Project Life5 years5 years5 years5 years5 years

2Present Value of factor @ 9%3.83.83.83.83.8

3Net Income36.9630.9624.9618.9612.96

4Present Value Net Income for Project Life (2*3)140.45117.6594.8572.0549.25

5Present Value of Investment21.621.621.621.621.6

PI (4/5)6.505.454.393.342.28700750800850900

2.283.344.395.456.5

Interpretation:

PI is 6.50 which is more than 1 and also NPV is positive hence the project is more viable at a sale

price of Rs.900 with respect to the quantity of 10 Tn per month or 120 per annum for a project life of

5years.

(Rs in Mns)

PROFITABILITY INDEX FOR 10 YEARS

Operation Level10 Tn per month

Sale price Rs per kg900850800750700

1Project Life10 years10 years10 years10 years10 years

2Present Value of factor @ 9%6.176.176.176.176.17

3Net Income36.9630.9624.9618.9612.96

4Present Value Net Income for Project Life (2*3)228.04191.02154.00116.9879.96

5Present Value of Investment21.621.621.621.621.6700750800850900

3.75.427.138.8410.56

PI (4/5)10.568.847.135.423.70

Interpretation:

PI is 10.56 which is more than 1 and also NPV is positive hence the project is more viable at a sale

price of Rs.900 with respect to the quantity of 10 Tn per month or 120 per annum for a project life of

10years.

sales

PI

10 Tns for 5yrs

sales

PI

10 Tns for 10yrs

_1298129263.xlsChart1

2.99

3.82

4.65

5.49

6.32

Sales

IRR

30 Tns for 5yrs

ARR1

(Rs in Mns)

AVERAGE RATE OF RETURN

Operation Level30 Tns per month

Sale price Rs per kg900850800750700

1Avg.income136.56118.56100.5682.5664.56

2Avg.investment10.810.810.810.810.8

700750800850900

ARR [(1/2)*100]1264109893176459859876493110981264

Interpretation:

The ARR more than the pre-specified rate of return is accepted. The company requires a rate of

return of 20%. Therefore, ARR of the project which is greater than 20% as specified by management

is accepted but most viable is at a price of Rs.900 with respect to quantity of 30 Tn per month or 360

Tns per annum.

ARR1

Sales

ARR

30 Tns

ARR2

(Rs in Mns)

AVERAGE RATE OF RETURN

Operation Level20 Tns per month

Sale price Rs per kg900850800750700

1Avg.income86.7674.7662.7650.7638.76

2Avg.investment10.810.810.810.810.8

ARR [(1/2)*100]803692581470359700750800850900

359470581692803

Interpretation:

The ARR more than the pre-specified rate of return is accepted. The company requires a rate of

return of 20%. Therefore, ARR of the project which is greater than 20% as specified by management

is accepted but most viable is at a price of Rs.900 with respect to quantity of 20 Tn per month or 240

Tns per annum.

ARR2

Sales

ARR

20 Tns

ARR3

(Rs in Mns)

AVERAGE RATE OF RETURN

Operation Level10 Tns per month

Sale price Rs per kg900850800750700

1Avg.income36.9630.9624.9618.9612.96

2Avg.investment10.810.810.810.810.8

700750800850900

ARR [(1/2)*100]342287231176120120176231287342

Interpretation:

The ARR more than the pre-specified rate of return is accepted. The company requires a rate of

return of 20%. Therefore, ARR of the project which is greater than 20% as specified by management

is accepted but most viable is at a price of Rs.900 with respect to quantity of 10 Tn per month or 120

Tns per annum.

ARR3

Sales

ARR

10 Tns

PBP1

(Rs in Mns)

COMPUTATION OF NET INCOME PER ANNUM

1Operation Level30Tn per month

2Sale Price Rs per Kg900850800750700

3RM Cost Rs per Kg485485485485485

4Sales Income ( 1 * 2 )27.0025.5024.0022.5021.00

5Variable Cost - RM Consumed ( 1*3 )14.5514.5514.5514.5514.55

6Contribution ( 4-5 )12.4510.959.457.956.45

7Other Fixed Costs ( Utilities, Labour ,and QC Costs )1.071.071.071.071.07

8Net Income ( 6-7 )11.389.888.386.885.38

9Total Net Income per annum ( 8* 12 months )136.56118.56100.5682.5664.56

10Investment21.6021.6021.6021.6021.60

(Rs in Mns)

PAYBACK PERIOD

Operation Level30 Tns per month

Sale price Rs per kg900850800750700

1Investment21.621.621.621.621.6

2Net Income136.56118.56100.5682.5664.56

Payback Period (1/2)0.160.180.210.260.33

700750800850900

0.330.260.210.180.16

Interpretation:

The payback period calculated for a project is to be compared with some predetermined target period and

payback period less than the target period is accepted. Therefore, target period is 3 years and project less

than that is accepted but the viable is at Rs.900 with respect to the quantity of 30 Tns per month or 360 Tns

per annum.

