ON THE

JOB TRAINNG REPORT

CAPITAL BUDGETING

AT

SJVN PVT LTD.

SUBMITTED TO HIMACHAL PRADESH TECHNICAL UNIVERSITY,

HAMIRPUR IN PARTIAL FULFILLMENT FOR THE AWARD OF
DEGREE OF MASTERS OF BUSINESS ADMINISTRATION

SESSION 2018-2020

SUBMITTED BY

XXX

L.R INSTITUTE OF MANAGEMENT

JABLI-KYAR, P.O OACHGHAT, DIST SOLAN (H.P)

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 ACKNOWLEDGEMENT

Exchange of ideas generates energy and a will in a better way. Wherever others help a person he
is bound to pay gratitude to them, acknowledgement is not merely a formality, rather an
expression of deep gratitude.

I take opportunity to express my sincere gratitude and thanks to all those who helped me in
various ways in the successful completion of my training report.

It is a privilege to record my heartfelt gratitude to my esteemed teachers and trainees. I shall

remain indebted to his able to mature guidance and whole hearted cooperation. I wish to thank
for his constant moral support and the assistance. He regularly provided me.

I am extremely grateful to all the respondents for their solicited and selfless help.

I owe my thanks to beloved family and friends for their constant moral support. They are the
ones who have encouraged me at every step of my life

XXX

2
 DECLARATION

I hereby XXX Roll No. XXX declare that I have done the training report on the topic “SJVN
PVT. LTD” is submitted in partial fulfillment of the degree of HIMACHAL PRADESH
TECHNICAL UNIVERSITY HAMIRPUR, it is declared that it has original piece of work and
is worthy for degree of MBA

Counter signed by: Signature

Director

L.R INSTITUTE OF MANAGEMENT

Signature

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 CONTENTS

S No Contents Page No
1 Company profile 8-18
1.1 History
1.2 Vision, Mission, Objectives
1.3 Swot Analysis
1.4 Organizational structure
2 Topic: Capital budgeting 19-23
2.1 Meaning and Concept of Capital
budgeting
2.1 Meaning and Concept of Capital
budgeting
2.3 Importance of Capital budgeting
2.4 Different Sources of Capital budgeting

3 Work Profile 24-38

weekly report
Week 1
Week 2
Week 3
Week 4
Week 5
Week 6
Week 7
4 Suggestions and findings 39-40
References

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 CHAPTER- 1

INTRODUCTION

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Company Profile
SJVN LTD

The SJVN Ltd (formerly Satluj Jal Vidyut Nigam Limited-SJVNL ) was incorporated on May
24. 1988 as a joint venture of the Government of India ( GOl ) and the Government of Himachal
Pradesh (GOHP) to plan, investigate, organize,execute, operate and maintain Hydro-electric
power projects. The present authorized share capital of SJVN is Rs 7000 crores.

The Nathpa Jhakri Hydro — Electric Power Station — NJIIPS (1500 MW) was the first project
undertaken by SJVN for execution. In addition to the financial assistance from the World Bank,
SJVN has also been financed as loan by a Consortium of European Banks. the Power Finance
Corporation (PFC) and various domestic commercial banks. Besides the social and economic
upliftment of the people in its vicinity, the 1500 MW NJHEP has been designed to generate 6612
MU of electrical energy in a 90% dependable year with 95 % machine availability. It is also
providing 1500 MW of valuable peaking power to the Northern Grid. Out of the total energy
generated at the bus bar. 12 percent is supplied free of cost to the home state i.e. Himachal
Prndesh. From the remaining 88% energy generation. 25% is supplied to HP at bus bar rates.
Balance power has been allocated to the beneficiary states / UTs of Northern Region by Ministry
of Power.

Government of India.
Beside above. indirect benefits have also accrued to the region by way of increase in agriculture
and industrial production. In addition, the project has provided gainful employment to a large
number of skilled and unskilled workers and has also opened the landlocked hinterland by
providing essential facilities such as schools, hospitals etc. for the people of the area. Thus. 1500
MW NJIIPS has ushered in the social and economic upliftment of the persons living in the
vicinity of the Project i.e. of society at large.

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VISION

To be best in class Indian power-company globally admired for developing affordable clean
power and sustainable value to all stake holders.

MISSION

 To drive socio-economic growth and optimize stakeholders interests by:

 Developing and operating projects in cost effective and socio-environment friendly
manner.
 Nurturing human resources talent with care.
 Adopting innovative practices for technological excellence.
 Focusing on continuous growth and diversification.

