Team Members:

Manish Garg.
Manoj kumar.
Maninder Pal Singh
Ayaz Alam.
Saif Siddiqui
Gaurang Purwar.
Bhism Narayana.
Irshaad Hussain.
 Concerned with designing & carrying out through a systematic
investment programme.

 Under capital budgeting, proposed capital expenditures & their

financing are considered and projects assuring the most profitable use
of given resources are undertaken.

 Capital budgeting refers to the process of generating, evaluating,

selecting, and following up on capital expenditure alternatives.
 The Time value of money is the value of money
figuring in a given amount of interest earned over a
given amount of time.
 For example- RS.100 of today's money invested for one
year and earning 5% interest will be worth RS.105 after
one year. Therefore, RS.100 paid now or RS.105 paid
exactly one year from now both have the same value to
the recipient who assumes 5% interest; using time value
of money terminology, RS.100 invested for one year at
5% interest has a Future value of RS.105.
Future value measures the nominal future sum of money that a
given sum of money is "worth" at a specified time in the future
assuming a certain interest rate, or more generally, rate of return; it
is the present value multiplied by the accumulation function.

Future value= PV (1 + r)i

 The payback period methods, being the time period required to return
the original investment.
 Payback period in business refers to the period of time required for the
return on an investment to "repay" the sum of the original investment.
 It intuitively measures how long something takes to "pay for itself.“
 Shorter payback periods are preferable to longer payback periods.

 For example, a $1000 investment which returned $500 per year would
have a two year payback period.
 The net present value (NPV) method: Cost of capital minus the Present Value
of the capital cost of the investment.
 In finance, the net present value (NPV) or net present worth (NPW) is
defined as “the sum of the present values (PVs) of the individual cash flows”.
 The Net Present Value (NPV) of an investment is the present value of the
expected cash flows, less the cost of the investment
 NPV is an indicator of how much value an investment or project adds to the
firm.
If... It means... Then...
NPV > 0 the investment the project may be accepted
would add value to
the firm
NPV < 0 the investment the project should be rejected
would subtract value
from the firm

NPV = 0 the investment We should be indifferent in the

would neither gain decision whether to accept or
nor lose value for the reject the project.
firm This project adds no monetary
value.
Decision should be based on other
criteria, e.g. strategic
positioning..etc..
 The Internal rate of return (IRR) is a rate of return used in
capital budgeting to measure and compare the profitability of
investments.
 It is also called the discounted cash flow rate of return
(DCFROR) or simply the rate of return (ROR).
 The term internal refers to the fact that its calculation does not
incorporate environmental factors.
 In more familiar terms, “IRR of an investment is the interest
rate at which the costs of the investment lead to the benefits of
the investment”
 Profitability index (PI), also known as profit investment
ratio (PIR) and value investment ratio (VIR) is the ratio of
investment to payoff of a proposed project.
 Profitability index is the ratio of the present value of cash
inflows, at the required rate of return, to the initial cash
outflow of the investment.

If PI > 1 Then accept the project

If PI < 1 Then reject the project