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Capital budgeting: India

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  1. Introduction.
  2. Meaning and definition of capital budgeting.
  3. Scope of the study.
  4. Objectives.
  5. Research and methodology.
    1. Long term investment decision.
    2. Sources of data.
    3. Secondary data.
  6. Limitations of the study.
  7. Factors influencing the investment decisions.
  8. Process of capital budgeting.
    1. Investment ideas.
    2. Forecasting.
    3. Correct treatment should be given to.
    4. Evaluation.
    5. Authorization.
    6. Control and monitoring.
  9. Limitations of capital budgeting.
  10. Profile of National Thermal Power Corporation.
    1. Corporate missions.
    2. Corporate objectives.
    3. Peformance leadership.
    4. Human resource development.
    5. Honours of excellence.
    6. NTPC's performance high.
  11. Profile of Ramagundam station.
  12. Corporate governance.
  13. Financial performance of NTPC.
  14. Capital budgeting techniques.
    1. Modern rule.
    2. Acceptance rule.
    3. Discounted pay back period.
    4. Pre investment stage.
    5. Project formulation.
  15. Role of finance management in investment decisions in NTPC.
  16. Longterm capital budgeting.
  17. Demand analysis and justification.
  18. Financial analysis.
  19. Conclusion and suggestions.
  20. Graphs and tables included.

An efficient allocation of capital is the most important financial function in modern times. It involves decision to commit firm's funds to long-term assets. Such decisions are tend to determine the value of company/firm by influencing its growth, profitability & risk.

Investment decisions are generally known as capital budgeting or capital expenditure decisions. It is clever decisions to invest current in long term assets expecting long-term benefits firm's investment decisions would generally include expansion, acquisition, modernization and replacement of long-term assets.

Capital Budgeting is the process of making investment decisions in capital expenditure. The Capital expenditure may be defined as expenditure incurred for acquiring or improving the fixed assets. The benefits of which are expected to be received over a number of year in future.

[...] Capital costs and norms assumed, activity wise and year wise Operating costs and norms Revenue and benefits estimation etc. PROJECT APPRAISAL: The appraisal of the project follows the formulation stage. The objective of the appraisal process is not only to decide whether to accept or reject the investment proposal, but also to recommend the ways in which the project can be redesigned or reformulated so as to ensure better technical, financial, commercial and economic availability. The project appraised which is an essential tool for judicious investment decisions and project selection is a multi- disciplinary task. [...]

[...] Cost Estimate and Financial Analysis: Project cost estimate for power station and facilities for stage III(1x500MW) of RSTPP as of 3rd Quarter 98 is as follows: Estimate Cost Interest During Working Capital Total Excluding Construction Margin IDC&WCM Basis of Cost Estimate: 1. Preliminary & Civil Works: Rates of various items of works have been taken from latest awarded rates for NTPC projects duly updated to 3rd Quarter 98 Estimates for some items are worked out as per the rate analyses based on latest rates prevailing at Ramagundam Mechanical, Electrical & Transportation:- Based on awarded prices/Bid prices The following are also charges: Excice duty @ 10% for small equipment's CST on supply cost for domestic component Customs Duty @ 22% on foreign component Others Engineering & Administration - of works cost {Miscellaneous tools & Plants etc} of project Trail and Pre-Commission charges of works cost Contingency-3% of total works costs Consultancy of works cost Training of O & M staff & losses?Rs.1 crore &Rs crores on Stocks FINANCIAL ANALYSIS: Phased Fund Requirement: Anticipated phasing of requirement of funds for power plant & Facilities is based on following considerations. [...]

[...] The operation & maintenance expenses are generally of the order of the capital cost. Based on the above assumptions, the cost of generation could be worked out discounted cash flow basis taking 12% IRR (Internal Rate of Return). This rate has been generally accepted by various appraising agencies of the power projects. Feasibility Report based on above methodology and indicating site selection, coal linkage, power distribution is examined by Central Electricity Authority in all cases where investment is Rs.1 crore and above. [...]

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