A

PROJECT REPORT
ON
CAPITAL BUDGETING
AT
HERO MOTOCORP PVT LTD
Submitted
By
A. AMARNATH REDDY
[Link]: 1302-18-672-023
PROJECT SUBMITTED IN PARTIAL FULFILLMENT FOR THE AWARD OF DEGREE
OF

MASTER OF BUSINESS ADMINISTRATION

Department of Business Administration

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.

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.

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 HERO

MOTOCORP PVT LTD for 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 HERO

MOTOCORP PVT LTD Hyderabad

 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 HERO

MOTOCORP PVT LTD

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

efficient utilization of capital expenditure decisions.

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

secondary [Link] 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

Method Used For Analysis of Study

The methodology used for this purpose is Survey and Questionnaire Method. It is a

time consuming and expensive method and requires more administrative planning and

supervision. It is also subjective to interviewer bias or distortion.

Sample Size: 100 respondents

Sampling Unit: Businessmen, Government Servant, Retired Individuals

Statistical Tools: MS-excel and pie and bar diagrams are used to analyze the data.

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

Article:1

Title: journal of applied corporate finance

Authors: john graham Campbell H ofarvey

Journal: international journal of contemporary hospitality management,vilume:20

issue 4,2008

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 feild” in the journal of finantial

economics vol,60(2001), pp. [Link] research is partially sponsored by the

finantial executives international (fei) but the opinions expressed herein do not

necessarily represent the views of fei .we thank the fei excutives who respond to the

[Link] acknowledges financial support from the Alfred [Link] research

foundation .

\
Article2

Title: journals of international business studies

Authors: Laurence [Link]

Journal: managerial auditing journal , volume 21 issue 4, 2006

Abstract:

This article discusses the relative merits of different capital budgeting techniques used

by MNCs. the purpose is to show that the apv method ,which has recently gained

popularity, Can cause incorrect choices to be made between competing projects

unless the NPV IS Already determined. The author suggest that complicated cost of

capital adjustments may Be the only route to calculating a project s NPV correctly.
Article3

Title: Risk-adjusted discount rates and capital budgeting under uncertainity

Authors: [Link]

Journal: journal of applied accounting research , volume3,2011

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

equilibirium. 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 preceeding the realization of the cash

flow need to be the Same ,and the rates relavant for a given period can given differ

across [Link] risk adjustments in the discount rates arise because of

uncertanities about reassessments and the corresponding reassessments of the

expected cashflows of all firms.

Title: Journals of advances in management research

Authors : Shvetasingh,[Link]

Journal: Journal of accounting & organisationsal change,volume :7 issue:3,2011

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

reviwed] trends towards sophisticated techniques and sound capital budgeting

decsions have continued in India.

Authour : Spiro Daniel [Link],Tony

Title: Capital Budgeting In Multinational Organisations The Strategic Contexts

Year: 1994

Abstract: a study of capital budgeting and strategy in 23 companies revealed in the

different types of capital budgeting process .the centralised capital budgeting process

invalues in a top management in all important strategic decisions. In the decentralized

process opearating ,managers identify and initiate projects approved by top

management of according to projected financial performance.

Books:
-Financial Management - Prasanna Chandra
-Management Accounting - [Link] & Shashi [Link]
-Management Accounting -[Link]
-Financial Management -Khan and Jain
-Research Methodology -[Link]

Internet Sites:
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