PBP1

Sales

PBP

30 Tns

PBP2

(Rs in Mns)

COMPUTATION OF NET INCOME PER ANNUM

1Operation Level20Tn per month

2Sale Price Rs per Kg900850800750700

3RM Cost Rs per Kg485485485485485

4Sales Income ( 1 * 2 )18.0017.0016.0015.0014.00

5Variable Cost - RM Consumed ( 1*3 )9.709.709.709.709.70

6Contribution ( 4-5 )8.307.306.305.304.30

7Other Fixed Costs ( Utilities, Labour ,and QC Costs )1.071.071.071.071.07

8Net Income ( 6-7 )7.236.235.234.233.23

9Total Net Income per anum ( 8* 12 months )86.7674.7662.7650.7638.76

10Investment21.6021.6021.6021.6021.60

(Rs in Mns)

PAYBACK PERIOD

Operation Level20 Tns per month

Sale price Rs per kg900850800750700

1Investment21.621.621.621.621.6

2Net Income86.7674.7662.7650.7638.76

Payback Period (1/2)0.250.290.340.430.56

700750800850900

0.560.430.340.290.25

Interpretation:

The payback period calculated for a project is to be compared with some predetermined target period and

payback period less than the target period is accepted. Therefore, target period is 3 years and project less

than that is accepted but the viable is at Rs.900 with respect to the quantity of 20Tns per month or 240Tns

per annum.

PBP2

Sales

PBP

20 Tns

PBP3

(Rs in Mns)

COMPUTATION OF NET INCOME PER ANNUM

1Operation Level10Tn per month

2Sale Price Rs per Kg900850800750700

3RM Cost Rs per Kg485485485485485

4Sales Income ( 1 * 2 )9.008.508.007.507.00

5Variable Cost - RM Consumed ( 1*3 )4.854.854.854.854.85

6Contribution ( 4-5 )4.153.653.152.652.15

7Other Fixed Costs ( Utilities, Labour ,and QC Costs )1.071.071.071.071.07

8Net Income ( 6-7 )3.082.582.081.581.08

9Total Net Income per anum ( 8* 12 months )36.9630.9624.9618.9612.96

10Investment21.6021.6021.6021.6021.60

(Rs in Mns)

PAYBACK PERIOD

Operation Level10 Tns per month

Sale price Rs per kg900850800750700

1Investment21.621.621.621.621.6

2Net Income36.9630.9624.9618.9612.96

Payback Period (1/2)0.580.700.871.141.67

700750800850900

1.671.140.870.70.58

Interpretation:

The payback period calculated for a project is to be compared with some predetermined target

period and payback period less than the target period is accepted. Therefore, target period is 3

years and project less than that is accepted but the viable is at Rs.900 with respect to the

quantity of 10 Tns per month or 120 Tns per annum.

PBP3

Sales

PBP

10 Tns

NPV1

(Rs in Mns)

Net Present Value of the Project Investment @ discounting rate of 9%

Operation Level30 Tns per month

Sale price Rs per kg900850800750700

1Project Life5 years5 Years5 Years5years5years

2Present Value factor @ 9%3.83.83.83.83.8

3Net Income136.56118.56100.5682.5664.56

4Present Value Net Income for Project Life(2*3)518.93450.53382.13313.73245.33

5Present Value of Investment21.6021.6021.6021.6021.60

Net Present Value of the project (4-5)497.33428.93360.53292.13223.73

700750800850900

223.73292.13360.53428.93497.33

Interpretation:

NPV shows present value of the project. The project is accepted if its NPV is positive and rejected if

NPV is negative. Therefore, NPV of 30 Tns per month or 360 per annum for project life of 5years is

showing positive and viable is at a price of Rs.900 where NPV is Rs.497.33 millions.

