21/06/2006                                                                                    Page: 6

ACCOUNTS BASICS

INVESTMENT DECISIONS:  All capital budgetary decisions are aimed at achieving main objectives of business. Methods of appraising investments proposals are:

1. AVERAGE RATE OF RETURN:  Average Annual Profit After Tax / Average Investment over the life of the project x 100.  Average profits after Tax are worked out by summing up year-wise profits after tax for each year during useful lifetime of Investment.

2. PAYBACK METHOD:  Indicates the number of years required to recover initial cash investment by working out the ratio of initial Fixed Investments over annual Cash Inflows. i.e. Initial Investment / Uniform annual cash flow.

3. DISCOUNTED CASH FLOW:  Time adjusted techniques provide a more objective basis for evaluating and selecting investment projects.  These methods take into account both magnitude and the timing of cash flows expected to be received during each year of investment proposal's life.

        NET PRESENT VALUE:  All cash flows expected to be earned in the future are discounted to present value using rate of return. If Net Present Value is equal to or greater than ZERO then the proposal is accepted.  NPV = (Cash Inflow / Required Rate of return) - Cash Outflow.

        INTERNAL RATE OF RETURN  OR YIELD:  IRR for an investment project is the discount rate at which the present value of expected cash outflow are equal to present value of expected cash inflow.