OBJECTIVES

 Operating and maintaining power stations with maximum performance efficiency.

 Establishing and following sound business, financial and regulatory policies.
 Taking up of other hydro power projects.
 Completion of the new projects allocated to SJVN in an efficient and cost effective
manner.
 Use of the best project management practices for the project implementation by applying
latest universally accepted Project Management Techniques and by enabling its
engineers, to become certified Project Managers through further trainings.
 Dissemination of available in-house technical and managerial expertise to other utilities /
projects.
 Creating work culture and work environment conducive to the growth and development
of both the organization and the individuals through introduction of participative
management philosophy.

 Fulfilling social commitments to the society. Achieving constructive cooperation and

building personal relations with stakeholders. peers. and other related organization.

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  Striving clean and green project environment with minimal ecological and social
disturbances.
 To strive for acquiring Nav Ratna Status.

SJVN’S HYDROELECTRIC PROJECTS

NJHEP
NATHPA JHAKRI HYDRO ELECTRIC PROJECT

The Nathpa Jhakri Hydroelectric Station of 1500 MW capacity is the country’s largest
hydropower plant. The run of the river project is located on River Sutlej. A major tributary on

8
the Indus basin, in Shimla district of Himachal Pradesh in North India. The Nathpa Thakri plant
is designed to generate 6950.88 (6612) million units of electricity each year but quality
management at the plant has enabled generation to exceed yearly targets. A Memorandum of
Understanding for execution of the Nat hpa-Jhakri project was signed between Government of
India and Government of Ilimachal Pradesh in July. 1991. The Nathpa Thakri Hydroelectric
project has been financed on a 50:50 debt equity ratio basis. The project had the backing of
World Bank. The project was completed ata cost of Rs 8187 Crore. The Nathpa Jhakri project
was commissioned in May, 2004 and officially dedicated to the nation by Prime Minister
Manmohan Singh on May 28, 2005. Power Allocation to various states and UTs

S No State Allocation in MW Percentage in

installed capacity
1 HARYANA 64 4.27
2 HIMACHAL PRADESH 547 36.4
3 JAMMU AND KASHMIR 105 7.00
4 PUNJAB 114 7.60
5 RAJASTHAN 112 7.47
6 UTTARPRADESH 221 14.73
7 UTTARANCHAL 38 2.53
8 CHANDIGARH 08 0.53
9 DELHI 142 9.47
10 UNALLOCATED QUOTA AT THE 149 9.93
DISPOSAL OF THE CENTRAL GOVT.

RHEP
RAMPUR HYDRO ELECTRIC PROJECT
The Rampur project with a generation potential of 412 MW is located on River Satluj. A major
tributary of Indus basin, in Shimla and Kullu district of Himachal Pradesh in North India. The
project is designed as a cascade run of the river plant to India’s largest hydroelectric power plant,
the 1500 MW Nat hpa Jhakri plant.The Rampur project has the potential to generate 1969.68
9
million units of electricity each year The Ranipur Hydroelectric Project involves financing of
the project on a 70:30 debt-equity ratio basis. The Rampur Project is backed by the World Bank.
Construction of Rampur Project began in February, 2007 and all the six units of 68.67 MW each
is scheduled to be commissioned by March 2014.The Rampur Project is a very environment
friendly project as it does not involve construction of any diversion dam or any dc-silting Cham-
bers and does not inundate any land.
LUHRI HYDRO ELECTRIC PROJECT
The Luhri Pmject with a generation potential of 588 MW is located on River Satluj. a major
tributary of Indus basin, in Shimla/Kullu/Mandi district of Himachal Pradesh in North India. The
pruject is designed as a standalone run of the river project. The Luhri project has the potential to
generate 2244 million units in a 9O9 dependable year. The Memorandum of Understanding for
execution of Luhti project was signed with the Government of Himachal Pradesh on October 27.
2008. The estimated cost of the project at January. 2013 price level is Rs. 7137.02 Cr. The
Project shall be financed on 70:30 debt equity ratio. The equity portion is to be shared between
the Govt. of India (GOl) and govt. of Himachal Pradesh (GOHP).
DEVSARI HYDRO ELECTRIC PROJECT
The Devsari project with a generation potential of 252 MW is located on River Pinder, on Ganga
basin, in Chamoli district of Uttamkhand state in North India. The project is designed as a
standalone run of the river project. The Devsari project has the potential to generate 936.90
million units of electricity each year. A Memorandum of Understanding for execution of Ðevsari
project was signed with the Government of Uttarakhand on November 21. 2005.The Devsari
hydroelectric Project involves financing of the project on a 70:30 debt-equity ratio basis. The
estimated cost of the project at June, 2012 price levels is Rs 1790.09 crores Construction period