(Rs in Mns)

Net Present Value of the Project Investment @ discounting rate of 9%

Operation Level30 Tns per month

Sale price Rs per kg900850800750700

1Project Life10 years10 years10 years10 years10 years

2Present Value factor @ 9%6.176.176.176.176.17

3Net Income136.56118.56100.5682.5664.56

4Present Value Net Income for Project Life(2*3)842.58731.52620.46509.40398.34

5Present Value of Investment21.6021.6021.6021.6021.60

Net Present Value of the project (4-5)820.98709.92598.86487.80376.74700750800850900

376.74487.8598.86709.92820.98

Interpretation:

NPV shows present value of the project. The project is accepted if its NPV is positive and rejected if

NPV is negative. Therefore, NPV of 30 Tns per month or 360 Tns per annum for project life of 10years is

showing positive and viable is at a price of Rs.900 where NPV is Rs.820.98 millions.

NPV1

Sales

NPV

30 Tns for 5yrs

NPV2

Sales

NPV

30 Tns for 10yrs

NPV3

(Rs in Mns)

Net Present Value of the Project Investment @ discounting rate of 9%

Operation Level20Tn per month

Sale price Rs per kg900850800750700

1Project Life5 Years5 Years5 Years5years5years

2Present Value factor @ 9%3.83.83.83.83.8

3Net Income86.7674.7662.7650.7638.76

4Present value Net Income for Project Life(2*3)329.69284.09238.49192.89147.29

5Present Value of Investment21.6021.6021.6021.6021.60

Net Present Value of the project (4-5)308.09262.49216.89171.29125.69

700750800850900

125.69171.29216.89262.49308.09

Interpretation:

NPV shows present value of the project. The project is accepted if its NPV is positive and rejected if

NPV is negative. Therefore, NPV of 20 Tns per month or 240 per annum for project life of 5years is

showing positive and viable is at a price of Rs.900 where NPV is Rs.308.09 millions.

(Rs in Mns)

Net Present Value of the Project Investment @ discounting rate of 9%

Operation Level20 Tn per month

Sale price Rs per kg900850800750700

1Project Life10 years10 years10 years10 years10 years

2Present Value factor @ 9%6.176.176.176.176.17

3Net Income86.7674.7662.7650.7638.76

4Present Value Net Income for Project Life(2*3)535.31461.27387.23313.19239.15

5Present Value of Investment21.6021.6021.6021.6021.60

Net Present Value of the project (4-5)513.71439.67365.63291.59217.55

700750800850900

217.55291.59365.63439.67513.71

Interpretation:

NPV shows present value of the project. The project is accepted if its NPV is positive and rejected if

NPV is negative. Therefore, NPV of 20 Tns per month or 240 per annum for project life of 10years is

showing positive and viable is at a price of Rs.900 where NPV is Rs.513.71 millions.

NPV3

Sales

NPV

20 Tns for 5yrs

IRR1

Sales

NPV

20 Tns for 10yrs

IRR2

(Rs in Mns)

Net Present Value of the Project Investment @ discounting rate of 9%

Operation Level10Tn per month

Sale price Rs per kg900850800750700

1Project Life5 Years5 Years5 Years5years5years

2Present Value factor @ 9%3.83.83.83.83.8

3Net income36.9630.9624.9618.9612.96

4Present value Net Income for Project Life(2*3)140.45117.6594.8572.0549.25

5Present Value of Investment21.6021.6021.6021.6021.60

Net Present Value of the project (4-5)118.8596.0573.2550.4527.65

700750800850900

27.6550.4573.2596.05118.85

Interpretation:

NPV shows present value of the project. The project is accepted if its NPV is positive and rejected if

NPV is negative. Therefore, NPV of 10 Tns per month or 120 per annum for project life of 5years is

showing positive and viable is at a price of Rs.900 where NPV is Rs.118.85 millions.

(Rs in Mns)

Net Present Value of the Project Investment @ discounting rate of 9%

Operation Level10 Tn per month

Sale price Rs per kg900850800750700

1Project Life10 years10 years10 years10 years10 years

2Present Value factor @ 9%6.176.176.176.176.17

3Net Income36.9630.9624.9618.9612.96

4Present Value Net Income for Project Life(2*3)228.04191.02154.00116.9879.96

5Present Value of Investment21.621.621.621.621.6

Net Present Value of the project (4-5)206.44169.42132.4095.3858.36700750800850900

58.3695.38132.4169.42206.44

Interpretation:

NPV shows present value of the project. The project is accepted if its NPV is positive and rejected if

NPV is negative. Therefore, NPV of 10 Tns per month or 120 per annum for project life of 10years is

showing positive and viable is at a price of Rs.900 where NPV is Rs.206.44 millions.

