Capital Budgeting

Course Code: FIN 323

Credit Hour: 3

Course Group: Specialization Courses: Finance

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Capital Budgeting and Cash Flow Principles.

Capital Budgeting Techniques – ARR, PBP, NPV, IRR, MIRR, PI.

Special Issues in Capital Budgeting Decisions – NPV Profile, Problems with IRR and the Profitability Index as Decision Criteria.

Cash Flow Estimation: Accounting Income vs. Cash Flow, Incremental Cash Flow, Bias in Cash Flow Estimation, Inflation Adjustment.

Special Capital Budgeting Situations: Different Lives, Capital Rationing, Optimal Replacement Decisions for Existing Assets.

Financial Structure and Cost of Capital.

Risk in Capital Budgeting – Sensitivity, Scenario, Simulation, Decision Tree Analysis.

Risk Adjusted Discount Rate and Certainty Equivalent: Interaction of Investment and Financing Decision.

Concept of Project and Project Appraisal: Aspects of Appraisal; Appraisal of Different Critical Factors of Project Preparation; Importance of Cost Benefit Analysis; Methods of Cost Benefit Analysis; Different Approaches of Shadow Prices; Project Management System; Methodology of Project Management.

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Texts:

Levy and Sarnat, Capital Investment Decision- 5 th Edition, Prentice – Hall Inc., New York, 1994.

Meridith, Project Management, 5th Edition, John Willey and Sons Inc., New York, 2000.

Neil, S. And Mitch, E, Capital Budgeting and Long-Term Financing Decision- 4 th Edition, South – Western College Pub., 2004.