NAITWAR MOÑ HYDRO ELECTRIC PROJECT

The Naitwar Mon Project with a generation potential of 60 MW is located on River Tons, a
major tributary of River Yamuna on the Ganga basin, in Uttarkashi district of Uttarakhand state
in North India. The project is designed as a standalone run of the river project. The Naitwar Mori
project has the potential to generate 265.5 million units of electricity each year.A Memorandum

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of Understanding for execution of Naitwar Mohri project was signed with the Government of
Uttarakhand in November 21. 2005.The Naitwar Mon Hydroelectric Project involves financing
of the project on a 70:30 debt-equity ratio basis. The estimated cost of the project at March 2012
price levels is Rs 664.6 crors. Construction period of Naitwar Mori project is 4 years.

JAKHOL SANKRI HYDRO ELECTRIC PROJECT

The Jakhol Sankri Project with a generation potential of 5) MW is located on River Supin, a
tributary of River Tons and part of River Yainuna on the Ganga basin, in Uttarkashi district of
Uttarakhand state in North India.The project is designed as a standalone run of the river project.
The Jakhol Sankri project has the potential to generate 2)6.26 million units of electricity each
year. A Memorandum of Understanding for execution of Jakhol Sankri project was signed with
project is 48 months. the Government of Uttarakhand in November 21, 2005 Construction period
of Jakhol Sankri

AI-UN III HYDRO ELECTRIC PROJECT

Memorandum of Understanding (MOU) was signed with the Govt. of Nepal for the execution of
900 MW Aiim —III HE Project onO2.03.2008. Proposed to be located in the Sankhuwasabha
Distt. of Nepal which is 657 Km from Kathiuandu via Birat Nagar. The Survey license for
generation was issued by Govt. of Nepal during July 2008 & extended upto 17.07.2013. TOR
clearance for lEE of roads issued by Govt.of Nepal on 20.04.20 10. Letter of intent issued on
23.05.201010 carry out infrastructure work at Dam & Power house site. Detailed Project
Agreement is in the process of exaiui nation by GoN before signing. FSR & commercial viability
for 900 MW was approved by CEA on 23.02.2010. Final DPR submitted to CEA on 31.03.2011
and under examination for vetting.

DHAULASIDH HYDRO ELECTRIC PROJECT

The Dhaulasidh Project with a generation potential of 66 MW is located on River Beas. part of
the Indus basin. in Hamirpur district of Himachal Pradesh in North India. The project is designed
as a mn of the river project with a small live storage that would be utilized for peaking power
during the lean season. The Dhaulasidh project design holds potential of generating 253.18.
million units of electhc energy each year he Dhaulasidh hydroelectric Project involves financing

11
of the project on a 70:30 debt-equity ratio basis. The estimated cost of the project at June. 2012
price levels is Rs 774.1 crores including DC. Constmction period of the project is 54 months.

WANGCHU HYDRO ELECTRIC PROJECT

Wangchu I-hEP with the revised installed capacity of 570 MW as a run of river scheme on the
river Wangchu in Bhutan will annually generate 1968.55 MU of energy. DPR is submitted to
CEA/MOE (RG0B) on dated 30.12.11 and under examination. A presentation was given to
RGoB authorities on 13.04.12. The Project shall be financed on 70: 30 debt equity ratio.

KHOLONGCHU HYDRO ELECTRIC PROJECT

Kholongchu HEP with the installed capacity of 600 MW on the river Kholongchu in Bhutan will
annually generate 2568.88 MU of energy. The DPR was submitted to CEA for vetting in March
2011 and is under examination & approved in principle by OEA on 05.11.20 12. RGoB approved
DPR on 23.05.201 3.The formation of SPV for the execution of the project is underway .The
Project shall be financed on 70: 30 debt equity ratio.