IRR2

Sales

NPV

10 Tns for 5yrs

IRR3

Sales

NPV

10 Tns for 10yrs

PI1

(Rs in Mns)

INTERNAL RATE OF RETURN FOR 5 YEARS

Opertion Level30 Tn per month

Sale price Rs per kg900850800750700

Investment-21.60-21.6-21.6-21.6-21.6

Net Income per annum for 5years

1136.56118.56100.5682.5664.56

2136.56118.56100.5682.5664.56

3136.56118.56100.5682.5664.56700750800850900

4136.56118.56100.5682.5664.56299%382%465%549%632%

5136.56118.56100.5682.5664.56

IRR632%549%465%382%299%

Interpretation:

The project is accepted if IRR is more than the minimum rate which is 9% for this project. Thus, the

project at a sale price of Rs.900 is getting greater than 40% which is more than the minimum rate of

return of 9% at a quantity of 30 Tns per month or 360 Tns per annum for project life of 5years.

(Rs in Mns)

INTERNAL RATE OF RETURN FOR 10 YEARS

Operation Level30 Tn per month

Sale price Rs per kg900850800750700

Investment-21.6-21.6-21.6-21.6-21.6

Net Income per annum for 10years

1136.56118.56100.5682.5664.56

2136.56118.56100.5682.5664.56

3136.56118.56100.5682.5664.56

4136.56118.56100.5682.5664.56

5136.56118.56100.5682.5664.56

6136.56118.56100.5682.5664.56700750800850900

7136.56118.56100.5682.5664.56299%382%466%549%632%

8136.56118.56100.5682.5664.56

9136.56118.56100.5682.5664.56

10136.56118.56100.5682.5664.56

IRR632%549%466%382%299%

Interpretation:

The project is accepted if IRR is more than the minimum rate which is 9% for this project. Thus, the

project at a sale price of Rs.900 is getting greater than 40% which is more than the minimum rate of

return of 9% at a quantity of 30 Tns per month or 360 Tns per annum for project life of 10years.

PI1

Sales

IRR

30 Tns for 5yrs

PI2

sales

NPV

30 Tns for 10yrs

PI3

(Rs in Mns)

INTERNAL RATE OF RETURN FOR 5 YEARS

Operation Level20 Tn per month

Sale price Rs per kg900850800750700

Investment-21.6-21.6-21.6-21.6-21.6

Net Income per annum for 5years

186.7674.7662.7650.7638.76

286.7674.7662.7650.7638.76

386.7674.7662.7650.7638.76

486.7674.7662.7650.7638.76

586.7674.7662.7650.7638.76700750800850900

IRR402%346%290%234%178%178%234%290%346%402%

Interpretation:

The project is accepted if IRR is more than the minimum rate which is 9% for this project. Thus, the

project at a sale price of Rs.900 is getting greater than 40% which is more than the minimum rate of

return of 9% at a quantity of 20 Tns per month or 240 Tns per annum for project life of 5years.

(Rs in Mns)

INTERNAL RATE OF RETURN FOR 10 YEARS

Operation Level20 Tn per month

Sale price Rs per kg900850800750700

Investment-21.6-21.6-21.6-21.6-21.6

Net Income per annum for 10years

186.7674.7662.7650.7638.76

286.7674.7662.7650.7638.76

386.7674.7662.7650.7638.76

486.7674.7662.7650.7638.76

586.7674.7662.7650.7638.76

686.7674.7662.7650.7638.76

786.7674.7662.7650.7638.76

886.7674.7662.7650.7638.76

986.7674.7662.7650.7638.76

1086.7674.7662.7650.7638.76700750800850900

IRR402%346%291%235%179%179%235%291%346%402%

Interpretation:

The project is accepted if IRR is more than the minimum rate which is 9% for this project. Thus, the

project at a sale price of Rs.900 is getting greater than 40% which is more than the minimum rate of

return of 9% at a quantity of 20 Tns per month or 240 Tns per annum for project life of 10years.

PI3

sales

IRR

20 Tns for 5yrs

sales

IRR

20 Tns for 10yrs

(Rs in Mns)

INTERNAL RATE OF RETURN FOR 5 YEARS

Operation Level10 Tn per month

Sale price Rs per kg900850800750700

Investment-21.6-21.6-21.6-21.6-21.6

Net Income per annum for 5years

136.9630.9624.9618.9612.96

236.9630.9624.9618.9612.96

336.9630.9624.9618.9612.96

436.9630.9624.9618.9612.96

536.9630.9624.9618.9612.96700750800850900

IRR170%142%113%84%53%53%84%113%142%170%

Interpretation:

The project is accepted if IRR is more than the minimum rate which is 9% for this project. Thus, the

project at a sale price of Rs.900 is getting greater than 40% which is more than the minimum rate of

return of 9% at a quantity of 10 Tns per month or 120 Tns per annum for project life of 5years.

