In many areas like generation of internal resources, contribution to central exchequer, export earnings, import substitution and in achieving their set objectives, the performances of public enterprises has been disappointing. In India several units were started in public sector with a broad aim of socializing the means of production in strategies is providing counter ailing power to the growth of a large house in the private sector, development of key and basic industries, instruments for the success of planning and for the establishment of socialist pattern of society.

They have become white elephants and also one of the major problems of concern of our economy by becoming a burden to the government a well as to the taxpayer. However, there has been increase in net profit, gross margin, gross profit, gross sales, internal generation export earning and contribution to the exchequer during 2004-AAA detailed analysis of the public sector industry wise. Reparability reveals that 50% Of the Sells are loss making, another 50% are highly profitable like mainly SAIL, GAIL,BALBOA,HP,BELL are some of the major contributions for profit.

In 3004 budget, the government has announced for revival and restructuring of the sick Us by allocating a budget around RSI. 2000 Scores . The main reason attributed for loss making due to flow in financial aspects and indiscipline in managing the resources particularly finances.

In the 21 SST century the government stressed the disinvestment policies for the most of the companies including high profit earning companies. The shift of government for disinvestment has given AP. Enormous amount of around RSI. Discourses from this disinvestment policy.The economists and the financial professionals were not happy and were advising the Government to go in for turn around strategy by allocating more funds for revival of sick Isis. And the general publics are also not happy with the disinvestment policies of the Government.

During tests paved an away to alternative Government for the policies of non-disinvestment. Present Government is categorizing all the public sectors under three categories:- 1 . Core sector like, Defense, Steel, Cement, etc. Re related to manufacturing sectors. . Secondary Category includes those industries, which can weed out the unwanted expenditure and manpower to make the companies viable and profitable. 3.

The third Category Were loss making industries which are going to be listed under/Disinvestment policy’ with a share capital of 26% or 49% or 51% to the well organized companies like Data, Barilla, Reliance, etc. The above policies of the newly elected Government has made financial institute to analyze all the resources in order to compete in the cutthroat competition of Global players.However, a again stride taken India in the IT technology in he world, which also makes the financial executives role has become pivotal in capital budgeting and investment appraisal. Scope OF THE STUDY: The scope Of the study is restricted to the following: The scope is limited to the operations of BELL, Hydrated.

And the system followed in BELL for capital expenditure decision. SOURCES OF DATA: The data is collected from the BELL, Hydrated unit with the help of primary and secondary data. PRIMARY OAT A: 1. Interaction with the planning and development department 2.

Interaction with the finance department SECONDARY OAT A: 1. Capital budget manual of BELL. 2. Accounting manuals of BELL METHODOLOGY: 1. The capital budgeting mechanism is studied in detail 2. The various factors of capital budgeting management are studied in detail 3. The technical analysis in respect to Internal Rate of Return (AIR), Net Present Value (NAP) and discounted cash flow techniques have been studied 4. The commercial analysis relating to lease Vs.

buying, rentals Vs. buying analysis have been studied MEANING: Capital budgeting is the process of making investment decision and capital expenditure.Capital budgeting is employed to evaluate expenditure decisions which involve current outlay that are likely to produces benefits over a period f time usually longer than one year. Capital expenditure involves a non- flexible, long-term commitment of funds thus capital expenditure decisions are also called as long-term investment decisions. FEATURES: 1 . It involves exchange of current funds for the benefits to be achieved in future. 2. Future benefits -are expected to be realized over a series of years.

3. They generally involve huge funds. 4. They are irreversible decision. 5.They have long term and significant effect of profitability of the concern. 6.

There is relatively high degree of risk. IMPORTANCE: Capital budgeting decisions are of paramount in financial decision-making. Capital budgeting decisions affect the profitability of the firm. They also have a bearing on the competitive position of the enterprise. Capital budgeting decision determines the future destiny of the company. An opportune investment decision can yield spectacular returns where as an ill-advised and incorrect investment decisions can endanger the very survival even of the large sized firms.A capital expenditure decisions has its effect over a long time span and inevitably affects the company’s future cost structure Capital investment decisions are not easily reversible, without much financial loss to he firm Capital investment involves cost and the majority of the firms have scares capital resources Capital investment decisions are of national importance because it determines employment, economic activities and economic growth This underlines the need for thoughtful, wise and correct investment decisions.

NEED FOR CAPITAL BUDGETING: Capital budgeting decisions” are vital to an organization as they include the decisions as to: Weather or not the funds should be invested in long term projects such as setting up a business, purchase of plant and machinery etc. To analyze the proposal for expansion or creating additional capacities. To . Decide the replacement of permanent asset 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 DIFFICULTIES: Capital budgeting decisions are not easy to take.There are number of factors responsible for this: 1. The benefits from investments are received in some future period. The future is uncertain.

Therefore, an element of risk is involved. A failure to forecast correctly will lead to serious errors which can be corrected lonely at a considerable expense. 2. Problems are also arising cause cost incurred and benefits received from. Capital budgeting decisions occur at different time period. They are not logically comparable because of the time value of money. 3.It is’ not often possible to calculate in strictly quantitative terms, all the benefits of the cost relating to a particular investment decision.

RATIONALE: The rationale underlying the capital budgeting decisions is efficiency, Thus a firm must replace worn and obsolete plant and machinery, acquire fixed assets for current and new products and make straight investment decisions, This will enable the firm to achieve the objective of maximizing the profits, The quality of these decisions is improved by capital budgeting.Capital budgeting decisions can be of two types: 1, Those, which expand revenues 2. Those, which reduce costs INVESTMENT DECISIONS EFFECTING REVENUE: Investment decisions are expected to bring in additional revenue there by raising the size of firm’s total revenue. They can be the result of either expansion of present operations of the development of a new product line.

These decisions involved acquisition of new fixed assets, INVESTMENT DECISIONS REDUCING COST: These decisions add to the total revenue of the firm.These investment decisions are subject to less uncertainty. This is because the firm has a better “feel” or potential cost saving as it can examine past production and cost data. CAPITAL BUDGETING DECISION MAKING PROCESS: TO KINDS OF CAPITAL BUDGETING: There are three types Of capital budgeting decisions: 1) Accept-reject decisions: This is a fundamental decision in capital budgeting. If the project is accepted, the firm invests in it. If the proposal is rejected, the firm doesn’t invest in it.

80, by applying this criterion, all independent projects are accepted.Independent projects are projects that do not compete with one another in such a way that the acceptance of a project recluses the possibility of acceptance of another. 2) Mutually exclusive project decision: These are the projects, which compete with other projects in such a way that the acceptance of one will exclude the acceptance of other projects. The alternatives are mutually exclusive and only one may be chosen. Mutually exclusive investment decisions acquired significance when more than one proposal is acceptable under accept-reject decision. ) Capital rationing decisions: Capital rationing refers to situation in which the firm has more acceptable investments requiring greater amount of finance that is available with the firm. It is concerned with selection of group of investment proposals out of many investment proposals stable under accept-reject criterion under financial constrains.

EVALUATION OF INVESTMENT PROPOSALS: At each point of time, a business firm has a number of proposals regarding various projects in which it can invest funds.But funds available: with the firms are always limited and it is not possible to invest funds in all the proposals at a time. In selecting the criterion, the following two fundamental principles must be kept in view: 1 ) The bigger, the better principle: this principle means that the other things Ewing equal, bigger benefits are preferable to small ones. 2) The bird in hand principles: this principle means that other things being equal, early benefits as other things are seldom equal.

Both the above principles have to be applied to take the right decision.