ETHOS A Journal of research articles in management science and allied areas (refereed) Volume: 3 Number: 2 July-December 2010 Contents Research Articles NPVI and IRR : Criteria for Project Choice 1 Satya Prakash Singh, Puja Bhardwaj Implications of Trends in Expenditure of Government of 6 Maharashtra Prakash S. Kamble Assessment of Effectiveness of Customer Relationship 18 Management Tools for Supply Chain Management Of Auto-Comp Industries Yogesh D. Kulkarni , Anil R. Keskar A Critical Study of Human Resource Practices in Selected 27 Sugar Factories Annasaheb M. Gurav, Pralhad K. Mudalkar Students Absenteeism of B-School in Pune City : An 43 Empirical Study Manisha N. Paliwal Farmers Views on the Implementation of Environment - 54 Friendly for Grapes Production - A Survey Study in Sangli District Sunil S. Patil Investor's Preference for Mutual Fund Investment in 62 Kolhapur City Vaibhav J. Dhere, Bajirao R. Patil Case Study Together We Grow Better and Faster! 73 Girish P. Jakhotiya Bibliography Psychographic Segmentation 78 Priyanka S. Zanvar From the desk of editor It is a matter of sheer pleasure to place before you the second issue of third volume of Ethos, a refereed biannual Journal of research articles in management science and allied areas. In fact we are enjoying the growth and overwhelming response received from authors, contributors and subscribers. The journal is an effort to provide a platform for exploration and articulation of knowledge of academicians, researchers, students, entrepreneurs, executives and consultants. At ETHOS, we publish original papers in the form of research articles and case studies.. From last issue of Ethos two new sections had been introduced. One is of book review and another is of selected bibliography. Let me share one aspect very humbly that the quality of research papers is very poor as it is seen from rejection ratio. There is dire need of training to researchers for enriching the quality. The present issue of ETHOS carries seven research papers, one case study and one bibliography. Research papers are a blend of empirical research in the functional areas of management like Agricultural Management, Business Economics, Human Resource Development, and Financial Management. The paper of Satya Prakash Singh and Puja Bhardwaj peep into conflicting issue of using NPVI and IRR for project choice. The paper has examined issues of NPVI and IRR of 22 companies on which analysis is based on. The assessment of reforms led down by Government is also a responsibility of researcher. Prakash Kamble has contributed handsomely to this area of research. The article titled, ‘Implications of Trends in Expenditure of Government of Maharashtra’ concludes that expenditure of Government of Maharashtra has mainly concentrated on short term development and mainly social welfare promoting rather than economic development promoting aspect. Today’s scenario is of e-organization. The business models are changing at faster pace. Anil Keskar and Yogesh Kulkarni have focused on Supply Chain Management and Customer Relationship Management as their area of research to explore more applications of these two concepts in e-organization especially related to auto component industry. Annasaheb Gurav and Pralhad Mudalkar probe in critically of HRM practices in sugar factories. In an empirical study by Manisha Paliwal, reasons of student’s absenteeism in B- School have been explored. Sunil Patil has nicely come out with a survey article on grape growers in Sangli District of Maharashtra. The last technical paper of this issue talks on Investors Preference for Mutual Fund Investment in Kolhapur which may facilitates few tips to portfolio industry to advance on decision making by Vaibhav J. Dhere, Bajirao R. Patil. This issue of ETHOS carries Case Study titled, ‘Together We Grow Better and Faster!’ by Dr. Girish Jakhotia. Priyanka Zanvar has contributed bibliography on Psychographic Segmentation. I believe that the articles and case study contributed by esteemed academicians and scholars for this issue would be immensely readable and beneficial to academicians, research scholars and industrialists. I look forward to your valuable feedback to enable us enthrall readers and ensure kaizen. I also take this opportunity to wish you Happy New Year to all our subscribers, contributors, readers, scholars and authors and continue to seek your wholehearted support. Dr. B.S. Sawant Editor-in-Chief NPVI and IRR : Criteria for Project Choice Satya Prakash Singh, Puja Bhardwaj Abstract Do IRR (internal rate of return) and NPVI (net present value of Investment Criteria? lead to conflicting decisions in capital budgeting? Hypothetical examples have been constructed show that they might. A more relevant question is what happens in the case of real life projects. Do the two criteria give conflicting signals in case of accept/reject decision? Does the ranking of