A

SYNOPSIS REPORT
ON
A STUDY ON CAPITAL BUDGETING
AT
L &T

Submitted
By
NASREEN BEGUM
H.T.NO: 1325-19-672-149
PROJECT SUBMITTED IN PARTIAL FULFILLMENT FOR THE AWARD OF DEGREE
OF

MASTER OF BUSINESS ADMINISTRATION

Department of Business Administration

AURORA’S PG COLLEGE
RAMANTHAPUR
(Affiliated to Osmania University)
2019-2021
 Aurora’s PG College (MCA), Ramanthapur
Department of Management

SYNOPSIS

TITLE OF THE PROJECT : A STUDY ON CAPITAL

BUDGETING

STUDENT NAME : NASREEN BEGUM

Hall Ticket Number: 1325-19-672-149

Signature of the Student:

Signature of the Guide:

 1.1 INTRODUCTION

Meaning:

Capital budgeting is the process that companies use for decision making on capital

project. The capital project lasts for longer time, usually more than one year. As the

project is usually large and has important impact on the long term success of the

business, it is crucial for the business to make the right decision.

Capital Budgeting Process

The specific capital budgeting procedures that the manager uses depend on the

manger's level in the organization and the complexities of the organization and the

size of the projects. The typical steps in the capital budgeting process are as follows:

 Brainstorming. Investment ideas can come from anywhere, from the top or the bottom

of the organization, from any department or functional area, or from outside the

company. Generating good investment ideas to consider is the most important step in

the process .

 Project analysis. This step involves gathering the information to forecast cash flows

for each project and then evaluating the project's profitability.

 Capital budget planning. The company must organize the profitable proposals into a

coordinated whole that fits within the company's overall strategies, and it also must

consider the projects' timing. Some projects that look good when considered in

isolation may be undesirable strategically. Because of financial and real resource

issues, the scheduling and prioritizing of projects is important.

 Performance monitoring.  In a post-audit, actual results are compared to planned or

predicted results, and any differences must be explained. For example, how do the

revenues, expenses, and cash flows realized from an investment compare to the

predictions? Post-auditing capital projects is important for several reasons. First, it

helps monitor the forecasts and analysis that underlie the capital budgeting process.

Systematic errors, such as overly optimistic forecasts, become apparent. Second, it

helps improve business operations. If sales or costs are out of line, it will focus

attention on bringing performance closer to expectations if at all possible. Finally,

monitoring and post-auditing recent capital investments will produce concrete ideas

for future investments. Managers can decide to invest more heavily in profitable areas

and scale down or cancel investments in areas that are disappointing.

Complexity Of Capital Budgeting Process

The budgeting process needs the involvement of different departments in the

business.  Planning for capital investments can be very complex, often involving

many persons inside and outside of the company. Information about marketing,

science, engineering, regulation, taxation, finance, production, and behavioral issues

must be systematically gathered and evaluated.

The authority to make capital decisions depends on the size and complexity of the

project. Lower-level managers may have discretion to make decisions that involve

less than a given amount of money, or that do not exceed a given capital budget.

Larger and more complex decisions are reserved for top management, and some are so

significant that the company's board of directors ultimately has the decision-making

authority. Like everything else, capital budgeting is a cost-benefit exercise. At the

margin,
 1.2 NEED AND IMPORTANCE:

 Whether or not funds should be invested in long term projects such as settings of

an industry, purchase of plant and machinery etc.,

 Analyze the proposals for expansion or creating additions capacities.

 To decide the replacement of permanent assets such as building and equipments.

 To make financial analysis of various proposals regarding capital investment so as

to choose the best out of many alternative proposals.

 1.3 SCOPE OF THE STUDY

The efficient allocation of capital is the most important financial function in

the modern times. It involves decision to commit the firm’s, since they stand the long-

term assets such decision are of considerable importance to the firm since they send to

determine its value and size by influencing its growth, probability and growth.

The scope of the study is limited to collecting the financial data of L &T PVT

LTDfor four years and budgeted figures of each year.

