DEPARTMENT OF FINANCE

UNIVERSITY OF DHAKA
EMBA Program
Course 601: Capital Investment Decisions
Spring 2021

Course Teacher: Dr. M. Sadiqul Islam,

Professor, Department of Finance, University of Dhaka
312, Academic Building

Office Hour: Tuesday 5:30 pm - 6:30 pm or by appointment

Text Books: Capital Investment and Financial Decisions

- Haim Levy and Marshall Sarnat (Prentice Hall Incorporation)
Financial Management – Theory and Practice (12th Edition)
- Brigham and Ehrhardt (The Dryden Press)
Capital Budgeting and Long Term Financial Decisions
- Seitz and Ellision (The Dryden Press)
Cases: Selected Case(s)

Course Objective:
The major objective of this course is to develop the skills to make financial appraisal of business projects
in a competitive market environment.
Course Learning Outcomes:
After completing this course, students should be able to (a) apply the techniques of capital budgeting,
(b) estimate project cash flows (c) estimate the cost of capital for new project, (d) analyze and deal with
project risks and country risk, (e) prepare optimal capital budget and (f) value the real options relating to
the project.
Grading:
The grading of this course will be based on:
Case Analysis, Reports 20%
Class and Case Participation 10%
Two In-term Tests 30%
Final Exam 40%
Total 100%
Case Presentation and Term Papers:
Students are expected to form groups for the presentation of cases and preparation of term papers. A
group can have a maximum of three members. Each member is expected to participate in the group
equally. Grades will be based on group presentation and report, individual presentation and class
participation.
No definite format is prescribed for a case report, but in general a case report includes an introduction,
statement of the problem, analysis of the firm (with analysis of the economy and of the industry where
possible) alternative courses of actions, analysis of each alternative and recommendations. All arguments
should preferably be backed up by quantitative estimates. Students may not need to use every piece of
information provided in the case. For any information required for analysis, but not mentioned in the
case, students are free to make any realistic assumption. However, their assumptions cannot contradict
any information provided in the case. Students should provide justification in favor of their
recommendations. For case presentations, students are expected to use multimedia overhead projector.
Problems and conflicts within the group should preferably be resolved internally. If group members are
divided with respect to solution and recommendation, they may choose to provide separate reports. A
severe penalty will be imposed if any student copies others’ reports or presentation materials or parts
thereof.
SWITCH OFF YOUR MOBILE PHONES WHILE YOU ARE IN THE CLASS

Course Contents
Class Content Chapter
1 Capital Budgeting: Defining Capital Expenditures, Capital Budgeting Levy, Chap 2
Process; Time Value of Money. Brigham
Market Imperfections and Value: Strategic Matters Seitz, Chap 2

2 Capital Budgeting Techniques; Economic Evaluation of Investment Levy, Chap 3

Proposals, NPV, IRR – Economic Rationale.
Brigham
NPV vs. IRR: for Independent Projects, for Dependent Projects,
Differences in the Scale of Investment, Profitability Index, Timing of Levy, Chap 4
Cash flow, Reinvestment rates, Time Horizon Problem, Theoretical Brigham
Justification for NPV

3-5 Cash Flow Estimation: Incremental Cash Flows –Working Capital, Brigham
Interest, Opportunity Costs, Sunk Costs, Salvage Value; Equipment
Replacement Decisions, Projects with Unequal Lives, Impact of
Corporate Tax; Cash Flow Estimation Process, Relevant Cash Flows,
Bias in Cash Flow Estimation, Managerial Options, Projects with
Unequal Lives, Abandonment Value, Adjusting for Inflation. Project
Interactions.

6 First Interm Test

7 Capital Budgeting under Uncertainty – Types of Project Risks, Brigham
Techniques of Analyzing Stand Alone Risk –Sensitivity Analysis,
Scenario Analysis, Monte Carlo Simulation, Decision Tree Analysis;
Corporate Risk, Market Risk, Risk Adjusted Discount Rate and
Certainty Equivalent Approach; Country Risk Analysis

8-9 Cost of Capital – Cost of Equity, Cost of Debt, Cost of Preferred Stock, Brigham
Weighted Average Cost of Capital, Break Point, MCC Schedule

Optimum Capital Budget. Levy

10 Replacement of Assets

11 Second Interm Test

12 Analysis of Capital Projects under Different Capital Structure Ross
Adjusted Present Value, Cash Flow to Equity and WACC approach

13 Real options, types of real options, valuation of real options. Brigham

14 Case Presentations:

15 Final Exam