2. Introduction
Investment and disinvestment are two sides of the
same coin. Investment refers to conversion of
money or cash into securities, debentures, bonds
or any other claims on money. At the same time,
disinvestment invloves the conversion of money
claims or securities into money or cash.
3. Definition
“The action of an organisation or government
selling or liquidating an asset or subsidiary”is
called disinvestment
4. Objectives of disinvestment
To reduce the financial burden on government
To improve public finances
To introduce, competition and market discipline
To increase growth of the firm
To encourage wider share of ownership
5. Reasons for disinvestment
To meet fiscal deficit
Expantion or diversification of the firm
To repayment of government debts
Implementation of government plan
PSU's give negative rate of return on capital
6. Overview of India's disinvestment
Disinvestment policies introduce after new
economic policy in july – 1991
The disinvestment policy as an active tool to
reduce the burden to financing the PSU
NIF (National investment fund)
Government has a borrowing plan of 4,00,000cr
roughly 2,45,000 cr would raised through
OMO
7. The Pay-Back Period (PBP)
The payback period for a project is the length of time it
take to get your initial investment back. It is the time
from the initial cash outflow to the time when the
project’s cash inflows add up to the initial cash outflow.
Example: if the initial investment is $100,000 and the
project’s CF stream is as follows, PBP = _____
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Date t=1 t=2 t=3 t=4 T=5
CF 30,000 42,000 42,000 28,000 12,000
ACC. CF
9. The Pay-Back Period (PBP) rule
Firms usually specify an arbitrary number of periods (t)
as the maximum time-to-payback. The PBP decision rule
is:
If PBP < t Accept project
If PBP = t Indifference
If PBP > t Reject project
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