projects change when NPVI rather than IRR is used as a criterion for ranking? This paper tries to examine these issues in a real life setting of 22 projects of an Indian SIDC. The two yield identical conclusions in case of 'accept/reject' choice for all the projects. They rank the projects differently, however. The correlation between the ranks is found to be significantly high. , NPVI being absolute value and IRR a proportion, the comparison between the rankings is not quite appropriate. Therefore, benefit/cost (B/C) ratio is derived as an equivalent of NPVI criterion for accept/reject choice, and ranking on IRR is compared with that on B/C the correlation improves to almost unity Keywords: NPVI, IRR, Project, Cost Benefit Ratio. Introduction : There exist extensive empirical studies on use of One of the open issues in the theory of investment the capital budgeting criteria in practice: Which decision making has been the possibility of conflict criterion is more popular. Which criterion do users of ranking of projects based on IRR (internal rate and experts consider better. [See for example, of return) and NPVI (net present value of Brigham (1975), Gitman and Forrester (1977), investment) criteria. Hypothetical examples of Moore and Reichart (1983), Stanley and Block projects where IRR and NPVI yield conflicting (1984), Pandey (1989), Bierman(1993), Drury, rankings have been given. The conflict may arise due to size disparity, time disparity of cash flows, Braund and Tayles (1993), Petry and Sprow life disparity of projects, etc. [See for example, (1993), Gilbert and Reichart (1995), Jog and Van Horne (2000) , Brealey and Myres (2009)]. Srivastava (1995), Babu and Sharma (1995), It is pertinent, and of course more important than Cherukuri (1996), Chadwell-Hatfield, Goitein, showing logical possibilities of conflict of ranking Horvath and Webster (1997), Kester and Chang through hypothetical examples, to know what (1999), Parashar (1999), Graham and Harvey really happens to ranking of projects in practice (2001), and Anand (2002)].Yet, to the best of our when ranked on IRR and NPVI criteria. knowledge nobody has examined if the two Satya Prakash Singh criteria, NPVI and IRR would give conflicting ( Ph.D. ) ranking of projects in real life. Professor The present paper attempts to answer this question University Business School Panjab University on the basis of the real life data of 22 projects of a Chandigarh development financial institution of a state in India Puja Bhardwaj (SIDC). Section 1 sets the theoretical framework ( Ph.D.) for the empirical study. Section 1.1 defines the Assistant Professor NPVI and IRR criteria for choice in a compact Dr Vikhe Patil Foundation's Pravara Centre for fashion [See Singh and Deshpande (1995)]. One Management Research Development Pune of the problems of ranking on IRR and NPVI Identifying the Importance of Supply Chain Management... 1 E:ethos\5th issue\6\fp 26-12-2010 criteria highlighted in the literature is that IRR is t a proportion while NPVI is an absolute value. IRR Σ ( Bt - Ct ) = 0 ( 1 + p )t being a proportion is considered better criterion t = 0 for comparison across projects. For accept/reject ● See Appendix A decision, generally NPVI is most preferred. [See for example, Brealey and Myers (2009), Chapter Transforming NPVI into a Ratio: 5, UNIDO Guidelines (1972)]. It is appropriate NPVI can be easily transformed to a proportion to transform NPVI to a proportion to compare as is shown below: ranking on this criterion with the ranking on the t NPVI is greater than Σ ( Bt - Ct ) > 0. IRR criterion. Section 1.2 derives this proportion t zero if and only if t = 0 ( 1 + r ) named as Benefit/Cost (B/C) ratio. Also it is noted that although NPVI and B/C lead to same tt( B ) C ) conclusions as regards the 'yes-no' choice about a Or if and only if Σt >Σ t ( 1 + r )t ( 1 + r )t project, yet may lead to conflicting conclusions t = 0 t = 0 as regards ranking of projects. Section 2 is devoted tt Σ( Bt ) /Σ Ct ) to the empirical study. Section 2.1 describes the Or if and only if t t t = 0 ( 1 + r ) t = 0 ( 1 + r ) sample. Section 2.2 presents the analysis. Section tt 3 concludes the paper. Σ( Bt ) /Σ (Ct ) Expression ( 1 + r )t ( 1 + r )t The Theoretical Framework t = 0 t = 0 Definitions : is generally called benefit/cost (B/C) ratio. Consider a project. Define an expression It must be noted that although in case of 'yes-no' choice of a single project (B/C) and NPVI are t ( B - C ) Σ t t (1) equivalent criteria, the two criteria may not be ( 1 + r )t t = 0 equivalent in case of ranking across projects. The where point can be illustrated by an example. Suppose the present value of benefits of project X Bt is the benefit and Ct is the cost due to the project in period t, is 500, and of costs is 300. Suppose the present r is the appropriate uniform rate of discount for value of benefits of Y is 1000, and of costs is 700.