(Rs in Mns)

INTERNAL RATE OF RETURN FOR 10 YEARS

Operation Level10 Tn per month

Sale price Rs per kg900850800750700

Investment-21.6-21.6-21.6-21.6-21.6

Net Income per annum for 10years

136.9630.9624.9618.9612.96

236.9630.9624.9618.9612.96

336.9630.9624.9618.9612.96

436.9630.9624.9618.9612.96

536.9630.9624.9618.9612.96

636.9630.9624.9618.9612.96

736.9630.9624.9618.9612.96

836.9630.9624.9618.9612.96

936.9630.9624.9618.9612.96700750800850900

1036.9630.9624.9618.9612.9659%88%116%143%171%

IRR171%143%116%88%59%

Interpretation:

The project is accepted if IRR is more than the minimum rate which is 9% for this project. Thus, the

project at a sale price of Rs.900 is getting greater than 40% which is more than the minimum rate of

return of 9% at a quantity of 10 Tns per month or 120 Tns per annum for project life of 10years.

sales

IRR

10 Tns for 5yrs

sales

IRR

10 Tns for 10yrs

(Rs in Mns)

PROFITABILITY INDEX FOR 5 YEARS

Operation Level30 Tn per month

Sale price Rs per kg900850800750700

1Project Life5 years5 years5 years5 years5 years

2Present Value of factor @ 9%3.83.83.83.83.8

3Net income136.56118.56100.5682.5664.56

4Present Value Net Income for Project Life (2*3)518.93450.53382.13313.73245.33

5Present Value of Investment21.621.621.621.621.6700750800850900

11.3614.5217.6920.8624.02

PI (4/5)24.0220.8617.6914.5211.36

Interpretation:

PI is 24.02 which is more than 1 and also NPV is positive hence the project is more viable at a sale

price of Rs.900 with respect to the quantity of 30 Tn per month or 360 per annum for a project life of

5years.

(Rs in Mns)

PROFITABILITY INDEX FOR 10 YEARS

Operation Level30 Tn per month

Sale price Rs per kg900850800750700

1Project Life10 years10 years10 years10 years10 years

2Present Value of factor @ 9%6.176.176.176.176.17

3Net Income136.56118.56100.5682.5664.56

4Present Value Net Income for Project Life(2*3)842.58731.52620.46509.40398.34

5Present Value of Investment21.621.621.621.621.6

700750800850900

PI (4/5)39.0133.8728.7223.5818.4418.4423.5828.7233.8739.01

Interpretation:

PI is 39.01 which is more than 1 and also NPV is positive hence the project is more viable at a sale

price of Rs.900 with respect to the quantity of 30 Tn per month or 360 per annum for a project life of

10years.

sales

PI

30 Tns for 4yrs

sales

PI

30 Tns for 10yrs

(Rs in Mns)

PROFITABILITY INDEX FOR 5 YEARS

Operation Level20 Tn per month

Sale price Rs per kg900850800750700

1Project Life5 years5 years5 years5 years5 years

2Present Value of factor @ 9%3.83.83.83.83.8

3Net Income86.7674.7662.7650.7638.76

4Present Value Net Income for Project Life (2*3)329.69284.09238.49192.89147.29

5Present Value of Investment21.621.621.621.621.6

700750800850900

PI (4/5)15.2613.1511.048.936.826.828.9311.0413.1515.26

Interpretation:

PI is 15.26 which is more than 1 and also NPV is positive hence the project is more viable at a sale

price of Rs.900 with respect to the quantity of 20 Tn per month or 240 per annum for a project life of

5years.

