CHAPTER 1 INTRODUCTION

Capital project planning is the process by which companies allocate funds to various investment projects designed to ensure profitability and growth. Evaluation of such projects involves estimating their future benefits to the company and comparing these with their costs. In a competitive economy, the economic viability and prosperity of a company depends upon the effectiveness and adequacy of capital expenditure evaluation and fixed assets management. Capital budgeting refers to planning the deployment of available capital for the purpose of maximizing the long-term profitability of the firm. It is the firms decision to invest its current funds most efficiently in long-term activities in anticipation of future benefits over a series of years. In other words, capital budget may be defined as the firms decision to invest its current funds most efficiently in the long term assets in anticipation of an expected flow of benefits over a series of years. Therefore, it involves a current outlay or series of outlay of cash resources in return for an anticipated flow of future benefits. capital budgeting is the process to identify, analysis and select investment projects, whose returns (cash flows) are expected to extend beyond one year. Firms investment decisions would generally a include expansion, acquisition, modernization, replacement of fixed assets or long-term assets. From the above definition, we may identify the basic features of capital budgeting viz., potentially large anticipated benefits, relatively a high degree
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risk, and a relatively long-time period between the initial outlay and anticipated return.

SOURCES OF DATA:
Methodology is a systematic process of collecting information in order to analyze and verifies a phenomenon. The collection of data is through two principle sources. They are discussed as 1) Primary data 2) Secondary data

PRIMARY DATA:
The primary data needed for the study is gathered through interview with concerned officers and staff, either individually or collectively, sum of the information has been verified or supplemented with personal observation conducting personal interviews with concerned officers of finance department of Azingo pvt ltd.

SECONDARY DATA:
The secondary data needed for the study was collected from published sources such as, pamphlets of annual reports, returns and internal records, reference from text books and journal management. Further data needed for the study was collected from:3

 Collection of required data from annual records of the company. Reference from text books and journals relating to financial management

DIAGRAMITIC METHODOLOGY:

REPRESENTATION

OF

RESEARCH

TOOLS USED FOR ANALYZING:

Modern capital budgeting techniques are: PI Profitability Index NPV Net Present Value IRR Internal Rate of Return

IMPORTANCE OF THE STUDY:

Capital investments, representing the growing edge of a business, are deemed to be very important THREE inter-related factors

1) The influence firm growth in the long term consequences capital investment
decisions have considerable impact on what the firm can do in future.

2) They affect the risk of the firm; it is difficult to reverse capital investment
decisions because the market for used capital investment in ill organized or most of the capital equipments bought by a firm to meet its specific requirements.

3) Capital investment decisions involve substantial outlays.

In Azingo, capital budgeting is more or less a continuous process and it is carried out by different functional areas of management such as production, marketing, chemical engineering, financial management etc., all the relevant functional departments play a crucial role in the capital budgeting decision process.

OBJECTIVES OF THE STUDY:

 To present theoretical framework relating to capital budgeting. To evaluate the effectiveness of capital expenditure decisions of company. To provide support in order to accomplished the overall goal of the capital budgeting system of Azingo Pvt Ltd To evaluate the elements consider by the Azingo Pvt Ltd during expansion of project.

1.6 SCOPE OF THE STUDY:

 The scope of study is limited to AZINGO Pvt Ltd. Hyderabad; it does not relate to any other branches of the company. Only certain numbers of projects are studied for the research.

LIMITATIONS OF THE STUDY:

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 The major limitation is the time; the study was conducted within in 45 days. The study is carried based on the information and documents provided by the organization. There was no scope of gathering current information, as the auditing has not been done by time of project work. The rationale underlying of capital budgeting decisions efficiency. Thus, a firm must replace worn and obsolete plant and machinery, acquire fixed assets for current and new products and make strategic investment decisions. This will enable the firm to achieve its objective of maximizing profits either by way of increased revenues or cost reductions. The quality of these decisions is improved by capital budgeting. Capital budgeting decision can be of two types: 1) To those which expand revenues, and To those which reduce costs

CHAPTER-II REVIEW OF LITERATURE:

REVIEW OF LITERATURE:
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A case study on Modern Capital Budgeting Techniques by Anita Shukla - www.eassytown.com From the study it has been indentified that if two investments has having positive NPV and IRR is more than cost of capital then project having more NPV will be accepted, because the IRR is biased towards with higher initial cash flows, hence the IRR would be higher for those projects whose initial cash flows are higher, yet that does not necessarily mean that those projects would have the higher NPV. Here, we must consider a very important point: the bottom line for any capital budgeting decision is accepting the project that would create the highest added value for shareholders, hence the higher the NPV, the more attractive the investment Capital BudgetingFinancial appraisal of Investments Projects by Don Dayananda, Steve Harrison. "The results of this study demonstrated the importance of considering external factors in the capital budgeting process. The role of local and national governments must also be considered. This study will help others realize how important it is to include external factors in their capital budgeting analysis. This can make the process difficult, especially if the superior does not understand the importance of external variables that can affect the outcome of the project."

10

Research

on

Importance

of

Capital

Budgeting

Techniques

in

International Scale by Ervin L.Black published in Journal of Accounting and Finance, 7th Edition The purpose of this research is to examine the application of capital budgeting on an international scale. Capital budgeting involves the making of investment decisions related to assets. The "capital" in capital budgeting refers to the investment of resources in assets, while the budgeting refers to the analysis and assessment of revenue inflows and outflows related to the proposed capital investment over a specified period of time. The purpose of capital budgeting is two-fold. First, the process must determine whether or not a proposed capital investment will be a profitable one over the specified time period; and, second, the process must provide management with a means of selecting between investment alternatives.