HYDROELECTRIC ENERGY
Hydroelectric energy is made by moving water. Hydro comes from the Greek word for water.
Hydroelectric energy has been in use for thousands of years. Ancient Romans built turbines,
which are wheels turned by flowing water. Roman turbines were not used for electricity, but for
grinding grains to make flour and breads. Water mills provide another source of hydroelectric
energy. Water mills, which were common until the Industrial Revolution, are large wheels
usually located on the banks of moderately flowing rivers. Water mills generate energy that
powers such diverse activities as grinding grain. cutting lumber, or creating hot fires to create

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HARNESSING HYDROELECTRICITY

To harness energy from flowing water, the water must be controlled. A large reservoir is created.
usually by damming a river to create an artificial lake, or reservoir. Water is channeled through
tunnels in the dam. fydro” means “ The energy of water flowing through the dams tunnels causes
turbines to turn. The turbines make generators move. Generators are machines that produce
electricity. Engineers control the amount o1 water let through the dam. The process used to
control this flow of water is called the intake system. When a lot of energy is needed, most of the
tunnels to the turbines are open. and millions of gallons of water flow through them. when less
energy is needed, engineers slow down the intake system by closing some of the tunnels. During
floods, the intake system is helped by a spill way. A spiliway is a structure that allows water to
flow directly into the river or other body of water below the dam, bypassing all tunnels, turbines,
and generators. Spillways prevent the dam and the community from being damaged. Spillways.
which look like long ramps. are empty

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HYDRO POTENTIAL
INDIA is endowed with economically exploitable and viable hydro potential assessed to be
about 84,000 MW at 607 load factor (1.48.701 MW installed capacity). In addition. 6780 MW in
ternis of installed capacity from Small. Mini. and Micro 1-lydel schemes have been assessed.
Also, 56 sites for pumped storage schemes with an aggregate installed capacity of 94.000 MW
have been identified. However. only I 9.9% of the potential has been harnes.sed so far.

Advantages of Hydro power

 A renewable source of energy - saves scarce fuel reser’es.

 Non-polluting and hence environment friendly.
 Long life - The first hydro project completed in 1897 is stilt in operation at
 Darjeeling.
 Cost of generation, operation and maintenance is lower than the other sources of energy.
 Ability to start and stop quickly and instantaneous load acceptance/rejection makes it
suitable to meet peak demand and for enhancing system reliability and stability.
 has higher efficiency (over 90%) compared to thermal (35%) and gas (atound 50%).
 Cost of generation is free from inflationary effects after the initial installation.
 Storage based hydro schemes often provide attendant benefits of irrigation, flood control,
drinking water supply, navigation, recreation, tourism, pisciculture etc.
 Being located in remote regions leads to development of interior backward areas
(education. medical, road communication. telecommunication etc.)

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KHIRVIRE WIND POWER PROJECT IN MAHARASHTRA - 47.6 MW

Letter of Award (LOA) for the Khirvire Wind Power Project has been issued to M/s Gamesha
Wind Turbines Pvt Limited, Chennai on 19.10.2012. The Scheduled Commissioning for the
project is 18.08.2013.The Contract Agreement for the project has been signed on 14.12.2012.

Solar Power Project

Solar PV Project in Gujarat - 5 MW
DPR has been prepared by M/s Gujarat Power Corp. Ltd. for 5 MW Solar PV Plant for piot no.
89 as allocated to SJVN at Charnka Solar Park. The land of 25.95 acres has been blocked at the
above mentioned plot by M/s GPCL in favour of SJVN.The 5 MW solar power project is
expected to generate approximately 8.02 MU per year. The project is to be registered under REQ
mode.The project involves financing of the project on a 70:30 debt-equity ratio basis. Buxar
Thermal Power Project (1320) Public sector enterprise SJVN has acquired 100 percent equity in
buxar bijlee company and it has been allotted a coal block in the deocha-pachaini belt in west
bengal for its upcoming 1320-mw power plant at chausa in bihar.A memorandum of
understanding (MoU) was signed in January 2013 for the joint venture between SJVN and Bihar
Power Infrastructure Company. Based on supercritical technology, the project will have two
generating units of 660MW each of these will produce 9.090 million units of electricity annually.

ISO 9001-2008 CERTIFICATION

In order to develop SJVN as a world class company in the power sector, ISO-9001- 2008
certification has been achieved and efforts are being made throughout the organization to romote
all round efficiency and professionalism in the work culture. Further, efforts of being made for
creating cohesive and conducive work culture in the organization.