(Rs in Mns)

PROFITABILIY INDEX FOR 10 YEARS

Operation Level20 Tn per month

Sale price Rs per kg900850800750700

1Project Life10 years10 years10 years10 years10 years

2Present Value of factor @ 9%6.176.176.176.176.17

3Net Income86.7674.7662.7650.7638.76

4Present Value Net Income for Project Life (2*3)535.31461.27387.23313.19239.15

5Present Value Capital Employed in Fixed Assets21.621.621.621.621.6

700750800850900

PI (4/5)24.7821.3617.9314.5011.0711.0714.0517.9321.3624.78

Interpretation:

PI is 24.78 which is more than 1 and also NPV is positive hence the project is more viable at a sale

price of Rs.900 with respect to the quantity of 20 Tn per month or 240 per annum for a project life of

10years.

sales

PI

20 Tns for 5yrs

sales

PI

10 Tns for 10yrs

(Rs in Mns)

PROFITABILITY INDEX FOR 5 YEARS

Operation Level10 Tn per month

Sale price Rs per kg900850800750700

1Project Life5 years5 years5 years5 years5 years

2Present Value of factor @ 9%3.83.83.83.83.8

3Net Income36.9630.9624.9618.9612.96

4Present Value Net Income for Project Life (2*3)140.45117.6594.8572.0549.25

5Present Value of Investment21.621.621.621.621.6

PI (4/5)6.505.454.393.342.28700750800850900

2.283.344.395.456.5

Interpretation:

PI is 6.50 which is more than 1 and also NPV is positive hence the project is more viable at a sale

price of Rs.900 with respect to the quantity of 10 Tn per month or 120 per annum for a project life of

5years.

(Rs in Mns)

PROFITABILITY INDEX FOR 10 YEARS

Operation Level10 Tn per month

Sale price Rs per kg900850800750700

1Project Life10 years10 years10 years10 years10 years

2Present Value of factor @ 9%6.176.176.176.176.17

3Net Income36.9630.9624.9618.9612.96

4Present Value Net Income for Project Life (2*3)228.04191.02154.00116.9879.96

5Present Value of Investment21.621.621.621.621.6700750800850900

3.75.427.138.8410.56

PI (4/5)10.568.847.135.423.70

Interpretation:

PI is 10.56 which is more than 1 and also NPV is positive hence the project is more viable at a sale

price of Rs.900 with respect to the quantity of 10 Tn per month or 120 per annum for a project life of

10years.

sales

PI

10 Tns for 5yrs

sales

PI

10 Tns for 10yrs

_1494162642.xlsChart1

0.56

0.43

0.34

0.29

0.25

Sales

PBP

20 Tns

ARR1

(Rs in Mns)

AVERAGE RATE OF RETURN

Operation Level30 Tns per month

Sale price Rs per kg900850800750700

1Avg.income136.56118.56100.5682.5664.56

2Avg.investment10.810.810.810.810.8

700750800850900

ARR [(1/2)*100]1264109893176459859876493110981264

Interpretation:

The ARR more than the pre-specified rate of return is accepted. The company requires a rate of

return of 20%. Therefore, ARR of the project which is greater than 20% as specified by management

is accepted but most viable is at a price of Rs.900 with respect to quantity of 30 Tn per month or 360

Tns per annum.

ARR1

Sales

ARR

30 Tns

ARR2

(Rs in Mns)

AVERAGE RATE OF RETURN

Operation Level20 Tns per month

Sale price Rs per kg1000850800750700

1Avg.income86.7674.7662.7650.7638.76

2Avg.investment10.810.810.810.810.8

ARR [(1/2)*100]803692581470359700750800850900

359470581692803

Interpretation:

The ARR more than the pre-specified rate of return is accepted. The company requires a rate of

return of 20%. Therefore, ARR of the project which is greater than 20% as specified by management

is accepted but most viable is at a price of Rs.900 with respect to quantity of 20 Tn per month or 240

Tns per annum.

ARR2

Sales

ARR

20 Tns

ARR3

(Rs in Mns)

AVERAGE RATE OF RETURN

Operation Level10 Tns per month

Sale price Rs per kg900850800750700

1Avg.income36.9630.9624.9618.9612.96

2Avg.investment10.810.810.810.810.8

700750800850900

ARR [(1/2)*100]342287231176120120176231287342

Interpretation:

The ARR more than the pre-specified rate of return is accepted. The company requires a rate of

return of 20%. Therefore, ARR of the project which is greater than 20% as specified by management

is accepted but most viable is at a price of Rs.900 with respect to quantity of 10 Tn per month or 120

Tns per annum.

