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Pranay Pharmaceuticals Private Limited: Capital Rationing and Inflation Dilemmas

CASELET, FINANCIAL MANAGEMENT
ET Cases, 4 pages
AUTHOR(S) : Y. Bala Bharathi and Dr. Nagendra V. Chowdary

Case Preview

Pranay Pharmaceuticals Private Limited: Capital Rationing and Inflation Dilemmas

 

Pranay Reddy (Pranay), Founder and Chairman of Pranay Pharmaceuticals Private Limited (PPPL), was waiting to board the flight to Singapore. He was travelling to Singapore to attend a Global Pharmacuetical conference on May 1st 2015. The conference was on “Advances in New Drug Discovery & Development”, which would provide key insights into the emerging technology and advancements in drug discovery. He was very keen on attending this conference as his company’s expansion plans were underway.

However, it was announced that the flight was delayed by an hour. In the meanwhile, Pranay walked to the cafeteria to refresh himself. Unexpectedly, he met one of his old friends, Srinath Dasari (Srinath) at the cafetaria. Srinath although surprised was pleased to see Pranay after a very long time. He was all the more surprised to know that Pranay was the Founder and Chairman of a pharmaceutical company..............

Teaching Note Preview

Pranay Pharmaceuticals Private Limited: Capital Rationing and Inflation Dilemmas

 

This caselet aims to introduce the participants/students the concept of capital rationing and the impact of inflation on evaluation of capital investment decisions. Pranay Reddy (Pranay) after completing his Post Graduation in M.Pharm and acquiring relevant industry as well as academic experience, ventured to start his own pharmaceutical firm. Although the business started yielding revenues, he was worried about the inflation rate, which could dampen the profit margins. Besides, Pranay had planned to expand his product portfolio. He has shortlisted nine pharmaceutical projects. However, he had a capital constraint of `45,00,000. Given the limitation of funds, he wanted to start the projects, which would yield better returns. Nevertheless, he was clueless how to go about resolving his dilemmas. So, he took the help of one of his friends Srinath Dasari (Srinath), a financial consultant to get him out of this puzzled state.

Case Positioning and Setting

This caselet can be used in the following course in an MBA Program:

  • • Financial Management – To understand the concept of capital rationing and impact of inflation on capital investment decisions

 

Assignment Questions

  • I. What do you understand by capital rationing? What are the various types of capital rationing?
  • II. How do capital rationing methods help firms in taking the right capital investment decisions?
  • III. ..................

 

Preamble to the Case Analysis

This caselet is meant for a 60-minute session. The caselet is meant to introduce the students/participants to the concept of capital rationing. The caselet lets the participants know about various types of capital rationing, decision making under capital rationing situations and impact of inflation on the profit margins of the projects. In total, capital rationing techniques and inflation effects are highlighted in the caselet. Accordingly, the caselet was analyzed in the following suggested way................

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Abstract

This caselet is meant to introduce the students/participants to the concept and connotation of capital rationing as well as the impact of inflation on the project's profitability. After gaining relevant industry as well as academic experience, Pranay Reddy (Pranay) ventured to start his own pharmaceutical firm. Pranay was the Founder and Chairman of Pranay Pharmaceuticals Private Limited (PPPL). Though he earned decent returns in the first year, he was worried about the growing instability in the economy. He was worried about the estimated inflation rate of 12% and wanted to know the impact of inflation on the remaining 2 years of the project. Besides, as Pranay aspired to expand his product portfolio, he planned to add nine products to the existing portfolio. However, with the given capital constraint of 45,00,000, he was to choose only those projects, which would fit into his budget. As he was puzzled and required an accurate solution, Pranay approached his friend and Financial Consultant Srinath Dasari to resolve his dilemmas.



Pedagogical Objectives

  • Understand the concept and connotation of capital rationing
  • Evaluate the process of decision making under capital rationing situations
  • Examine how the inflation would impact the profit margins of the projects

Case Positioning and Setting

This caselet can be used in the following course in an MBA Program:

  • Financial Management – To understand the concept of capital rationing and impact of inflation on project’s profitability




This Case Pack Includes:
 - Abstract
- Caselet
- Teaching Note (**ONLY for Academicians)
- Supplements
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