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CHAPTR-III COMPANY PROFILE

THEORETICAL BACKGROUND OF THE TOPIC: FEATURES OF CAPITAL BUDGETING PROCESS:

Capital budgeting decisions have the following features: It involves exchange of current funds for future a benefits.
12

 They benefit future periods. They have the effect of increasing the capacity, efficiency, span of life regarding future benefits. Funds are invested in long-term activities

Some of the examples of capital budgeting decision are: Introduction of a new product. Expansion of business by investing in plant and machinery.

Replacing and modernizing a process. Mechanization of process. Choice between alternative machines.

TYPES OF CAPITAL BUDETING DECISIONS:

Capital budgeting decisions are of paramount importance in financial decision making. In first place they affect the profitability of the firm. They also have a bearing on the competitive position of the firm because they relate to fixed assets. The fixed assets are true goods than can ultimately be sold for-profit. Generally the capital budgeting of investment decision includes addition, disposition, modification, and replacement of fixed assets.

13

Diagram 1.1.1:

EXPANSION OF EXISTING BUSINESS:

A company may add capacity to its existing product lines to expand existing operations. For example Siva Shakthi Bio Planttec may increase its plant capacity to manufacture more detergents soaps & powder. It is an example of related expansion.
14

EXPANSION OF NEW BUSINESS:

A Firm may expand its activities in a new business expansion of a new business requires investment and new kind of production activating with in the firm. If packing manufacturing company invests in a new plant and machinery to produce ball bearings, which the firm has not manufactured before, this represents expansion of new business or unrelated diversification. Sometimes accompany acquires existing firms to expand its business.

REPLACEMENT AND MODERANIZATION:

The main objective of modernization and replacement is to improve operating efficiency reduce costs. Cost savings will reflect in the increased profits, but the firms revenue may remain unchanged. Assets become outdated and absolute with technological changes. The firm must decide to replace those with new assets that operate more economically. Replacement decisions help to introduce more efficient and economical assets and therefore, are also called costreduction investments. However replacement decisions that involve substantial modernization and technological improvements expand revenues as well as reduce costs. Yet another useful way to classify investments is as follows: Mutually exclusive investments Independent investments
15

 Contingent investments

FACTORS FOR CAPITAL BUDGETING:

Cost of acquisition of permanent asset as land and building, plant and machinery, goodwill, etc. Cost of addition, expansion, Improvement or alteration in the fixed assets. Cost of replacement of permanent assets. Research and development project cost, etc.

CAPITAL BUDGETING PROCESS:

The preparation of the capital budget is a process that lasts many months and is intended to take into account neighborhood and bough needs as well as organization wide. The process begin in the fall, when each of the segment holds public hearings, each community board submits a statements of its capital priorities for the next fiscal year to the managing director and appropriate

16

borough chairmen. The capital budgeting process involves 8 steps explained in theoretic as follows: 1. Identification of investment proposals 2. Screen proposals 3. Evaluation of various proposals 4. Fixing priorities 5. Final approval 6. Implementing proposals 7. Performance review 8. Feed back

IDENTIFICATION OF INVESTMENT PROPOSALS:

The capital budgeting process begins with the identification of investment proposals. The investment proposals are initiated from the top management or from any officer of the organization. The department head analyses the various proposals in the light of the corporate strategies and submit the suitable proposal

17

to the capital budgeting committee in case of large organizations concerned with process of long-term investment proposals. Identification of investment ideas it is helpful to Monitor external environment regularly to scout investment opportunities. Formulate a well defined corporate strategy based on through analysis of strengths, weaknesses, opportunities, and threats. Share corporate strategy and respective with persons. Motivate employees to make suggestions.

SCREEN PROPOSALS:
The expenditure planning committee screens the various proposals received from different departments in different angles to ensure that these are in selection criteria of the organization and also do not lead to department imbalances.

EVALUATION OF VARIOUS PROPOSALS:

The next steps in capital budgeting process in to evaluate the probability of various probability the independent proposals are those which do not complete

18

with one another and the same way be either accepted or rejected on the basic of a minimum return on investment required.

FIXING PRIORITIES:
After evaluating various proposals, the unprofitable or uneconomic proposals may be rejected straight away. But it may not be possible for the organization to invest immediately in all the acceptable proposals due to limitations of funds. Hence, it is very essential to rank the various proposals and to establish priorities after considering urgency, risk & profitability involved the criteria

FINAL APPROVAL
Proposals meeting the evaluation and other criteria are finally approved to be included in the capital expenditure budget. However proposals involving smaller investment may be decided at the lower levels for expeditious action. The capital expenditure budget lay down the amount of estimated expenditure to be incurred on fixed assets during the budget period.

IMPLEMENTING PROPOSALS:
Preparation of a capital expenditure budgeting & incorporation of a particular proposals in the budget does not itself authorize to go ahead with implementation of the project. A request for authority to spend the amount
19

should be made to be the capital expenditure committee which may like to review the profitability of the project in changed circumstances. In the implementation of the projects networks techniques such as PERT & CPM are applied for project management.

PERFORMANCE REVIEW:
In this stage the process of capital budgeting is the evaluation of the performance of the project. The evaluation is made through post completion audit by way of comparison of actual expenditure on the project with the budgeted one, and also by comparing the actual return from the investment with the anticipated return. The unfavorable variances if any should be looked into and the causes the same is identified so that identified so that corrective action may be taken in future. It throws light on how realistic were the assumptions underlying the project. It provided a documented log of experience that is highly valuable for decision making.

FEEDBACK:
In this stage, if once the performance review was completed and evaluated the results were communicated and feedback was given to the top management.