ARR3

Sales

ARR

10 Tns

PBP1

(Rs in Mns)

COMPUTATION OF NET INCOME PER ANNUM

1Operation Level30Tn per month

2Sale Price Rs per Kg900850800750700

3RM Cost Rs per Kg485485485485485

4Sales Income ( 1 * 2 )27.0025.5024.0022.5021.00

5Variable Cost - RM Consumed ( 1*3 )14.5514.5514.5514.5514.55

6Contribution ( 4-5 )12.4510.959.457.956.45

7Other Fixed Costs ( Utilities, Labour ,and QC Costs )1.071.071.071.071.07

8Net Income ( 6-7 )11.389.888.386.885.38

9Total Net Income per annum ( 8* 12 months )136.56118.56100.5682.5664.56

10Investment21.6021.6021.6021.6021.60

(Rs in Mns)

PAYBACK PERIOD

Operation Level30 Tns per month

Sale price Rs per kg900850800750700

1Investment21.621.621.621.621.6

2Net Income136.56118.56100.5682.5664.56

Payback Period (1/2)0.160.180.210.260.33

700750800850900

0.330.260.210.180.16

Interpretation:

The payback period calculated for a project is to be compared with some predetermined target period and

payback period less than the target period is accepted. Therefore, target period is 3 years and project less

than that is accepted but the viable is at Rs.900 with respect to the quantity of 30 Tns per month or 360 Tns

per annum.

PBP1

Sales

PBP

30 Tns

PBP2

(Rs in Mns)

COMPUTATION OF NET INCOME PER ANNUM

1Operation Level20Tn per month

2Sale Price Rs per Kg900850800750700

3RM Cost Rs per Kg485485485485485

4Sales Income ( 1 * 2 )18.0017.0016.0015.0014.00

5Variable Cost - RM Consumed ( 1*3 )9.709.709.709.709.70

6Contribution ( 4-5 )8.307.306.305.304.30

7Other Fixed Costs ( Utilities, Labour ,and QC Costs )1.071.071.071.071.07

8Net Income ( 6-7 )7.236.235.234.233.23

9Total Net Income per anum ( 8* 12 months )86.7674.7662.7650.7638.76

10Investment21.6021.6021.6021.6021.60

(Rs in Mns)

PAYBACK PERIOD

Operation Level20 Tns per month

Sale price Rs per kg900850800750700

1Investment21.621.621.621.621.6

2Net Income86.7674.7662.7650.7638.76

Payback Period (1/2)0.250.290.340.430.56

700750800850900

0.560.430.340.290.25

Interpretation:

The payback period calculated for a project is to be compared with some predetermined target period and

payback period less than the target period is accepted. Therefore, target period is 3 years and project less

than that is accepted but the viable is at Rs.900 with respect to the quantity of 20Tns per month or 240Tns

per annum.

PBP2

Sales

PBP

20 Tns

PBP3

(Rs in Mns)

COMPUTATION OF NET INCOME PER ANNUM

1Operation Level10Tn per month

2Sale Price Rs per Kg900850800750700

3RM Cost Rs per Kg485485485485485

4Sales Income ( 1 * 2 )9.008.508.007.507.00

5Variable Cost - RM Consumed ( 1*3 )4.854.854.854.854.85

6Contribution ( 4-5 )4.153.653.152.652.15

7Other Fixed Costs ( Utilities, Labour ,and QC Costs )1.071.071.071.071.07

8Net Income ( 6-7 )3.082.582.081.581.08

9Total Net Income per anum ( 8* 12 months )36.9630.9624.9618.9612.96

10Investment21.6021.6021.6021.6021.60

(Rs in Mns)

PAYBACK PERIOD

Operation Level10 Tn per month

Sale price Rs per kg900850800750700

1Investment21.621.621.621.621.6

2Net Income36.9630.9624.9618.9612.96

Payback Period (1/2)0.580.700.871.141.67

700750800850900

1.671.140.870.70.58

Interpretation:

The payback period calculated for a project is to be compared with some predetermined target

period and payback period less than the target period is accepted. Therefore, target period is 3

years and project less than that is accepted but the viable is at Rs.900 with respect to the

quantity of 10 Tns per month or 120 Tns per annum.

PBP3

sales

PBP

10 Tns

NPV1

(Rs in Mns)

Net Present Value of the Project Investment @ discounting rate of 9%

Operation Level30Tn per month

Sale price Rs per kg900850800750700

1Project Life5 years5 Years5 Years5years5years

2Present Value factor @ 9%3.83.83.83.83.8

3Net Income136.56118.56100.5682.5664.56

4Present Value Net Income for Project Life(2*3)518.93450.53382.13313.73245.33

5Present Value of Investment21.6021.6021.6021.6021.60

Net Present Value of the project (4-5)497.33428.93360.53292.13223.73

700750800850900

223.73292.13360.53428.93497.33

Interpretation:

NPV shows present value of the project. The project is accepted if its NPV is positive and rejected if

NPV is negative. Therefore, NPV of 30 Tns per month or 360 per annum for project life of 5years is

showing positive and viable is at a price of Rs.900 where NPV is Rs.497.33 millions.