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AWARDS & ACHIEVEMENTS

Vishwakarma Awards to SJVNJor CSR, Health, Safriv & Environ ment.SJVN Bags SCOPE
Coininenda (ion Certificate SJVN Awarded Gold Shield SJVN Ltd. is con frrred with the Green
tech Environment Excellence Award 2010 SJVN Limited conferred wit/i Scope Gold Medal
Award SI VN c Fornwr CAÍD Honoured with India Power A ward 2010 SJVN Bags Scope
Excel lente Award Si VNL Forner CMD Honoured with National Achievement Award for
Corporate Leaders/i ip

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1.1 Swot Analysis

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18
19
 CHAPTER- 2

Organizational structure

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21
FINANCIAL OVERVIEW

The financial position of SJVN. for 3 years. is as under: ( In Crores)

INCOME DETAILS 2016-17 2017-18 2018-19

INCOME FROM 1829.74 1909.79 1680.42
OPERATIONS
OTHER OPERATING 149.42 177.10 168.00
INCOME
TOTAL REVENUE 1976.16 1927.50 1682.10
NET PROFIT AFTER TAX 912.13 1068.68 1052.32
PAID UP CAPITAL 4136.63 4136.63 4136.63
RESERVES AND SURPLUS 3068.89

NET WORTH OF SJVN

The Net worth of SJVN is as under:

Year Net worth
( in crores )
2006-7 4925.29
2007-8 5406.0
2008-9 6047.34
2009-10 6653.76
2010-11 7205.52
2011-12 7822.28
2012-13 8410.01

CAPITAL STRUCTURE AND CREDIT WORTHNESS OF S.JVN

The total credit worthiness in the company in equity. reserves/surplus and loan funds as on
31.03.2013 was 10286.28 Crore. The source wise detail is as under:

PAID-UP-CAPITAL

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A Government of India 2666.61 Crore
B Govt of H.P 1055.02 Crore
C Others 415.00 Crore
Total 4136.63 Crore

RESERVES AND SURPLUS

Reserves and Surplus 4273.38 Crore

LOANS
Long term borrowings 1876.27 Crore

The company is making profits and paying dividends to the shareholders.

 It has the capacity to fund the equity portion of the projects from its internal resources to
a considerable extent.
 The company has developed a good rapport with its creditors with the faultless
repayment of loans
 Therefore its creditworthiness has increased over the period of time after the first venture
of the company: the NATHPA JHAKRI HPS carne into operation.

NON FINANCIAL PERFORMANCE

Year MOU Gross Target Gross Achieved
2011 6700.005 7140.077

HIGHLIGHTS OF THE YEAR 2011-12

The Nathpa Thakri Power station established a new milestone by generating 7610million units of
energy during FY 2011 -12. The generation this year was not only 470 MU more than last years

23
record production of 7140 MU but also 710 MU than the MOU targets assigned by the Ministry
of Power. Govt. of India.Plant Availability Factor during the year peaked at 104.26% against the
normativeaverage of 82%.

HIGHLIGHTS OF THE YEAR 2012 -13

During quarter ending June 2012, SJVN’s 1500 MW NJIIPS has achieved the PAF of 108% as
against 103.6% .during the corresponding period of last year. As a result additional income of Rs
5.28 crore was earned. In month of July 2012 NJ lIPS created yet another record by generating
11 86MUs.The plant reconied the highest ever single day generation of 39.015 MUs on 27th of
July 2012.For the first time, with opportune planning not a single component was sent forhard
coating during the full year 2011-12. as these were coated in the In- house coating workshop at
project site Jhakri.

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 CHAPTER- 3

WORK PROFILE

During the training period the company provided me a platform that was sufficient enough to
grasp the basics of the company profile along with the skills that were the part of my
education.Here are the segments that were covered during the training tenure. We were well
aware about the concepts and the team manager also supported us well, I would like to mention
the name of Ms Urvashi Kapoor (HR Manager ) for her guidance and assistance during the

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training and he explained the concepts of the accounts in details. During the training I came
across the following aspects of the HR department
CAPITAL BUDGETING

4.1 MEANING

Capital Budgeting is the process of making investment decisions in capital expenditure. A capital
expenditure may be defined as an expenditure the benefit of which are expected to be received
over a period of time exceeding one year. The main characteristics of a capital expenditure are
that the expenditure is incurred at one point of time whereas benefits of the expenditure are
realized at different points of time in future. Capital expenditure involves non-flexible long term
commitment of funds. Thus capital expenditure decisions are also called Long-Term Investment
Decision. Capital budgeting involves the planning and control of capital expenditure.

DEFINITION:

R.M.LYNCH has defined capital Budgeting as “Capital Budgeting consists of employment of

available capital for the purpose of maximizing the long term profitability of the firm”.

Capital Budgeting is a many-sided activity. It includes searching for new and more profitable
investment proposals, investigating, engineering and marketing considerations to predict the
consequences of accepting the investment and making economic analysis to determine the profit
potential of each investment proposal. Its basic features can be summarized as follows;

1. It has the potentiality of making large anticipated profits.

2. It involves a high degree of risk.
3. It involves a relatively long-time period between the initial
Capital Budgeting consists of planning and the development of available capital for the purpose
of mximizing the long-term profitability of the firm.

