I.C.

M LIMITED CAPITAL BUDGETING

DATA ANALYSIS AND INTERPRETATION

Pay Back Period:

In ICML it is one of the most popular and widely recognized
methods of evaluating investment proposals. It is the period within which
the total cash inflows from the project equal the cost of the project. Cash
inflow means profit after tax but before depreciation.
TABLE-1:

(In Crores)
Year Income (Profit Depreciation Cash Cumulative
After Tax) Inflows Cash In Flows
1 936.6 342.36 1278.96 1278.96
2 1353.25 342.36 1735.24 3014.2
3 1428.84 342.36 1810.83 4825.03
4 1409.44 342.36 1791.43 6616.46
5 1429.93 342.36 1811.92 8428.38
6 1484.12 342.36 1866.11 10294.49
7 1551.28 342.36 1933.27 12227.76
8 1610.83 342.36 1992.82 14220.58
9 1660.57 342.36 2042.56 16263.14
10 1717.06 342.36 2099.05 18362.19
11 1779.39 342.36 2161.38 20523.57
12 1846.9 342.36 2222.95 22746.52
13 1919.1 342.36 2301.09 25047.61
14 1995.69 342.36 2377.09 27424.7
15 2076.43 342.36 2458.42 29883.12

(a) Cash outlay: 8692

Initial amount
Payback period= _________________
Annual cash in flow
Cash inflows are not uniform there find out cumulative cash inflows

V.S.M COLLEGE 51 ANDHRA UNIVERSITY

I.C.M LIMITED CAPITAL BUDGETING

Total inflow = 8692

(-)5 years inflow = 8428

_______

264
264*12/1866.11=1.6976

= 5 years 1 month 20 days.

1866.11- 12months
264 - ?

Interpretation:

It is assumed that the profit earning of the project will start

from 5 years.
Taken consideration of (incremental adjusted cash flow) i.e. expansion
Base year, for calculation PAY BACK PERIOD
 Depreciation is charged on straight line basis, which is taken
342.36Crs
 Estimated profits are taken from the data provided.
 For CIF we have deducted depreciation from profit &then
Cumulative profit.
So the projected pay back period is calculated as 5 years 1 month 20
days.
We should increase this period with same exception as there May
be any additional factor and other cause so rounding of 5 years 1 month

V.S.M COLLEGE 52 ANDHRA UNIVERSITY

I.C.M LIMITED CAPITAL BUDGETING

20 days to 6 years will be right, so that it will give more assistance To the
calculation.

GRAPH NO-1:

crores
40000

30000

20000 crores

10000

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

V.S.M COLLEGE 53 ANDHRA UNIVERSITY

I.C.M LIMITED CAPITAL BUDGETING

AVERAGE RATE OF RETURN:

In ICML this method profit after tax and depreciation as

percentage of total investment is considered.
TABLE-2:

Year Income
1 936.6
2 1353.25
3 1428.84
4 1409.44
5 1429.93
6 1484.12
7 1551.28
8 1610.83
9 1660.57
10 1717.06
11 1779.39
12 1846.9
13 1919.1
14 1995.69
15 2076.43
Total 24199.43

Avg net Profit after tax

V.S.M COLLEGE 54 ANDHRA UNIVERSITY

I.C.M LIMITED CAPITAL BUDGETING

ARR= -----------------------------*100
Average investment
Net profit after tax 24199.43
Avg net Profit after tax= --------------------------- = ------------- =1613.29
No of years 15

Investment 8692
Average investment= ---------------- + ad.WC = --------- +702
=5048

2
1613.29
ARR= ------------- *100 =31.95%
5048

Interpretation:

It is more calculation taking total profit and taking average of it. It

Show the return on an average as what an average income of the firm on
Long run basis with certain assumption 31.95% for any firm at long run is
Good but there must be some decrease as future is not certain.
GRAPH NO-2:

V.S.M COLLEGE 55 ANDHRA UNIVERSITY

I.C.M LIMITED CAPITAL BUDGETING

crores
2500
2000
1500
1000
500
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

NET PRESENT VALUE METHOD:

In ICML, this method is for evaluation of an investment proposal
which means the sum of all the present values of all the cash inflows less
the sum of the present values of all the cash outflows associated with the
proposal.