(Rs in Mns)

Net Present Value of the Project Investment @ discounting rate of 9%

Operation Level30 Tn per month

Sale price Rs per kg900850800750700

1Project Life10 years10 years10 years10 years10 years

2Present Value factor @ 9%6.176.176.176.176.17

3Net Income136.56118.56100.5682.5664.56

4Present Value Net Income for Project Life(2*3)842.58731.52620.46509.40398.34

5Present Value of Investment21.6021.6021.6021.6021.60

Net Present Value of the project (4-5)820.98709.92598.86487.80376.74700750800850900

376.74487.8598.86709.92820.98

Interpretation:

NPV shows present value of the project. The project is accepted if its NPV is positive and rejected if

NPV is negative. Therefore, NPV of 30 Tns per month or 360 Tns per annum for project life of 10years is

showing positive and viable is at a price of Rs.900 where NPV is Rs.820.98 millions.

NPV1

sales

NPV

30 Tns for 5yrs

NPV2

sales

NPV

30 Tns for 10yrs

NPV3

(Rs in Mns)

Net Present Value of the Project Investment @ discounting rate of 9%

Operation Level20Tn per month

Sale price Rs per kg900850800750700

1Project Life5 Years5 Years5 Years5years5years

2Present Value factor @ 9%3.83.83.83.83.8

3Net Income86.7674.7662.7650.7638.76

4Present value Net Income for Project Life(2*3)329.69284.09238.49192.89147.29

5Present Value of Investment21.6021.6021.6021.6021.60

Net Present Value of the project (4-5)308.09262.49216.89171.29125.69

700750800850900

125.69171.29216.89262.49308.09

Interpretation:

NPV shows present value of the project. The project is accepted if its NPV is positive and rejected if

NPV is negative. Therefore, NPV of 20 Tns per month or 240 per annum for project life of 5years is

showing positive and viable is at a price of Rs.900 where NPV is Rs.308.09 millions.

(Rs in Mns)

Net Present Value of the Project Investment @ discounting rate of 9%

Operation Level20 Tn per month

Sale price Rs per kg900850800750700

1Project Life10 years10 years10 years10 years10 years

2Present Value factor @ 9%6.176.176.176.176.17

3Net Income86.7674.7662.7650.7638.76

4Present Value Net Income for Project Life(2*3)535.31461.27387.23313.19239.15

5Present Value of Investment21.6021.6021.6021.6021.60

Net Present Value of the project (4-5)513.71439.67365.63291.59217.55

700750800850900

217.55291.59365.63439.67513.71

Interpretation:

NPV shows present value of the project. The project is accepted if its NPV is positive and rejected if

NPV is negative. Therefore, NPV of 20 Tns per month or 240 per annum for project life of 10years is

showing positive and viable is at a price of Rs.900 where NPV is Rs.513.71 millions.

NPV3

sales

NPV

20 Tns for 5yrs

IRR1

sales

NPV

20 Tns for 10yrs

IRR2

(Rs in Mns)

Net Present Value of the Project Investment @ discounting rate of 9%

Operation Level10Tn per month

Sale price Rs per kg900850800750700

1Project Life5 Years5 Years5 Years5years5years

2Present Value factor @ 9%3.83.83.83.83.8

3Net income36.9630.9624.9618.9612.96

4Present value Net Income for Project Life(2*3)140.45117.6594.8572.0549.25

5Present Value of Investment21.6021.6021.6021.6021.60

Net Present Value of the project (4-5)118.8596.0573.2550.4527.65

700750800850900

27.6550.4573.2596.05118.85

Interpretation:

NPV shows present value of the project. The project is accepted if its NPV is positive and rejected if

NPV is negative. Therefore, NPV of 10 Tns per month or 120 per annum for project life of 5years is

showing positive and viable is at a price of Rs.900 where NPV is Rs.118.85 millions.

(Rs in Mns)

Net Present Value of the Project Investment @ discounting rate of 9%

Operation Level10 Tn per month

Sale price Rs per kg900850800750700

1Project Life10 years10 years10 years10 years10 years

2Present Value factor @ 9%6.176.176.176.176.17

3Net Income36.9630.9624.9618.9612.96

4Present Value Net Income for Project Life(2*3)228.04191.02154.00116.9879.96

5Present Value of Investment21.621.621.621.621.6

Net Pres