GUIDELINES FOR CAPITAL BUDGETING:

20

There are many guidelines for capital budgeting process either it is long-term or short- term plan. The major points are: Need and objectives of owner Size of market in terms of existing & proposed product lines and anticipated growth of the market share Size of existing plants & plans for new plant sites and plant Economic conditions which may affect the firms operations and Business and financial risk associated with the replacement & existing assets of the purchases of new assets

CONTENTS OF THE PROJECT REPORT:

Raw material Market and marketing Site of project Project engineering dealing with technical aspects of the project Location and layout of the project building Building
21

 Production capacity Work schedule

CRITERIA FOR CAPITAL BUDGETING:

Potentially, there is a wide array of criteria for selecting projects. Some shareholders may want the firm to select projects that will show immediate surges in cash flow, others may want to emphasize long-term growth with little importance on short-term performance viewed in this way; it would be quite difficult to satisfy the differing interests of all the shareholders. Fortunately, there is a solution.

METHODS FOR EVALUTION:

In view of the significance of capital budgeting decisions, it is absolutely necessary that the method adopted for appraisal of capital investment proposals is a sound one. Any appraisal method should provide for the following. a) A basis of distinguishing between acceptable and non acceptable projects. b) Ranking of projects in order of their desirability. c) Choosing among several alternatives d) A criterion which is applicable to any conceivable project.
22

e) Recognizing the fact that bigger benefits are preferable to smaller ones and early benefits to later ones. There are several methods for evaluating the investment proposals. In case of all these methods the main emphasis is on the return which will be derived on the capital invested in the project

CAPITAL BUDGETING TECHNIQUES:

The capital budgeting techniques are of two types: 1. Non DCF criteria 2. DCF criteria

23

NON DCF CRITERIA

(a) Payback period: Payback period is one of the most popular and widely recognized traditional methods of evaluation investment proposals. Pay back period is the number of years required to recover the original cash outlay invested in a project. If the project generates constant annual cash flows, the pay back period can be computed by dividing cash outlay by the annual cash inflows.
Initial investment Co Annual cash inflows C

Payback period =

Co = Initial investment

C = Annual cash inflows In the case of unequal cash inflows, the pay back period can be found out by adding up the cash inflow until the total is equal to the initial cash outlay. Merits: 1) This method is simple to understand and easy to calculate. 2) Surplus arises only if the initial investment is fully recovered. Hence, there is no profit on any project unless the payback period is over.

24

3) When funds are limited, projects having shorter payback period should be selected, since they can be rotated more number of times. 4) This method is focuses on projects which generate cash inflows in earlier years. 5) As time period of cash flows increases, risk and uncertainty also increases.

LIMITATIONS
1) It stresses on capital recovery rather than profitability. 2) It does not consider the return from the project after its payback period. 3) Administrative difficulties may be faced in determining the maximum acceptable pay back period. (b) Accounting Rate of Return (ARR): The accounting rate of return (ARR) also known as the return on investment (ROI) uses accounting information, as revealed by financial statements, to measure to profitability of an investment. The accounting rate of return is the ratio of the average after fax profit divided by the average investment. The average investment would be equal to half of the original investment if it were depreciated constantly.
Average Income 100 Average investment

ARR=

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Merits:
1) This method is simple to understand. 2) It is easy to operate and compute. 3) Income throughout the project life is considered. 4) It can be readily calculated using the accounting data.

Limitations:
1) It doesnt consider cash inflows which are important in project evaluation rather than PAT. 2) It takes the rough average of profits of future years. The pattern or fluctuations in profits are ignored. 3) It ignores time value of money, which is important in capital budgeting decisions.

DFC CRITERIA: (a) Net Present value (NPV): The NPV present value (NPV) method is the classic method of evaluating the investment proposals. DCF technique that explicitly recognizes the time value

26

at different time periods differ in value and comparable only when their equipment present values are found out.
C1 C2 C3 + Cn + + + ......... C0 2 3 (1 + k) (1 + k) (1 + k) (1 + k) n

N.P.V =

NPV =

C1 Co 1 i =0 (1 + k )
n

NPV = Net present value

C fi =

Cash flows occurring at time

k = the discount rate n = life of the project in years

C0 = Cash outlay

Merits: 1) NPV method takes account the time value of money. 2) All cash inflows are considered. 3) All cash inflows are converted into present value. 4) It satisfies value additivity principle i.e., NPV of two or more projects can be added. Limitations:
27

1) It may not satisfactory answer when the projects being compared involved different amounts of investment. 2) It is difficult to use. 3) It may mislead when dealing with alternative projects or limited funds. 4) It involves difficult calculations. 5) It involves forecasting cash flows and applications of discount rate (b) Internal Rate of Return (IRR): The internal rate of return (IRR) method is another discounted cash flow technique which takes account of the magnitude and thing of cash flows, other terms used to describe the IRR method are yield on an investment, marginal efficiency of capital, rate of return over cost, time adjusted rate of internal return and soon.
Cfi SV + WC + 1 (1 + k ) n i = 0 (1 + k )
n

NPV =

Where
C fi = Cash flows occurring at different point of time

k = the discount rate n = life of the project in year

28

C0 = Cash out lay

SV & WC = Salvage value and working capital at the end of the n years.
A ( H L) (a b )

IRR = L +

Where L = Lower discount rate at which NPV is positive H = Higher discount rate at which NPV is negative A = NPV at lower discount rate, L B = NPV at higher discount rate, H Merits: 1) This method considers the time value of money. 2) All cash flows are considered. 3) It has psychological appeal to the users. 4) The percentage figure calculated under this method is more meaningful and acceptable, because it satisfies them in terms of rate of return on capital. Limitations:
29

1) It may not give unique answer in all situations. 2) It is difficult to understand and use in practices. 3) It implies that the intermediate cash inflows generated by the project. (C) Profitability index (PI): Yet another time adjusted method of evaluating the investment proposals is the benefit cost (B/C.) ratio or profitability index (PI) Profitability index is the ratio of the present valued of cash inflows, at the required rate of return, to the initial cash out of the investment.
PV of Cash inflow Intial Cash outlay

PI =

Where PV = Present Value

Merits: 1) This method considers the time value of money. 2) All cash inflows are considered. 3) It is a better evaluation technique than NPV. Limitations:

30

1) indivisible.