TABLE-3:

YEAR INCOME PRESENT TOT

VALUE@1 PRESSENT
RS(19%) VALUE OF
CASH
INFLOWS
1 1278.96 0.84 1074.326
2 1735.24 0.706 1225.079

V.S.M COLLEGE 56 ANDHRA UNIVERSITY

I.C.M LIMITED CAPITAL BUDGETING

3 1810.83 0.593 1073.822

4 1791.43 0.499 893.924
5 1811.92 0.419 759.194
6 1866.11 0.352 656.871
7 1933.27 0.296 572.248
8 1992.82 0.249 496.212
9 2042.56 0.209 426.895
10 2099.05 0.176 369.433
11 2161.38 0.148 319.884
12 2222.95 0.124 275.646
13 2301.09 0.104 239.313
14 2377.09 0.088 209.184
15 2458.42 0.074 181.923
Total=8773.954

N P V = Total present value of cash inflow – Total Outlay

= 8773.954 – 8692 = 81.954

Interpretation:

It is the factor of Re.1 calculation at the end of the year. It will be

Value of Re.1 at the end of the year which is based interest rate, cost of
Capital and market state which is called as discounted rate to get a
discounted rate to get an approximate decision.
It should be taken in every calculation of project so that an
approximate Decision can be taken. As it is more reliable the simple cash
inflows (profits).
GRAPH NO-3

V.S.M COLLEGE 57 ANDHRA UNIVERSITY

I.C.M LIMITED CAPITAL BUDGETING

3000

2500

2000
Year
income
1500
Dcf (19%)
Npv
1000

500

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

INTERNAL RATE OF RETURN:

In ICML, the rate at which the sum totals of cash inflows after
discounting equals to the discounted cash outflows.

TABLE-4:
Discount rate taken as 18%

(In crores)

DCf
YEAR INCOM NPV
(18%)

V.S.M COLLEGE 58 ANDHRA UNIVERSITY

I.C.M LIMITED CAPITAL BUDGETING

E
1 1278.96 0.847 1083.279
2 1735.24 0.718 1245.902
3 1810.83 0.609 1102.795
4 1791.43 0.516 887.226
5 1811.92 0.437 791.809
6 1866.11 0.37 690.461
7 1933.27 0.314 607.047
8 1992.82 0.266 530.09
9 2042.56 0.225 459.576
10 2099.05 0.191 400.919
11 2161.38 0.162 350.144
12 2222.95 0.137 304.544
13 2301.09 0.116 266.926
14 2377.09 0.099 235.332
15 2458.42 0.084 206.507
Total 9162.557

GRAPH NO-4:

V.S.M COLLEGE 59 ANDHRA UNIVERSITY

I.C.M LIMITED CAPITAL BUDGETING

3000

2500

2000

YEAR
1500
INCOME
DCf
1000
NPV

500

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
-500

TABLE-5:
Discount rate taken as 22%
V.S.M COLLEGE 60 ANDHRA UNIVERSITY
I.C.M LIMITED CAPITAL BUDGETING

(in crores)
YEAR INCOME DCF NPV
(22%)
1 1278.96 0.82 1048.74
2 1735.24 0.672 1166.08
3 1810.83 0.551 997.76
4 1791.43 0.451 807.93
5 1811.92 0.37 670.41
6 1866.11 0.303 565.43
7 1933.27 0.249 481.38
8 1992.82 0.204 406.53
9 2042.56 0.167 341.10
10 2099.05 0.137 287.56
11 2161.38 0.112 242.07
12 2222.95 0.092 204.51
13 2301.09 0.075 172.58
14 2377.09 0.062 147.37
15 2458.42 0.051 125.37
  Total:   7664.82
A
I R R = L + (H – L)
(A –
B)
RL Rl value RH RH value
18% - 9162 22% - 7664 - 8692

= 18+ 9162-8692/9162-7664 * 22-18

= 18+ 470/1498*4
= 19.25

Interpretation:

V.S.M COLLEGE 61 ANDHRA UNIVERSITY

I.C.M LIMITED CAPITAL BUDGETING

In this calculation, is done on the basis of trail and errors. By

taking Various percentage of (DCF).So that an appropriate percentage of
internal Rate of return can be judge out. Calculated figure is 19.256%, so
we can take it as 22% cause at market UN certainty.

