Capital Budgeting Techniques of ACI Limited

Capital Budgeting Techniques of ACI Limited

Capital Budgeting Techniques of ACI Limited Course Code: F-303 Course Title: Capital Investment Decision Submitted to: Shabbir Ahamad Professor Department of Finance University of Dhaka Submitted by: Roll no. 17-090 17-166 17-172 17-174 17-182

Name Ummul Wara Saida Homaira Md. Rezwan Islam Md. Maksud Hassan Zonayed Mahid

Date of Submission: 01-September-2013

Remarks

ACI limited:

 ACI Limited (ACI) is a diversified company, engaged in production and distribution of consumer and healthcare products. The company operates through three reportable segments: Pharmaceuticals, Consumer Brands and Agribusiness. It was formerly known as ICI Bangladesh Manufacturers Limited. The pharmaceutical unit develops and markets more than 387 products covering a range of therapeutic areas. It is also involved in the research & development of novel drug delivery systems. Its products include meflon, mylovit, livita, minolac, vecuron, mastel and acid pump inhibitors. The consumer unit is engaged in the manufacture of home care, air care and hygiene products. Its products comprise aerosol, air freshener, savlon and mosquito coil. The agribusiness unit produces a range of seeds, fertilizers and crop protection chemicals. ACI commercializes its products through a network of 19 sales centers across the country. Its subsidiaries include Apex Leathercrafts Limited, ACI Salt Limited, ACI Formulations Ltd, ACI Pure Flour Limited, ACI Logistics Limited and Creative Communication Limited. The company is headquartered in Dhaka Bangladesh.

Segmentation of the ACI’s capital budgeting techniques:

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Cash flow determination

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Cost of capital determination

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Capital budgeting techniques

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Key consideration for project appraisal in: 

Scenario analysis

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Sensitivity analysis

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Break even analysis

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Risk arrangement procedure

Cash flow determination:

 ACI ltd co. does have a bulk amount to invest every year, as recognized in its subsidiary undertakings. Therefore, it is necessary to consider how it determines the cash flow it generates. For which, the company basically follows both of  discounted and non-discounted cash flow techniques to evaluate any proposal.

Cost of capital determination:

To determine cost of capital, weighted average cost of capital (WACC) is the renowned method among the companies in the world. But the main matter of concern is the basis of valuation, whether it is the market value, book value or any other procedure. In this context, ACI Limited co. undergoes the WACC on book value on any project or regarding any sort of cost of capital recognition

Capital budgeting technique:

The very next thing we will discuss, capital budgeting technique, is of a high importance for a prudent understanding regarding the capital budgeting operation of the company. As discussed earlier, under the DCF technique, ACI limited co. applies Net Present Value  and Internal Rate of Return for valuation. As for nonDCF technique, it carries out Payback Period, so the company is pretty considerate about its return on the initial investment.

Key consideration for project appraisal in: Scenario analysis:

 As our knowledge suggest, one very essential concept is to know the approach a company uses in determining in any sort of proposal like optimistic, pessimistic view etc. ACI limited co. follows the Normal view  in case to deal with the sort of scenario they will adopt for the proposal.

Sensitivity analysis:

The consideration to the segment of the financial statement which to put a sufficient weight for a particular proposal is our next factor for attention. For instant, the income, expense and assets seem to have their individual sensitivity for selection. In this purpose, ACI limited co. generally focuses in major on the revenue and cost segment  of the proposal to evaluate.

Break even analysis:

Normally it does not have much to say about break even analysis as we are all pretty much aware about the importance about the importance it hold to decide about the operation the company undertakes. But break even analysis segmented on the basis of accounting, financial, cash etc. On this purpose, ACI limited co. does follows the accounting break even analysis for the proposal to judge its operational feasibility.

Risk Arrangement Procedure:

The risk arrangement procedure is the extent to which the company will decide how to execute the proposal depending on the market, industry and at the proposal level`. The ACI limited company's management has overall responsibility for the establishment and oversight of the Company's risk management framework. The Company's management policies are established to identify and analyze the risks faced by the Company to set appropriate risk limits  and controls and to monitor risks and adherence to limits. Risk management policies, procedures and systems are reviewed regularly to reflect changes in market conditions and the Company's activities. The Company has provided in the separate notes regarding the information about the Company's exposure to each of the above risks, the Company's objectives, policies and processes for measuring and managing risk and the Company's management of capital. The Company has exposure to the following risks from its use of financial instruments. 

Credit risk

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Liquidity risk

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Market risk