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Stretegic Financial Management Theory Notes Page Number: 1 KALPESH CLASSES ChapterProf. 1L.Muralidharan (Best in south) [email protected] PROJECT PLANNING AND CAPITAL BUDGETING An Overview 1.1 Project Planning 1.2 Project Report · Meaning · Objective · Advantages · Contents · Techniques of project planning and scheduling 1.3 Capital Budgeting · Meaning · Need for Capital Budgeting · Types of investment proposals · Techniques of Evaluation Pay back period Pay back reciprocal Average or Accounting rate of return Net present value Desirability factor/Profitability index Internal rate of return Comparison of Techniques · Impact of inflation Þ Relevance of inflation Þ Inflation and financial analysis Þ Project appraisal under inflationary conditions Þ Impact of inflation on Capital Budgeting Þ Impact of inflation on investors Þ Impact of inflation on inventory management · Estimation of future cash flows Þ Steps in developing relevant information for cash flow analysis Þ Elements of risk and uncertainties Þ Models of Risk analysis C.A.FINAL – FINANCIAL MANAGEMENT ALL THE BEST For any queries on Accounts or FM you can email to Prof. L.Muralidharan Page Number: 2 SREERAM COACHING POINT E-mail : [email protected] § Hillier’s Model § Hertz Model Þ Methods of accounting for risk · Social Cost Benefit Analysis Þ Meaning Þ Need Þ Indicators of social desirability of the product Þ Steps TEAM OF PROFESSORS AT KALPESH CLASSES PROF. KALPESH SANGHAVI (C.A.) PROF. L.MURALIDHARAN (C.A.) PROF. SOWMYNARAYANAN (C.A.) PROF. RAJAGOPALAN (C.A.) PROF. JAISON (C.A.) NOW LIVING WORKING TOGETHER. KALPESH CLASSES SREERAM COACHING POINT Sreeram coaching point and KALPESH CLASSES is one FAMILY. Page Number: 3 KALPESH CLASSES Prof. L.Muralidharan (Best in south) [email protected] 1.1 PROJECT PLANNING: Define Project Planning It refers to the plan of an undertaking to: a. build up productive capacities, b. diversify its business, or c. extend its existing capacities 1.2 PROJECT REPORT What do you mean by Project Report? Give the objectives? 1.2.1 Meaning: It is a pre-investment and comprehensive study of investment proposals of an organization. It encompasses a thorough investigation relating to economic, technical, financial, social, managerial and commercial aspects. A. project report deals with: a. Location of the project b. The size and capacity level c. The technological aspects, e.g., production process, availability of raw materials, requirements of labour and machines. d. Government laws and regulations, etc., 1.2.2 Objectives of Project Report: a. To compare different investment opportunities b. To obtain financial assistance from a financial institutions and banks. Enumerate the Advantage of a Project Report 1.2.3 Advantages of a Project Report: a. It lays down objectives in various spheres of business. b. It evaluates the objectives in right perspective. c. It identifies constraints on resources, viz., manpower, equipment, financial and technological etc., d. It paves the way for management to seek financial assistance from financial institutions and bank. e. Financial intermediaries like merchant bankers and underwriters also require project report to evaluate project viability to revise funds from capital market. f. Successful implementation of a project depends upon the line of action as suggested in the project report. List out the contents of a Project Report C.A.FINAL – FINANCIAL MANAGEMENT ALL THE BEST For any queries on Accounts or FM you can email to Prof. L.Muralidharan Page Number: 4 SREERAM COACHING POINT E-mail : [email protected] 1.2.4 Contents of a Project Report 1. Information about industry and its status in the economy, present production and demand pattern, government policies, export potential, licensed and installed capacity. 2. Broad market trend of the product and by-products within and outside the states / country for 5 years. 3. Specifications and quality of raw materials required and their sources of availability. 4. Production process. 5. Availability of technical know-how within and outside country. 6. Location of plant, its advantages and justification. 7. Requirement of water, sources of water availability, etc. 8. Total power requirements for the factory. 9. Requirement for steam raising or processing, source and price. 10. Implementing programme in the form of CPM / PERT and flow charts indicating critical path and schedules. 11. Cost of project-. It consists of cost incurred on land, building, plant and machinery, equipment, off-site facilities, utilities and auxiliary facilities, preliminary expenses, contingencies, cost of spare, repairs and maintenance during trial run, pre-commissioning and commissioning expenses, working capital margin, etc. 12. Details of capital structure. 13. Cost of production Break-even point of production cost should be given; effect or variation of cost of raw materials, utilities, selling price, etc. should be indicated. 14. Projected profitability for 5 years after commission. 15. Cash flow statement and payback period. 