GRAPH NO-5:

3000

2500

2000 YEAR
INCOME
1500
DCF (22%)

1000 NPV

500

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

PROFITABILITY INDEX METHOD:

V.S.M COLLEGE 62 ANDHRA UNIVERSITY

I.C.M LIMITED CAPITAL BUDGETING

TABLE-6:

YEAR INCOME PRESENT TOT

VALUE@1 PRESSENT
RS(19%) VALUE OF
CASH
INFLOWS
1 1278.96 0.84 1074.326
2 1735.24 0.706 1225.079
3 1810.83 0.593 1073.822
4 1791.43 0.499 893.924
5 1811.92 0.419 759.194
6 1866.11 0.352 656.871
7 1933.27 0.296 572.248
8 1992.82 0.249 496.212
9 2042.56 0.209 426.895
10 2099.05 0.176 369.433
11 2161.38 0.148 319.884
12 2222.95 0.124 275.646
13 2301.09 0.104 239.313
14 2377.09 0.088 209.184
15 2458.42 0.074 181.923
Total=8773.954

Presents value of cash inflow

P. I. = -------------------------------------
Total out lay

8773.954
= -------------- =1.0094
8692

Interpretation:

V.S.M COLLEGE 63 ANDHRA UNIVERSITY

I.C.M LIMITED CAPITAL BUDGETING

In calculation of P.I. simple income is taken in to consideration

that’s why P.I =1.0094t is not correct as per practical study. So
discounted rate will help to get a good path to get an approximate P.I and
it will be more reliable than old Traditional approach.
GRAPH NO-6:

3000

2500

2000

YEAR
1500
INCOME
1000

500

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

1ST Condition:

V.S.M COLLEGE 64 ANDHRA UNIVERSITY

I.C.M LIMITED CAPITAL BUDGETING

When 70% of the project expenses is taken through loans (long term at
5.5%) & rest. 30% as equity.

Particular Amount
EBIT 2209 Cr
Less : Interest
8692 X 70% - (6084. 4 Cr X 5.5% as int) 334.642 Cr

EBT 1874.358 Cr
Less : Tax at 35% as on
1874.358 x 35% 656.025 Cr
EAT 1218.333 Cr
Less: Pref. Share at 7%
(No – issue of pref. Share) ____
E To E 1218.333 Cr
For EPS – Earning per share 46.72

Calculation of EPS:

Project cost 8692 Cr

Its 30% as equity
2607.6 Cr into Rs. 26076000000
And divide it by face value of equity - 1000 Rs/ share
No of equity = 26076000000
1000
= 26076000

For EPS = Earning’s to Equity (E to E)

V.S.M COLLEGE 65 ANDHRA UNIVERSITY

I.C.M LIMITED CAPITAL BUDGETING

______________________
No of Equity Share

12183330000
26076000

= 467.22

2nd Condition:

V.S.M COLLEGE 66 ANDHRA UNIVERSITY

I.C.M LIMITED CAPITAL BUDGETING

When the mix ratio between debt & Equity is change as

70% equity & 30% as debts. Then the level of impact,
With same assumptions
Particular Amount
EBIT 2209.00 Cr
Less: Interest on debt. 5.5%
8692 X 30% - (2607.6. X 5.5% = 143.418 143.418 Cr
Cr
EBT 2065.582 Cr
Less : Tax at 35% as on
2065 .582 x 35% = 722.954. Cr -722.954 Cr.
EAT 1342.628 Cr
Less Pref: Share at 7%
(No – issue of pref. Share) ____
E To E 1342.628 Cr
For EPS – Earning per share 22.06

EPS calculation:

8692 cr X 70% = 6084.4 Cr

60844000000
In Rs. = = 60844000 No of Equity
Face value 1000 /Share

So,
E to E 13426280000
EPS =
No of Equity 60844000

V.S.M COLLEGE 67 ANDHRA UNIVERSITY

I.C.M LIMITED CAPITAL BUDGETING

= 220.66

3rd Condition:

In this part debt Equity mix are divided in ratio 60:40 as

debt as 60% and equity as 40%.

V.S.M COLLEGE 68 ANDHRA UNIVERSITY

I.C.M LIMITED CAPITAL BUDGETING

Particular Amount
EBIT 2209.00 Cr
Less : Interest on debts
8692 X 60% - 5215.2. X 5.5% = 286.836 286.836 Cr
Cr
EBT 1922.164 Cr
Less : Tax at 35% as on
1922 .164 x 35% = 672.757 Cr 672.757
EAT 1249.407 Cr
Less: Pref: Share at 7%
(No – issue of pref. Share) -
E To E 1249.407 Cr
For EPS – Earning per share 35.93 Cr

EPS Calculations:
Project cost = 8692 Cr
40%as equity = 3476.80 Cr
In Rs. = 34768000000
Phase value = 1000/share
No of equity 34768000000
Share = 34768000
1000

For EPS
E to E = 1249.407 Cr

Change into Rs = 12494070000

EPS = 34768000

=359.35

V.S.M COLLEGE 69 ANDHRA UNIVERSITY