MODULE - 1

CAPITAL INVESTMENT As per the Business terms, Capital Investment defined as a money invested in a business venture or a project venture with an expectation of income and recovered through earnings generated by the business over several years.

PHASES OF CAPITAL BUDGETING

PLANNING
ANALYSIS SELECTION FINANCING IMPLEMENTATION REVIEW

LEVELS OF DECISION MAKING

Operating Decisions
Where is the decision taken How structured is the decision What is the level of resource commitment What is the time horizon Lower level management Routine

Administrative Decisions
Middle level management Semi - structured

Strategic Decisions
Top level management Unstructured

Minor Resource commitment

Moderate Resource commitment Medium - term

Major Resource commitment

Short - term

Long - term

FACETS OF PROJECT ANALYSIS

Market Analysis

Potential Market
Market Share Technical Viability Sensible Choices

Technical Analysis Financial Analysis

Risk
Return Benefits and Costs in Shadow Prices

Economic Analysis Ecological Analysis

Other Impacts Environmental Damage Restoration Measures

FEASIBILITY STUDY OF CAPITAL ALLOCATION

P re li m in ar y w or k a n al y si s Generation of Ideas Initial screening Is the Idea Prima Facie Promising?
Yes
No

Terminate

Plan Feasibility Analysis Conduct Market Analysis Conduct Technical Analysis

Conduct Financial Analysis E v al u at io n Conduct Economic & Ecological Analysis Is the Project Worthwhile?
yes
No

Terminate

Prepare Funding Proposal

STRATEGIC PLANNING & CAPITAL BUDGETING

Formulation of Strategies
Environmental Analysis Customers Competitors Suppliers Regulation Infrastructure Social/ Political environment Internal Analysis Technical know-how Manufacturing Capacity Marketing & Distribution Capability Logistics Financial Resources

Opportunities & Threats Identify opportunities

Strengths & weaknesses Determine Core Capabilities

Find the fit between core capabilities & external opportunities Firms Strategies

STRATEGIC PLANNING & CAPITAL BUDGETING

Environmental Assessment

Managerial Vision, Values, and Attitudes

Corporate Appraisal

Strategic Plan

Capital Budgeting

Product Strategy, Market strategy, Production Strategy, and so on

GENERATION OF IDEAS

The truly new ideas which are based on significant technological advancement, most of the project ideas involve combining existing fields of technology or offering variants of present products or services.

PRELIMINARY SCREENING
The following aspects may be looked into a preliminary screening:Compatibility with the promoter Consistency with governmental priorities Availability of inputs Adequacy of market Reasonableness of cost Acceptability of risk level

PROJECT RATING INDEX

In a Project Rating Index, the Rating Agencies will rate the projects as per the various aspect. The steps involved in determining the project rating index are as follows:* Identify factors relevant for project rating. * Assign weights to these factors. * Rate the project proposal on various factors, using a suitable rating scale. (5 point scale or 7 point scale is used for this purpose) * For each factor, multiply the factor rating with factor weight to get the factor score. * Add all the factor scores to get the overall Project Rating Index.

SOURCE OF POSITIVE NET PRESENT VALUE

Economies of Scale Product Differentiation Cost Advantage Marketing Reach Technological Edge Government Policy

MODULE - 2

SITUATIONAL ANALYSIS AND SPECIFICATION OF OBJECTIVES, COLLECTION OF SECONDARY INFORMATION, MARKET SURVEY, DEMAND FORCASTING, MARKET PLANNING
Collection of Secondary Information
Situational Analysis and Specification of Objectives

Demand Forecasting

Characterization of the Market

Conduct of Market Survey

Market Planning

TECHNICAL ANALYSIS
Technical analysis is a continuous process to ensure that the project is technically feasible in the sense that all the inputs required to set up the project are available and to facilitate the most optimal formulation of the project in terms of technology, size, location, and so on.

TECHNICAL ANALYSIS
It is organized into twelve sections as follows:

Manufacturing process / technology Technical arrangements Materials and Inputs Product Mix Plant capacity Location and Site Machineries and Equipments Structures and Civil works Environmental aspects Project charts and Layouts Project implementation schedule Need for considering alternatives

FINANCIAL ESTIMATES AND PROJECTIONS

Cost of Project Means of Financing Estimates of sales and production Cost of Production Working capital requirement and its financing Profitability Projections Projected Cash flow statements Projected Balance sheets

MODULE - 4

CAPITAL STRUCTURE
The sum total of various types of securities issued by the company and their respective proportion to the capital of the company is called capital structure

SOURCES OF FINANCE
Sources of finance

Internal Accruals

Securities Equity Preference Bonds

Term loans

Working capital advances

Miscellaneous sources

VENTURE CAPITAL

Money provided by investors to startup firms and small businesses with perceived longterm growth potential. This is a very important source of funding for startups that do not have access to capital markets. It typically entails high risk for the investor, but it has the potential for above-average returns.

VENTURE CAPITAL INVESTORS

The financial institutions, corporations, and individuals participate in the venture capital industry as investors. The most significant among these are venture capital funds. Venture capital funds may be described as pools of capital constituted for investing in relatively high risk opportunities in anticipation of potentially high risk adjusted rate of return. These fund are usually committed for extended periods of time, ranging from 7 to 12 years. At the end of the period the investments are liquidated and the capital is returned to the investor with any capital appreciation thereon.

VENTURE CAPITAL INVESTMENT APPRAISAL PROCESS AND MANAGEMENT

Assessment of business and management. Valuation of a venture capital transaction. Deal structuring. Investor Investee relationship. Post financing relationship. Exiting from Investment.

SEBI REGULATION OF VENTURE CAPITAL FUNDS IN INDIA

VC funds do not access public investors who may not have the capability to assess the risks under laying investment in VC funds. VC funds invest in unlisted companies that are not in a position to access public financial markets.

SEBI REGULATION OF VENTURE CAPITAL FUNDS IN INDIA

The important provisions of the SEBI Regulations are given below:1. A venture capital fund may be established in the form of a trust or a company. Every VCF will have to register with the SEBI and obtain a certificate from the SEBI to engage in the business of marking VC investments. 2. In order to ensure that VC funds do not raise capital from the public the SEBI regulations require that: The MOA of the company preclude the VC fund from investing public subscriptions from the public. The minimum subscription per investor is Rs. 5 lakh and minimum size of the corpus for a VCF to commence business is Rs. 5 crore.

SEBI REGULATION OF VENTURE CAPITAL FUNDS IN INDIA

The VC funds may not list its shares or units on a stock

exchange for a period of 3 years from the date of issue. 3. The regulations seek to ensure that VC funds invest in unlisted companies by stipulating that: A venture capital undertaking is a domestic company whose shares are not listed on a recognized stock exchange in India. 75% or more of the investible funds are invested in equity shares of unlisted companies. 4. VC funds are not allowed to invest more than 25% of the corpus in any one company. VC funds are also not allowed to invest in associated companies.