 1.4 OBJECTIVES OF THE STUDY

 To evaluate the capital budgeting practices relating to various projects of L & T

PVTHyderabad

 To Asses the long term requirements of funds and plan for application of internal

resources and debt servicing.

 To Assess the effectiveness of long term investment decisions of L & T PVT LTD

 To offer conclusion derived from the study and give suitable suggestions for the

efficient utilization of capital expenditure decisions.

 1.5 RESEARCH METHODOLOGY

The study is both descriptive and analytical in nature. It is a blend of primary data and

secondary data.The primary data has been collected personally by approaching the online

share traders who are engaged in share market. Methodology refers to the by which data is

obtained. The information has been collected through various sources

 Websites

 Journals

 Text books

Capital budgeting is the process of determining whether a big expenditure is in a company's

best interest. Here are the basics of capital budgeting and how it works. 

Capital Budgeting Basics

A company undertakes capital budgeting in order to make the best decisions about utilizing

its limited capital. For example, if you are considering opening a distribution center or

investing in the development of a new product, capital budgeting will be

2.2 ARTICLES
ARTICLE: 1

Title: Journal of applied Corporate Finance.

Authors: John graham Campbell H Farley.

Year: 2018.

ABSTRACT:
This paper is a compressed version of our paper that was first published as “the theory and
practice of corporate finance: evidence from the field” in the journal of financial economics
vol, 60(2017), pp. 187-243.this research is partially sponsored by the financial executives
international (fei) but the opinions expressed herein do not necessarily represent the views of
fei .we thank the fei executives who respond to the survey. Graham acknowledges financial
support from the Alfred P. Sloan research foundation.
ARTICLE: 2

Title: journals of international business studies.

Authors: Laurence D. Booth.

Year: 2016.

Abstract:
This article discusses the relative merits of different capital budgeting techniques used by
MNCs.the purpose is to show that the apt method, which has recently gained popularity,Can
cause incorrect choices to be made between competing projects unless the NPV ISAlready
determined. The author suggests that complicated cost of capital adjustments may Be the only
route to calculating a project s NPV correctly.
ARTICLE: 3

Title: Risk-adjusted discount rates and capital budgeting under uncertainty.

Authors:Eugene F. Fama.

Year: 2019.

Abstract:
This paper is concerned with the valuation of multiperiod cash flows in a world where prices
are Determined according to the sharp-linter –black model of capital market equilibrium. We
find that The current market value of any future net cash flows is the current expected value
of the flow is realized .the discount rates are known as non-stochastic, but the rates for the
different periods preceding the realization of the cash flow need to be the same,and the rates
relevant for a given period can given differ across cashflows. The risk adjustments in the
discount rates arise because of uncertainties about reassessments and the corresponding
reassessments of the expected cashflows of all firms.
ARTICLE: 4

Title: Journals of advances in management research

Authors: Shvetasingh,P.K.Jain

Year: 2016

Abstract:
The purpose of this paper is to understand current practices in capital budgeting[including
real options]in Indian companies and provide normative framework [guidelines] for
practitioners [based on our findings and literature reviewed] trends towards sophisticated
techniques andsound capital budgeting decisions have continued in India.
ARTICLE: 5

Title:Capital Budgeting In Multinational Organizations The Strategic Content

Author:Spiro Daniel A.Dimnik, Tony

.
Year:2017

Abstract:
a study of capital budgeting and strategy in 23 companies revealed in the different types of
capital budgeting process .the centralized capital budgeting process in values in a top
management in all important strategic decisions. In the decentralized process operating,
managers identify and initiate projects approved by top management of according to
projected financial performance.
ARTICLE: 6

Title: Integrating traditional capital budgeting concepts into an international decision making
enivornment

Author: Block, Stanley

Year: 2018

Abstract:
The capital budgeting policies of 146 multinational companies are analyzed in light of current
financial theory. Extentions of domestic practices in to the international area are examined.
There are number of miss applications such as applying corporate wide weighted average
cost of capital to foreign affiliate cash flows rather than to cash flows actually remitted to the
corporation. Also risks frequently measured on local project basis (In Foreign country) rather
than considering the portfolio effect on the total corporation. Ultimately it is shown that the
survey respondents hedge against the uncertainty of the procedures by adding a premium to
the weight average cost of capital as completed by financial analysis.
ARTICLE : 7 :