4.2 NEED AND IMPORTANCE OF CAPITAL BUDGETING

Capital Budgeting means planning for capital assets. Capital Budgeting decisions are vital to any
organization as they include the decision to;

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1. Whether or not funds should be invested in long term projects such as setting of an industry,
purchase of plant and machinery etc.,
2. Analyze the proposal for expansion or creating additional capacity.
3. To decide the replacement of permanent assets such as building and equipments.
4. To make financial analysis of various proposal regarding capital investments so as to choose
the best out of many alternative proposals.

The importance of capital Budgeting can be well understood from the fact that an unsound
investment decision may prove to be fatal to the very existence of the concern. The need,
significance or importance of capital budgeting arises mainly due to the following.

1. Large Investments

Capital budgeting decisions, generally involves large investment of funds. But the funds
available with the firm are always limited and the demand for funds exceeds the resources.
Hence it is very important for a firm to plan and control its capital expenditure.

2. Long-term commitment of Funds

Capital expenditure involves not only large amounts of funds but also funds for long-term or
more or less on permanent basis. The long-term commitment of funds increases the financial risk
involved in the investment decision.

3. Irreversible Nature

The capital expenditure decisions are of irreversible nature. Once the decisions for acquiring a
permanent asset is taken, it became very difficult to dispose of these assets without incurring
heavy losses.

4. Long-term Effect of profitability

The investment decisions taken today not only affects present profit but also the future
profitability of the business. A profitable project selection is fatal to the business.

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5. Difficulties of investment decisions

The long term investment decisions are more difficult to take because,

1. Decision extends to a series of years beyond the current accounting period.

2. Uncertainties of future and
3. Higher degree of risk.
6. National Importance

An investment decision through taken by individual concerns is of national importance because

it determines employment, economic activities and economic growth.

7. Effect on cost structure

By taking a capital expenditure decision, a firm commits itself to a sizeable amount of fixed cost
in terms of interest, supervisors salary, insurance, building rent etc. If the investment turns out to
be unsuccessful in future or produces less than anticipated profits, the firm will have to bear the
burden of fixed cost.

8. Impact on firm’s competitive strength

The capital budgeting decisions affect the capacity and strength of a firm to face competition. It
is so because the capital investment decisions affect the future profits and costs of the firm. This
will ultimately affect the firms competitive strength.

9. Cost control

In capital budgeting there is a regular comparison of budgeted and actual expenditures. Therefore
cost control is facilitated through capital budgeting.

10. Wealth Maximization

The basic objective of financial management is to maximize the wealth of the shareholders.
Capital budgeting helps to achieve this basic objective. Capital budgeting avoids over

28
investments and under investments in fixed assets. In this way capital budgeting protects the
interest of the shareholders and of the enterprise.

4.3 STEPS IN CAPITAL BUDGETING

Capital budgeting is a complex process. It involves decision relating to the investment of current
funds for the benefit to be achieved in future which is always uncertain. Capital budgeting is a
six step process. The following steps are involved in capital budgeting;

1. Project generation

The capital budgeting process begins with generation or identification of investment proposals.
This involves a continuous search for investment opportunities which are compatible with firm’s
objectives.

2. Project screening

Each proposal is then subject to a preliminary screening process in order to assess whether it is
technically feasible, resources required are available, and expected returns are adequate to
compensate for the risks involved.

3. Project evaluation

After screening of project ideas or investment proposals the next step is to evaluate the
profitability of each proposal. This involves two steps;

Estimation of cost and benefit in terms of cash flows

Selecting an appropriate criterion to judge the desirability of the project.
4. Project selection

After evaluation the next step is the selection and the approval of the best proposal. In actual
practice all capital budgeting decision are made at multiple levels and are finally approved by top
management.

5. Project execution and implementation

29
After the selection of project funds are allocated for them and a capital budget is prepared. It is
the duties of the top management or capital budgeting committee to ensure that funds are spend
in accordance with allocation made in the capital budget.

6. Performance review

After the implementation of the project, its progress must be reviewed at periodical intervals.
The follow-up or review is made by comparing actual performance with the budget estimates.

4.4 OPERATING BUDGET AND CAPITAL BUDGET

Most of the large firms prepare two different budgets each year.

1. OPERATING BUDGET

Operating budget shows planned operations for the forthcoming period and includes sales,
production, production cost, and selling and distribution overhead budgets. Capital budgets deals
exclusively with major investment proposals.

