CID-R12

CID-R12
PGDM-RM 2012-14: Term-III

Course Name : Capital Investment decision

Credits	1.5
Faculty Name	Dr Soumya G Deb
Program	PGP-RM
Academic Year and Term	2012-14 batch Term -3

1. Course Description: By the time you get exposed to this course, you are expected to have already learnt the basic concepts of time value of money, discounting, risk, and application of these principles for valuation of financial securities like stocks and bonds. This course will take up from there and address one of the key issues in corporate finance i.e capital budgeting and how it is used for creating value for the firm. In the process the course will expose you to the intricacies of determination of ‘relevant’ cash flows for a project, determination of appropriate cost of capital and selection of a suitable project for value creation for the company, using different competing approaches. You may also get a glimpse of managerial or real options faced in real life capital budgeting which results from the flexibility available with managers even after a project has already been accepted and how they create additional value. We may also talk about capital structure and its impact on project / firm value.

Welcome to the course!

2. Student Learning Outcomes

· Be able to decide whether a project is worth investing in and how it compares with others
· Be able to derive cash flows for planned projects towards comparing them
· Be able to carry out sensitivity, scenario, breakeven, unequal-lives analyses
· Be able to understand the effect of capital structure on value of the firm and cost of capital

3. Required Text Books and Reading Material

a) Textbook:

Fundamentals of Corporate Finance by Stephen A Ross, R W Westerfield and B. D Jordan –8th Edition, ( Subcontinent edition) published by Tata Mcgraw Hill

b) Reference Book:

- Financial Management : Theory and Practice –11th Edition by Brigham and Ehrhardt, Thomson India edition

- Principles of Corporate Finance - 8th Edition, by Brealey, Myers, Allen and Mohanty, Special Indian Edition, Tata Mcgraw Hill,

c) handouts and readings as and when made available during the course.

4. Tentative Session Plan

Session
Topics Covered

1,2,3,4
Capital Budgeting, building blocks :
· Introduction,
· Competing Criteria for making a capital budgeting decision

5,6
· Cost of Capital

6,7
· General rules to be followed for getting the correct cash flows
· Deriving the Cash Flows from accounting numbers

8-10
Advanced issues in Capital Budgeting
· Capital Budgeting under uncertainty, risk analysis, ( Sensitivity analysis, scenario analysis, simulation approach, breakeven analysis, Certainty equivalent approach)
· Projects with unequal lives
· Term Structure and Capital Budgeting
· Managerial / Real Options

5. Evaluation :

The evaluation process is divided into three components.

(a) Quiz/Mid term : 30% : May be open book or closed book ( that would be announced in class).

(b) Class Participation/Project : 10% : This could be comprised of attendance, response and attitude in class, and/or some group projects.

(c) End Term: 60% : The end term examination will be a closed book one based on topics covered during the entire course.

6. Academic Integrity: Students involved in academic dishonesty will receive a ZERO grade on the particular component in which the violation occurred. Academic dishonesty consists of misrepresentation by deception or by other fraudulent means such as copying or use of unauthorized aids in tests, talking during in-class examinations; aiding another student’s dishonesty; and giving false information for the purpose of gaining credits.

Created By: Debasis Mohanty on 12/07/2012 at 03:06 PM
Category: PGPRM-I Doctype: Document

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Session	Topics Covered
1,2,3,4	Capital Budgeting, building blocks : · Introduction, · Competing Criteria for making a capital budgeting decision
5,6	· Cost of Capital
6,7	· General rules to be followed for getting the correct cash flows · Deriving the Cash Flows from accounting numbers
8-10	Advanced issues in Capital Budgeting · Capital Budgeting under uncertainty, risk analysis, ( Sensitivity analysis, scenario analysis, simulation approach, breakeven analysis, Certainty equivalent approach) · Projects with unequal lives · Term Structure and Capital Budgeting · Managerial / Real Options