Title :Behavioral risk constraints in capital budgeting

Author :O.Maurice joy &F.Hutton Barron

Year :2019

Abstract :
This paper presents a descriptive theory of risk that may be applied to capital budgeting
decisions. This proposed theory is actually much more general than a theory of financial risk
and is consistent with reported laboratory experiments. The essential future of this theory is
the role that risk descriptively plays a constraint in decision making process. Specifically, risk
is modeled as a chance constraint such the project are rejected if the probability of “failure’’
is larger than some prescribed level. This has the effect of making all investment decision
chance constrained programming problem, although some classes of problems have trivial
solution procedures. In this context, risk serves to “strike out “ or eliminate alternatives from
considerations.
ARTICLE : 8 :

Title : Capital budgeting practices

Author :RoopaliBatraa, SatishVerma

Year :2017

Abstract :
The volatility of the global economy, changing business practices, and academic
developments have created a need to re-examine Indian corporate capital budgeting practices.
Our research is based on a sample of 77 Indian companies listed on the Bombay Stock
Exchange. Results reveal that corporate practitioners largely follow the capital budgeting
practices proposed by academic theory. Discounted cash flow techniques of net present value
and internal rate of return and risk adjusted sensitivity analysis are most popular. Weighted
average cost of capital as cost of capital is most favoured. Nevertheless, the theory-practice
gap remains in adoption of specialised techniques of real options, modified internal rate of
return (MIRR), and simulation. Non-financial criteria are also given due consideration in
project selection.
ARTICLE : 9 :

Title :Capital Budgeting Theory and Practice

Author :LingesiyaKengatharan

Year :2016

Abstract :

The main purpose of this research was to delineate unearth lacunae in the extant capital
budgeting theory and practice during the last two decades and ipso facto become springboard
for future scholarships. Web of science search and iCat search were used to locate research
papers published during the last twenty years. Four criteria have been applied in selection of
research papers: be an empirical study, published in English language, appeared in peer
reviewed journal and full text research papers. These papers were collected from multiple
databases including OneFile (GALE), SciVerseScienceDirect (Elsevier), Informa - Taylor &
Francis (CrossRef), Wiley (CrossRef), Business (JSTOR), Arts & Sciences (JSTOR),
Proquest ,MEDLINE (NLM), and Wiley Online Library. Search parameters covered capital
budgeting, capital budgeting decision, capital budgeting theory, capital budgeting practices,
capital budgeting methods, capital budgeting models, capital budgeting tools, capital
budgeting techniques, capital budgeting process and investment decision. Thematic text
analyses have been explored to analyses them. Recent studies lent credence on the use of
more sophisticated capital budgeting techniques along with many capital budgeting tools for
incorporating risk..
Article: 10

Author:FatemehGhasemi, HamidrezaKoosha

Title:A robust goal programming model for the capital budgeting problem

Year: 2017

Abstract:
Considering financial limitations, organizations should choose among various investment
opportunities. Wrong decision making for selecting projects may lead to waste of resources
as well as opportunity cost and negative long term consequences. Thus, capital budgeting
problem can be solved to make proper decisions. Some of the main parameters of these
problems, e.g., cash flows, are not deterministic. In addition, budget constraints of the capital
budgeting problem are soft, i.e., they can be violated. In this paper, we propose a new model
for the capital budgeting problem which can deal with uncertainty and benefits from soft
constraints so that it can still provide a feasible solution. Goal programming is used to
increase model flexibility and robust optimization is applied to deal with uncertainty. The
model is examined with different numerical illustrations. Finally, results are analyzed and
advantages of the new model are discussed. Results are promising and the approach is highly
tractable and easy to implement.
 BIBLIOGRAPHY

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NAME BOOK

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P.K. Jain  Management McGraw-Hill 2007
Education
(India) Pvt
Limited

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News Papers

1. Indian express.

2. Economics.

Internet Sites

1. www.AMBUJA.co.in

2. www.googlefinance.com