2. CAPITAL EXPENDITURE BUDGET

Capital Expenditure is a type of functional budget. It is the firm’s formal plan for the expenditure
of money for purchase of fixed assets. The budget is prepared after taking in to account the
available production capacities, probable reallocation of existing resources and possible
improvements in production techniques. If required, separate budgets can be prepared for each
item of capital assets such as a building budget, a plant and machinery budget etc.

4.5 OBJECTIVES OF CAPITAL EXPENDITURE BUDGET

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The objectives of Capital Expenditure Budget are as follows.

1. It determines the capital projects on which work can be started during the budget period
after taking in to account their urgency and the expected rate of return on each project.
2. It estimates the expenditure that would have to be incurred on capital projects approved by
the management together with the source or sources from which the required funds would be
obtained.
3. It restricts the capital expenditure on projects within authorized limits.

CONTROL OVER EXPENDITURE THROUGH CAPITAL EXPENDITURE BUDGET

The capital expenditure budget primarily ensures that only such projects are taken in hand which
are either expected to increase or maintain the rate of return on capital employed. Each proposed
project is appraised and only essential project or projects likely to increase the profitability of the
organization are included in the budget. In order to control expenditure on each project, the
following procedure is adopted.

1. A project sheet is maintained for each project.

2. In order to ensure that the expenditure on different project is properly analyzed.
3. The expenditure incurred on the project is regularly entered on the project sheets from
various sources such as invoices of assets purchased, bill for delivery charges etc.,
4. The management is periodically informed about expenditure incurred in respect of each
project under appropriate heads.
5. In case project cost is expected to increase; a supplementary sanction for the same is
obtained.
6. In financial books the total expenditure incurred on all projects is separately recorded.

4.6 TACTICAL AND STRATEGIC INVESTMENT DECISION

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Investment decision can be classified as,

1. Tactical Decision

A Tactical Decision generally involves a relatively small amount of funds and does not constitute
a major departure from the past practices of the company.

2. Strategic Decision

A Strategic Investment Decision involves a large sum of money and may also result in a major
departure from the past practices of the company. Acceptance of a Strategic Investment Decision
involves a significant change in the company’s expected profits associated with a high degree of
risk.

4.7 RATIONALE OF CAPITAL EXPENDITURE

Efficiency is the rationale underlying all capital decisions. A firm has to continuously invest in
new plant or machinery for expansion of its operations or replace worn-out machinery for
maintaining and improving its efficiency. The overall objective is to maximize the firm’s profits
and thus optimizing the return on investment. This objective can be achieved either by increased
revenues or by cost reduction. Thus capital expenditure can be of two types;

1. Expenditure Increasing Revenue

2. Expenditure Reducing Cost

4.8 KINDS OF CAPITAL INVESTMENT PROPOSALS

A firm may have several investment 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

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These are proposals which do not compete with one another in a way that acceptance of one
precludes the possibility of acceptance of another. In case of such proposals the firm may straight
away “accept or reject” a proposals on the basis of minimum return on investment required. All
these proposals which give a higher return than a certain desired rate of return are accepted and
the rest are rejected.

2. CONTINGENT OR DEPENDENT PROPOSALS

These are proposals whose acceptance depends on the acceptance of one or more other
proposals. When a contingent investment proposal is made, it should also contain the proposal on
which it is dependent in order to have a better perspective of the situation.

3. MUTUALLY EXCLUSIVE PROPOSALS

These proposals which compete with each other in a way that the acceptance of one precludes
the acceptance of other or others. Two or more mutually exclusive proposals cannot both or all
be accepted. Some techniques have to be used for selecting the better or the best one. Once this is
done, other alternative automatically gets eliminated.

4. REPLACEMENT PROPOSALS

These aim at improving operating efficiency and reducing costs. These are called cost reduction
decisions.

5. EXPANSION PROPOSALS

This refers to adding capacity to existing product line.

6. DIVERSIFICATION PROPOSALS

Diversification means operating in several markets rather than a single market. It may also
involve adding new products to the existing products. Diversification decisions require
evaluation of proposals to diversify in to new product lines, new markets etc., for reducing the
risk of failure.

7. CAPITAL RATIONING PROPOSALS

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Capital rationing means distribution of capital in favor of some acceptable proposals. A firm
cannot afford to undertake all profitable proposals because it has limited funds to invest. In such
a case, these various investment proposals compete for limited funds and the firm has to ration
them. Thus the situation where the firm is not able to finance all the profitable investment
opportunities due to limited resources is known as capital rationing.