It fails as a guide in resolving capital rationing when projects are

COMMITTEE IN CAPITAL BUDGETING:

CAPITAL COMMITMENT PLAN:

The progress of projects included in the capital budget, a capital commitment plan is issued three times a year. The commitment plan lays out the anticipated implementation schedule for there current fiscal and the next three years. The first commitment plan is published within 90days of the adoption of the capital budget. Updated commitment plans are issued in January & April along with the companys budget proposals.
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The commitment plan translates the appropriations approved under the adopted capital budget into schedule for implementing individual projects. The fact that funds are appropriated for a project in the capital budget does not necessarily mean that work will start or be completed that fiscal year. He choice of priorities and timing of projects is decided by office management & budget in consultation with the agencies along with considerations of how much the managing director thinks the organization can afford to append on capital projects overall. The capital commitment plan lays out the anticipated implemented schedule for capital projects and is one source of information on how far along projects are although not a consistent or always useful one. The adopted commitment plan is usually published in September, & then updated in January & April. In the capital budgeting for every two adjacent years there will be gap. The gap between authorized commitments and the target is presented in capital commitment plan as diminishing over the course of the year plan, in practice many of the unattained commitments will be rolled over into the next years plan, so that the current year gap will remain large. The gap has grown in recent year exceeding in last two executive capital plans.

KINDS OF CAPITAL BUDGETING:

Capital budgeting refers to the total process of generating, evaluating, selecting and following up a capital expenditure alternatives. The firm allocates
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or budgets financial recourses to new investment proposals. Basically, the firm may be confronted with three types of capital budgeting decisions: The accept or reject decision, The mutually exclusive choice decisions, and The capital rationing decision The time period creates some problems in estimating discount rates & establishing equivalences.

CRITERIAN TABLE:
In the evaluation process or capital budgeting techniques there will be a criteria to accept or reject the project. The criteria will be expressed as: Table 1.1.1 Criterion/Method Pay Back Period (PBP) Accounting Rate of Accept < Target Period Return > Target Rate >0 > Cost Reject > Target Period < Target Rate < 0 Of < Cost Of

(ARR) Net Present Value (NPV) Internal Rate of Return (IRR) Profitability index (PI)

Capital >1

Capital <1

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COMPANY PROFILE:

Sri Mahesh Veerina (CEO) Mahesh is the founder and CEO of Azingo, Inc. Mahesh is a seasoned Silicon Valley entrepreneur and technology executive with over 18 years experience in the technology industry.
34

Prior to Azingo, Mahesh was Vice President at Nokia Internet Communications for the small office products division. Mahesh has founded two successful technology companies over the last 10 years. Mahesh was the Founder, President and CEO of Ramp Networks, Inc. (NASDAQ: RAMP) from 19962001. Ramp Networks was a pioneer in the Internet access and security appliances for the small office and enterprise remote office market segments. Mahesh grew Ramp from a small technology startup to a publicly traded company with market capitalization of over US$450M. Nokia (NYSE: NOK) acquired Ramp Networks in 2001. Mahesh was founding CEO and Chairman of FlowWise Networks, Inc., an IP routing acceleration company from 1994-1997. Network Equipment Technologies (NASDAQ: NET) acquired FlowWise Networks in 1998. Early in his career Mahesh held several engineering and technology lead positions at Amdahl Corporation and Synoptics. Mahesh has also co-founded, advised, and served on the boards of several venture-backed technology startups in Silicon Valley. Mahesh has a MS degree in Computer Engineering from Purdue University, West Lafayette. He

also holds a MS degree in Electronics from Andhra University, India.

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1.3.1 INTRODUCTION:

Azingo is developing solutions for the fastest growing segments of the mobile software market including cellular feature phones and lower-cost Smartphones. Azingo enables its customers to demonstrate and launch new mobile products in less time and at lower costs with the ability to tailor a products features and user experience to the needs of specific market segments.

One Stop Solution:

Azingo uniquely offers a one-stop solution for designing and commercializing new mobile phone products. Azingo Mobile, Azingo's next-generation Linux platform, together with comprehensive engineering services significantly reduce development costs and shorten delivery schedules for chipset and handset manufacturers, integrators, and operators. Azingo helps its customers deliver

36

Internet-enabled, rich user experiences to entertain, inform, and enrich the lives of mobile phone users worldwide.

World-Class Management Team:

Azingo was founded in 2005 and is managed by a team of seasoned high-tech entrepreneurs and industry executives from world-class mobile, IP, and systems companies such as Nokia, Motorola, and AT&T Bell Labs.

1.3.2 ABOUT AZINGO:

Azingo is a privately held company with the backing of Garnett and Helfrich Capital, a leading private equity firm. The company is headquartered in Sunnyvale, California and has development centers in Pune and Hyderabad, India. Azingo was originally named Celunite, Inc. The company changed its name on January 2nd, 2008.

PRODUCTS:
Azingo Mobile 2.0

37

Azingo Mobile 2.0 is the industrys most portable, customizable, and configurable open mobile platform. Azingo Mobile 2.0 was designed to reduce the time and costs to create unique, cost-effective mobile phone products with advanced, Internet-enabled multimedia capabilities.

Azingo Mobile 2.0 includes...