16. Technical feasibility and financial viability 17. Organisation and management-description of corporate management, promoters experience, organizational chart key personnel, power and responsibility structure. Write a note on CPM/PERT as a technique of Project Planning BRIEF TIME TABLE FOR NOVEMBER 2005 C.A. FINAL EXAMINATION. SUBJECT : DIRECT TAX EXAMINATION BRANCH COMMENCING ADMISSION STATUS NOV 2005 (A.Y. 2005-2006) ANDHERI 19-07-2005 In Progress NOV 2005 (A.Y. 2005-2006) CHARNI ROAD 24-05-2005 In Progress NOV 2005 (A.Y. 2005-2006) GHATKOPAR 17-07-2005 In Progress Course Coverage for all the branches is the same. 1.2.5 TECHNIQUES OF PROJECT PLANNING AND SCHEDULING (CPM/PERT) Following steps should be taken for using CPM and PERT for planning and Scheduling- KALPESH CLASSES SREERAM COACHING POINT Sreeram coaching point and KALPESH CLASSES is one FAMILY. Page Number: 5 KALPESH CLASSES Prof. L.Muralidharan (Best in south) [email protected] a. Each project should be divided into a number of several independent jobs or activities. These jobs or activities must be separately listed. b. The order of preference for different jobs should be determined. c. There will be certain jobs which have to be completed before others can be started while some jobs may be done simultaneously. The jobs, therefore, are to be programmed and synchronized in a manner that no bottlenecks are created. d. A graph or a picture may be drawn portraying each of the jobs and showing the predecessor and successor relationships amongst them. Such a chart shows which job has to come first and which has to come later. It also shows the time required for completion of various jobs. Determination of critical path – The minimum time required to complete a project is shown by critical path. Critical path is the longest path in the project diagram. This helps in determining the date on which the project is completed. In order to make sure that the project is completed in time, attention has to be given to this path since any increase in time or activity / job will delay the completion of the project. BRIEF TIME TABLE FOR NOVEMBER 2005 C.A. FINAL EXAMINATION. SUBJECT : DIRECT TAX EXAMINATION BRANCH COMMENCING ADMISSION STATUS NOV 2005 (A.Y. 2005-2006) ANDHERI 19-07-2005 In Progress NOV 2005 (A.Y. 2005-2006) CHARNI ROAD 24-05-2005 In Progress NOV 2005 (A.Y. 2005-2006) GHATKOPAR 17-07-2005 In Progress Course Coverage for all the branches is the same. What is meant by capital Budgeting? 1.3 CAPITAL BUDGETING: Capital Investment involves a cash outflow in the immediate future in anticipation of returns at future date. The investment of funds requires a number of decisions to be taken in which funds are invested and benefits are expected over a long period. A capital investment decision involves a largely irreversible commitment of resources that is generally subject to significant degree of risk. The finance manager therefore is required to do a proper planning of project to know in advance technical and financial feasibility of the project. 1.3.1 Meaning of Capital Budgeting: · Capital budgeting refers to the long term planning of expenditure whose returns stretch over future period C.A.FINAL – FINANCIAL MANAGEMENT ALL THE BEST For any queries on Accounts or FM you can email to Prof. L.Muralidharan Page Number: 6 SREERAM COACHING POINT E-mail : [email protected] · It is the process of deciding whether or not to commit the resources to a project whose benefits would be spread over several time periods. · It considers proposed capital outlay and its financing. Thus, it includes both raising of long term funds as well as their utilization. Elaborate on the nature of Capital Budgeting 1.3.2 Nature of Capital Budgeting: · Involves Huge Cash Outlays · Intended to receive benefits over a longer period. · Irreversible decisions are involved. · Capital assets once acquired cannot be disposed off except at a substantial loss. · Wrong decisions may lead to liquidation · If there are no increased earnings from the purc hase of the additional capital assets, the ability of the company to discharge its financial obligations may be affected adversely. · Expansion of capital facilities by means of the issue of shares may dilute holdings in the company and if not carefully planned and controlled, it can result in the loss of control by the management. · In this context the forecasting and budgeting of capital expenditure becomes a vital part of policy making and management function. It influences long-term prospects and future earning capacity of the firm. What are the types of Investment Proposal? 1.3.3 Types of Investment Proposal: A firm may have several proposals for its consideration. It may adopt one of them, some of them or all of them depending upon whether they are independent, contingent or dependent or mutually exclusive. 1. Independent proposals: These are the proposals, which do not compete with one another. In case of such proposals the firm may straight away accept or reject on the basis of a minimum return on investment required.
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