4.9 FACTORS AFFECTING CAPITAL INVESTMENT DECISIONS

The following are the four important factors which are generally taken in to account while
making a capital investment decision.

1. The Amount of Investment

In case a firm has unlimited funds for investment it can accept all capital investment proposals
which give a rate of return higher than the minimum acceptable or cut-off rate.

2. Minimum Rate of Return on Investment

The management expects a minimum rate of return on the capital investment. The minimum rate
of return is usually decided on the basis of the cost of capital.

3. Return Expected from the Investment

Capital investment decisions are made in anticipation of increased return in the future. It is
therefore necessary to estimate the future return or benefits accruing from the investment
proposals while evaluating the capital investment proposals.

4. Ranking of the Investment Proposals

When a number of projects appear to be acceptable on the basis of their profitability the project
will be ranked in the order of their profitability in order to determine the most profitable project.

4.10 METHODS OF CAPITAL BUDGETING OR EVALUATION OF INVESTMENT

PROPOSALS

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A business firm has a number of proposals regarding various projects in which it can invest
funds. But the funds available with the firm are always limited and it is not possible to invest
funds in all the proposals at a time. The most widely accepted techniques used in estimating the
cost returns of investment projects can be grouped under two categories;

1. TRADITIONAL METHODS (NON DISCOUNTED CASH FLOW)

a. Payback Period Method

b. Average rate of Return Method

2. MODERN METHODS (DISCOUNTED CASH FLOW)

a. Net Present Value Method

b. Internal rate of Return Method
c. Profitability Index Method

TRADITIONAL METHODS (NON DISCOUNTED CASH FLOW)

A. PAY BACK PERIOD METHOD

The payback period method is the simplest method of evaluating investment proposals. Payback
period represents the number of years required to recover the original investment. The payback
period is also called Pay Out or Pay off Period. This period is calculated by dividing the cost of
the project by the annual earnings after tax but before depreciation. Under this method the
project is ranked on the basis of the length of the payback period. A project with the shortest
payback period will be given the highest rank.

METHODS OF COMPUTATION OF PAYBACK PERIOD

There are two ways of calculating the payback period.

a. When annual cash inflow is constant

The formula is find out the payback period if the project generates constant annual cash inflow
is;

Payback period = Original cost of the project

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 Annual cash inflow

Annual cash inflow is the annual earning (profit depreciation and after taxes) before

WEEKLY REPORT
 WEEK 1

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 The training stared with the basic awareness and exposure of the company profile and the
team was lead through the basics of the company and a complete round of the premises,
equipment’s, machines and structure and other related segments.
 WEEK 2
This week was the main study based training part, we were made well aware about the
types of recruitments. Working strategies and employee management along with work
responsibilities as per the departments
 WEEK 3
This week was the awareness of the Capital Budgeting structure and getting in the details
WEEK 4
This week was also the part of Capital Budgeting structure of the organization
 WEEK 5
The main part of the study was done in this week about the Capital Budgeting
 WEEK 6
This week was also utilized in training the working capital of the organization with all the
system in deep details including all aspects that are the roots of the Capital Budgeting
running and maintenance.
 WEEK 7
This week was the later part of the training and was engaged in other related parts of the
organization like hazard situation dealing, medication and backup support and other
related part of the organization running processes.

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 CHAPTER- 4

CONCLUSION AND BIBLIOGRAPHY

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CONCLUSION:

The short-term solvency of SJVN and NHPC has a rising trend. But, the short term solvency of
SJVN is far better than NHPC SJVN is in better position to pay off its Current Liabilities. The
profitability ratio of SJVN has rising trend. On the other hand Nl-IPC has a declining trend in its
profitability. This shows that SJVN is performing better year by year While NIIPC is not
performing well as compared to previous years.The long-term solvency position of both of the
companies is good. SJVN has preferred more use of equity. On the other hand N I I P C has
preferred more debt in proportion as compared to the SJVN. Capital budgeting positions of both
of the companies have a decreasing trend.The Working Capital has increased more in proportion
as compared to Sales in case of both of the firms

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 BIBLIOGRAPHY

REFERENCES

 Satluj Vani-Bi- monthly house journal

 Annual Reports of Si VNL& NHPC

BOOKS

 IM Pandey : Financial Management

 TS GREWAL :Analysis of FINANCIAL STATEMENTS

WEBSITES

 www.sjvn.nicin

 www.nhpc.co.in

 www.study mode.co.in

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