Azingo Mobile Products

a Linux kernel comprehensive mobile middleware an application framework a broad suite of mobile applications, SDKs for mobile software development application developer workbench tools

Platform Application Suite Browser Web Runtime Flash Runtime Operator Packs

KEY CAPABILITIES: Mobile Internet Azingo lowers the cost to use the Internet while on the go by delivering advanced mobile browser services, Web widgets, and a rich set of user interface features to make interacting with Internet content easy while offering operators new service opportunities. Multimedia Support Azingo Mobile 2.0 supports the ability to play or stream music and video in mid-tier phones, capabilities normally found only in more expensive, high-end Smartphones.
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Broad Platform Support Azingo Mobile 2.0 already runs on several of the industrys leading 2G and 3G chipsets. For other platforms, team can port Azingo Mobile 2.0 to new handset and chipset designs and can deliver marketspecific solutions using the highly configurable features of the platform. Mobile Optimization Azingo Mobile 2.0 is optimized for memory footprint and application launch performance, and includes fine-grain power management tools. Security Azingo Mobile 2.0 includes a secure embedded architecture and full support for wireless and IP security standards. Seamless Integration Azingo offers customers the choice of using its Azingo Mobile 2.0 software with tightly integrated modules along with the flexibility to leverage rich industry standard APIs to combine Azingo Mobile 2.0 with customer developed or third party modules to satisfy specialized requirements. Service Adaptation Azingo Mobile 2.0 was designed to rapidly simplify and shorten the creation of operator-branded service packs. SERVICES: Azingos team of Linux and mobile application experts provide custom development solutions based on industry standard development platforms
39

allowing teams to quickly develop, test, debug, and deploy new devices, applications, and services. Azingos engineering team is uniquely qualified across all areas of Linux and modern mobile architectures. Azingo's team has in-depth knowledge and expertise with...

Multiple processor architectures (ARM, ARC, StrongARM, xScale, MIPS, PowerPC, x86) and related tools

Application models Java Web browsing Mobile applications

Linux kernels

Open-source middleware technologies Advanced graphics and multimedia drivers

Engineering and consulting services can be tailored to meet a wide range of mobile development needs, even under tight schedules. The result is that Azingo customers gain significant time-to-market advantages. Azingo's mobile Linux R&D services include...

Complete

mobile

phone

Compiler

and for

tool-chain power,

integration and testing

optimizations mobile

Board platforms

bring-up

on

footprint and performance Eclipse IDE development

40

Developing comprehensive board support packages for mobile

Mobile

platform

software

engineering

applications

Application and middleware development

Custom driver development Porting Linux to target processors Custom kernel functionality

Comprehensive hardware and software system integration Platform tuning optimization and

developmen

Multimedia GStreamer development

framework and

with

application

Integrating software to new chipsets for evaluations and demonstrations

Advanced browsing and Web widget development: WebKit

Project planning workshops Feasibility prototyping studies and

Tool-chain porting and customization for GCC, GDB, Binutils

Architecture design Development of operator

Development and customization of development tools, including compilers, debuggers,

branded service packs

Turnkey solutions

configuration tools, and other

41

utilities

Training Custom solution consulting

BOARD OF DIRECTORS: DIRECTOR DIRECTOR CHIEF EXECUTIVE OFFICER DIRECTOR TERRY GARNET DEVID HELFRICH MAHESH VEERINA T. MICHAEL NEVENS

Azingo Adds Former McKinsey Executive Mike Nevens to Board of Directors Sunnyvale, CAMay. 7, 2009Mobile Linux company Azingo today announced the appointment of Mike Nevens to its board of directors. Nevens brings to Azingo over 30 years of technology leadership and management experience in building successful technology businesses. Nevens previously served as a director (senior partner) of McKinsey & Co. He led McKinseys global technology practice and served on the board of the McKinsey Global Institute which conducts research on economic and policy issues. Mike Nevens is a strong technologist and business leader and we look forward to benefiting from his insights and experience as a member of Azingos Board, said Terence Garnett, managing director and cofounder of Garnett & Helfrich

42

Capital. His strategic counsel and direction has resulted in the success of many Fortune 500 companies. "Azingo is an innovative and fast growing mobile software company, said Mike Nevens. Azingos cross-platform strategy to create the foundation for a Web 2.0 ecosystem is a powerful enabler of next generation mobile devices and services. Nevens serves as a senior advisor to Permira on the Technology Sector. Permira is an international private equity fund with 21 Billion Euros of funds under management. He also serves on the board of directors of Borland Software and Model N Software. He is a member of the executive committee of the board of trustees of the San Jose Museum of Art and is president elect of that board. He is a member of the board of ZER01: The Art and Technology Network, and he is a member of the Advisory Council of the Mendoza College of Business at the University of Notre Dame, where he has been an Adjunct Professor of Corporate Governance and Strategy. He holds a bachelors degree in physics from the University of Notre Dame and a master of science in industrial administration from the Krannert School at Purdue University where he was designated a Krannert Scholar. Azingo develops and licenses leading edge a software for mobile operating

devices. Azingos

software

suite includes
43

complete mobile

system, mobile browser and Web Runtime, as well as a mobile application suite and developer tools. Azingos software products enable operators and handset manufacturers to deliver customized mobile devices and services with a rich Internet experience and a consistent user interface across their product portfolios. The company is privately-held with headquarters in Sunnyvale, California. Visit http://www.azingo.com Azingo Joins OMTP to Advance Cross-Platform Mobile Web Services and Application Development Sunnyvale, CAMar. 30, 2009Mobile Linux Company Azingo today announced that it has joined OMTP to advance the BONDI initiative, which ensures that developers can create secure mobile web applications and services across different platforms and mobile devices. Azingo has developed Azingo Mobile 2.0, an open mobile platform, to enable handset makers to deliver next generation Web 2.0 experiences on mobile phones. By joining OMTP, Azingo plans to contribute its expertise in open mobile platform development to the BONDI specifications. We are pleased to join OMTP and plan to contribute our open mobile platform and technology expertise to the BONDI initiative, said Mahesh Veerina, President and CEO of Azingo. BONDI specifications will enable developers to

44

create secure web applications across a range of platforms and devices, which will create a truly open eco system for developers. Azingo is a great addition to the OMTP, said Tim Raby, Managing Director of the OMTP. Azingos deep expertise in developing a mobile Linux platform will significantly advance the BONDI initiative which will ensure that mobile device users have access to innovative applications and services, regardless of the platform or type of phone they use. Azingo Selected by Vodafone to Develop Mobile Applications for Linux Platform Sunnyvale, CAFeb. 5, 2009Open Mobile OS Company Azingo today announced that Vodafone, the worlds leading international mobile

communications group, has selected Azingo as a partner to develop applications for mobile phones based on the LiMo platform. We are excited to partner with Azingo to develop cutting edge applications for our mobile phones based on the LiMo platform, said Guido Arnone, Director of Terminals Technology at Vodafone. Were looking forward to working with Azingos agile development teams to develop and deliver innovative communications solutions for our customers.

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Both Azingo and Vodafone are core members of the LiMo Foundation, a dedicated consortium of mobile industry leaders working together within an open and transparent governance modelwith shared leadership and shared decision makingto deliver an open and globally consistent handset software platform based upon Mobile Linux for use by the whole mobile industry. We are pleased that we were selected by Vodafone to develop innovative, customized applications for LiMo platform based mobile phones, said Mahesh Veerina, President and CEO of Azingo. Together with Vodafone, were committed to delivering a range of exciting, appealing experiences for mobile phone users. Azingo Launches Azingo Mobile 2.0, a Full Touch and Web Enabled Mobile Operating System Customizable User Experience and Touch Enabled Application Suite for Mobile Phones Sunnyvale, CAFeb. 5, 2009Open Mobile OS company Azingo today announced Azingo Mobile 2.0, a complete Linux based platform, which includes the Azingo Browser, Azingo Web Runtime, Azingo Application Suite, and Azingo Active Homescreen. Azingo Mobile 2.0 offers a comprehensive UI toolkit enabling a full touch user experience and web widgets that can leverage device specific services like telephony, messaging, multimedia and location
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based services through the Azingo Web Runtime. Azingos products will be demonstrated at the Mobile World Congress in Barcelona (booths 2.1D53 and 8B135), Feb. 16-19, 2009. We are excited to bring a full touch and web-enabled open mobile OS to market, said Mahesh Veerina, CEO of Azingo. Azingos mobile platform and software suite enable operators and handset manufacturers to deliver customized mobile devices with a rich Internet experience and a consistent user interface across their product portfolios. Azingo has demonstrated leadership in the open mobile platform space by bringing to market a full touch user experience for the LiMo platform, said Morgan Gillis, executive director of the LiMo Foundation. The rich Web Runtime environment and SDK of Azingo Mobile 2.0 will be instrumental in enabling the LiMo developer ecosystem. Azingo Mobile 2.0 includes all of the software, development tools, documentation and training required to design and commercialize new mobile phone products. This new platform is based on the LiMo Foundation R1 Reference Implementation which is highly customizable to meet operator requirements. Customers licensing Azingo Mobile 2.0 will receive the Azingo Browser, Azingo Web Runtime, Azingo Active Homescreen and the Azingo Application Suite.
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The Azingo Browser is a complete Internet browser for all mobile platforms both open and proprietary. Based on WebKit open source technology, the Azingo Browser offers industry leading performance and desktop-class features including, tabbed browsing, cookies, history, bookmarks, security, page navigation, multimedia plug-ins and integration with Adobe Flash Lite. Azingo Web Runtime is a WebKit based technology that installs and executes web applications (widgets) on a variety of mobile platforms. With Azingo Web Runtime, developers can create web applications using web technologies such as AJAX, HTML, JavaScript, and CSS. Web Runtime applications behave like native applications and deliver Web 2.0 experiences that can utilize Azingos comprehensive set of APIs to access handset resources. Azingos Active Homescreen radically extends the capabilities of a conventional phone homescreen by allowing users to add and organize pertinent, real-time information from the Internet and their phone for fast, simple access. The Azingo Active Homescreen was designed to mimic the familiar computer desktop experience through features such as a wider, scrolling homescreen area, drag and drop, shortcuts, folders, and widgets. Users also have one-touch access to content on their handset, including native, Web, or Flash Lite applications, contacts, photos, music, videos, and messages.

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The Azingo Applications Suite is available for all Linux based mobile platforms. The Suite includes the following applications: Azingo Mobile Entertainment, Azingo Mobile Productivity, Azingo Mobile Communications, and Azingo Mobile System Applications.

Azingo Mobile Entertainment provides music and video players, camera, and photo gallery.

Azingo Mobile Productivity delivers complete Personal Information Management applications, including contacts, calendar, tasks, notes, calculator, and alarm.

Azingo Mobile Communications offers telephony, call log, SMS, MMS, and email.

Azingo Mobile System Applications include idle screen, main menu, panel, phone settings, application and connectivity managers, and a file browser.

1.4 NEED FOR THE STUDY: A project is an activity sufficiently self-contained to permit financial and commercial analysis. In most cases projects represent expenditure of capital funds by pre-existing which want to expand or improve their operation. In general a project is an activity in which, we will spend money in expansion of returns in which logically seems to lead it self planning. Financing and
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implementations as a unit, is a specific activity with a specific point and a specific ending point intended to accomplish a specific objective of the study. An efficient allocation of capital is the most important finance function in the modern times. It involves decisions to commit the firms funds to the long-term assets. Capital budgeting for investment decisions are of considerable importance to the firm since hey tend to determine its value by influencing its growth, evaluation of capital budgeting decisions. A capital budgeting decisions may be defined as the firms decision to invest is current funds most effectively & efficiently in the long term assets in anticipation of an expected flow of benefits over a series of years. The longterm assets are those that affect the firms operations beyond the one year period. The firms investment decisions would generally includes expansion, acquisition modernization and replacement of long term assets. Sale of a division or business is also an investment decision. Decision like the change in the methods of sales distribution, or an advertisement campaign or research and development program have long term implications for the firms expenditure and benefits, and therefore they should also be evaluated as investment decisions.

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CHAPTER -IV DATA ANALYSIS

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PROBLEM 1: Company is considering whether to buy the plant and machinery or to expand the present plant and machinery. The company decides to raise the 65% of investment with the help of bank loan at an interest of 14% and remaining 35% by 16% debentures. If the company decided to buy the plant the company has to incur an initial outlay of Rs.45Crs having life of 4 years and it has to sell the old plant, by this the company gets Rs.5Crs. The company expecting salvage value of Rs.10Crs. at the end of fourth year.

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If the company has decided to expand the present one it has to incur initial outlay of Rs.35Crs the company expecting salvage value of Rs.3Crs at the end of fourth year. Evaluate whether the company has either to expand or to buy the plant & machinery, if company expects that in both the cases a sale of 20000 units made in first year and this will increase at a percentage of 20% up to 4 years. Each unit can be sold at Rs 10000/-. The company is considering corporate tax of 33.99% (including surcharge) and following Straight Line Method for depreciation.

Case I: If the company buys a plant. Calculation of Cash out Flow: Investment to purchase new plant Rs 45 Crs. plant Rs.5crs Cash outflow (initial investment) Rs.40 Crs Calculation of depreciation:
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Cash flow by sale of old

Intial investment salvage value Life in years

40 10 = 7.5(Crs ) 4

Calculation of weighted average cost of capital: (Kd*Wd) + (Kbl*Wbl) Bank Loan = Rs. 26 Crs (40*65%) Amount(Rs in Pre Crs) Cost Bank Loan 26 14 Debenture 14 16 Weighted average Cost of Capital Tax Tax Post tax Cost Weights Cost 0.65 0.35 6.006 3.696 9.702=10% 0.34 9.24 0.34 10.56 Debentures = Rs. 14 Crs (40*35%)

Interest payable = (26*14%) + (14*16%) = Rs 5.88Crs

Calculation of NPV and PI: UNITS 20000 24000 28800 34560 PRICE 10000 10000 10000 10000 EBDIT 200000000 240000000 288000000 DEP 75000000 75000000 75000000 EBIT 125000000 165000000 213000000 INT 58800000 58800000 58800000 EBT 66200000 106200000 154200000

345600000 75000000 270600000 58800000 211800000

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EBT

TAX PAT

66200000 0.34 43692000 10620000 0 0.34 70092000 15420000 10177200 0 0.34 0 21180000 13978800 0 0.34 0 Salvage Value at 4th year end

DEP 7500000 0 7500000 0 7500000 0 7500000 0

FREE CASH FLOW 118692000 145092000 176772000 214788000 100000000

PV FACTOR 0.909 0.823 0.756 0.683 0.683 Cash inflow Cash outflow NPV PI

PV OF CASH FLOW 107891028 119410716 133639632 146700204 68300000 575941580 400000000 175941580 1.43985395

Calculation of IRR: As the cash inflows for a project are uneven we have to calculate Fake Par Back Period.
Fake PBP = Initial Investment C0 = Average Cash Inflows Average CFAT

Initial investment = Rs.40 Crs Average Cash Inflows = Average CFAT = (107891028+1194110716+133639632+146700204+68300000)/5 = 57.59/5 = 11.5188 Fake PBP = 40/11.518 = 3.472 We have to see the value 3.472 in the A4 table for 4 Years This value will reflect in the A4 table at 6% for 4 Years. Therefore the IRR for this alternative is 6%.
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Case II: If the company decides to expand the plant

Calculation of Cash out Flow: Expansion to the old plant Rs.35Crs Calculation of depreciation:

Intial investment salvage value Life in years

Amount(Rs Crs) Bank Loan 22.75 Debenture 12.25 35 in Pre Cost Tax

35 3 = 8(Crs ) 4

Calculation of weighted average cost of capital: Tax Post Cost tax Weights Cost 0.65 0.35 6.006 3.696 9.702

14 0.66 9.24 16 0.66 10.56 Cost of Capital

Interest payable: (22.75*14%) + (12.25*16%) = 3.185+1.96 = Rs. 5.145 Crs

Calculation of NPV and PI: UNITS PRICE EBDIT DEP

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EBIT

INT

EBT

20000 24000 28800 34560

10000 10000 10000 10000

20000000 0 24000000 0 28800000 0 34560000 0

8000000 0 8000000 0 8000000 0 8000000 0

12000000 0 16000000 0 20800000 0 26560000 0

5145000 0 5145000 0 5145000 0 5145000 0

68550000 108550000 156550000 214150000

EBT

TAX PAT

68550000 0.34 45243000 10855000 0 0.34 71643000 15655000 10332300 0 0.34 0 21415000 14133900 0 0.34 0 Salvage Value at 4th year end

DEP 8000000 0 8000000 0 8000000 0 8000000 0

FREE PV CASH FLOW FACTOR 125243000 151643000 183323000 221339000 30000000 0.909 0.823 0.756 0.683 0.683 Cash inflow Cash outflow NPV PI

PV OF CASH FLOW 113845887 124802189 138592188 151174537 20490000 548904801 350000000 198904801 1.5682

Calculation of IRR: As for this also the cash inflows are uneven we have to calculate FPBP. Average Cash inflows = Average CFAT = (2113845887+124802189+138592188+151174537+20490000)/5 = 548904801/5= 137226200
Fake PBP = Initial Investment C0 = Average Cash Inflows Average CFAT

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FBP =

350000000/ 137226200 = 2.55

This value will reflect in the A4 table nearly 9% for 4 years. Therefore the IRR for this alternative is 9%. Case I 1.439 Rs.175941580/6% Case II 1.568 Rs.198904801/9%

PI NPV(Rs in Crs) IRR

Form the above interpretation for the alternative Case II (to expand the present plant) the PI, NPV are better than the Case I (to buy the plant), though in CaseII IRR (9%) is less than cost of capital (10%) NPV is positive and PI greater than 1st alternative, it is better for the company expand the old plant rather than to buy the new plant.

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PROBLEM 2: DIVERSIFICATION: The company decided to diversify its business activities by providing operating soft ware to computers. For R&D of this service the company has to incur some expenses which are as follows Purchase of systems costing to amount of Rs. 25Crs Recruitment of Soft ware developers amounting to Rs. 10Crs (for a period of 5years) Infrastructure amounting to Rs. 15Crs There will be no salvage value for the purchase of systems by the company and following SLM method for depreciation. The company expects a sale of software up to 10000 users for first year and this will increase at a percentage of 15% up to 5 years. In this case the OS can be sold at Rs 20000/-. The tax rate for the company is corporate tax of 33.99%. The company decides to raise the 65% of investment with the help of bank loan at an interest of 14% and remaining 35% by 16% debentures. Find out the feasibility of the project, if the company considering the project for a 5 years.
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SOLUTION: Calculation of Cash out flow: Purchase of systems costing to amount of 25Crs Recruitment of Soft ware developers amounting to 10Crs Infrastructure amounting to 15Crs Total cash out flow = 25+10+15 = Rs 50Crs. Calculation of weighted average cost of capital: (Kd*Wd) + (Kbl*Wbl) Bank Loan = Rs. 26 Crs (40*65%) Amount(Rs in Pre Crs) Bank Loan 26 14 Debenture 14 16 Weighted average Cost of Capital 0.34 9.24 0.34 10.56 0.65 0.35 6.006 3.696 9.702=10% Cost Tax Tax Post tax Cost Weights Cost Debentures = Rs. 14 Crs (40*35%)

Interest payable = (26*14%) + (14*16%) = Rs 5.88Crs

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Calculation of Depreciation:

Initial investment salvage value Life in years

Initial investment = 25+15 = Rs. 40 Crs
40 0 = Rs.8Crs ( P. A) 5

Salvage value - Nil

Calculation of NPV and PI: Units Sold 10000 11500 13225 15208 17490

Price 20000 20000 20000 20000 20000

EBIT 200000000 230000000 264500000 304160000 349800000

DEP 8Cr 8Cr 8Cr 8Cr 8Cr

EBT 12000000 0 15000000 0 18450000 0 22416000 0 26980000 0

INT 5880000 5880000 5880000 5880000 5880000

PBT 114120000 144120000 178620000 218280000 263920000

PBT 114120000 144120000 178620000 218280000

TAX PAT 0.34 75319200 0.34 95119200 11788920 0.34 0 0.34 14406480

DEP Cash Flow 8Crs 155319200 8Crs 175119200 8Crs 197889200 8Crs 224064800
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PV Factor 0.909 0.823 0.756 0.683

CFAT 141185152.8 144123101.6 149604235.2 153036258.4

263920000

0.34

0 17418720 0

8Crs 254187200

0.621 Cash Inflow Cash outflow NPV PI

157850251.2 745798999.2 500000000 245798999.2 1.491597998

Calculation of IRR: The cash inflows for the alternative that chosen are uneven, therefore we have to calculate fake payback period.
Fake PBP = Initial Investment C0 = Average Cash Inflows Average CFAT

Initial Investment = Rs. 50Crs Average Cash Inflows = Average CFAT (141185152.8+144123101.6+149604235.2+153036258.4+157850251. 2)/5 = 745798999.2/5 = 149159799.8/Fake payback period = 500000000/ 149159799.8 = 3.152 This value will reflect in the A4 table nearly 10% for 5 years. IRR will be 10%. INTERPRETATION:
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NPV PI IRR

Rs.245798999/1.491 10%

From the above calculation it can be inferred that the NPV is Rs.245798999/-, PI is 1.491 and IRR is 10%. The calculation resulted is positive. So there is feasibility of the project and the operations can be diversified in the company.

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CHAPTER -V FINDINGS AND CONCLUSIONS:

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FINDINGS:
1) The company is using modern capital budgeting techniques like PI, NPV, and IRR for evaluating the project. 2) With the help of bank loan and debentures the company is raising the required capital. 3) Company is considering cost of capital as present value factor. 4) The company expands the present plant rather than to purchase the new plant. 5) The company diversified the operations as it was found that the project is feasible. 6) The company is considering corporate tax for calculating the cash flows. 7) Straight line method is being used by the company for charging the depreciation.

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CONCLUSION:

From the analysis it was concluded that in modern capital budgeting techniques time value of money will be consider which tells the correct present value of future money. When compared to debenture interest the bank loan is low, thats why the company is raising more of the investment through bank loan. As the interest will be tax saving purpose, the company is raising the required investment for purchasing the plant and machinery with the help of bank loan and debentures.

RECOMMENDATIONS:
Company has to raise the capital not only with the help of bank loan and debentures and also by issuing shares, which means it has to go for IPO.

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67

BIBILOGRAPHY:

BIBILOGRAPHY:

1. Financial management by I.M.Pandey, 2nd Edition of Vikas publishers. 2. Accountancy by P.C.Tulsian 4th edition TATA McGraw Hill publishers.

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WEBLIOGRAPHY:

1. http://www.azingo.com

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