University of Management and Technology
Course Outline
Course code…FN-679....
Program
Credit Hours
Duration
Prerequisites
Course title: Capital Budgeting & Long Term decisions
MBF
3
30 sessions (80 minutes each)
All Finance Courses
Resource Person
Counseling Timing
(Room# )
Contact
Chairman/Director Programme signature………………………………….
Dean’s signature………………………
Course Outline
Date………………………………………….
Page 1
Learning Objective:
 To understand the key motives of capital expenditures and the steps in capital
budgeting process
 To discuss the basic capital budgeting terminologies
 To understand the role of capital budgeting techniques in capital budgeting
process
 To understand the importance of recognizing risk in the analysis of capital
budgeting projects
 To understand the unique risks associated with international capital budgeting
Learning Methodology:
Capital Budgeting decisions are relevant to any individuals, including investors,
creditors, consultants, managers, directors, analysts, regulators, employees who ever want
to decide a venue for investment of fund; when a person has a choice and he, given the
resources and information, wants to make the best choice. Due to this relevance, it is
necessary to equip the students with the analytical skills necessary to succeed in business.
The course has two aims: a) to familiarize students with the practice of Pakistani
companies, b) to give them an opportunity to do meaningful financial analysis with
regard to Pakistani Companies.
Grade Evaluation Criteria
Following is the criteria for the distribution of marks to evaluate final grade in a semester.
Course Outline
Page 2
Marks Evaluation
Marks in percentage
Quizzes
10%
Assignments
10%
Class Participation /Attendance
5%
Project
15%
Mid-Term
25%
Final exam
35%
Total
100%
Recommended Text Books:
 Capital Budgeting and Investment Analysis By Alan C. Shapiro
Latest Edition, Mc-Graw Hill, Inc., USA
Reference Books:
 Capital Budgeting By Pamela P. Peterson & Frank J.Fabozzi
 Strategic Capital Budgeting By Hazel J. Johnson;
Course Outline
Page 3
Calendar of Course contents to be covered during semester
Course code: FN-679
Session
1
Course title: Capital Budgeting & Long Term decisions
Topic
An Overview
of Capital
Budgeting
Topics for discussion
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2–3
Time Value of
Money
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4
4-5
Introduction to
Capital
Budgeting
Process
Capital
Budgeting
Decision Rules
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Course Outline
Course Introduction
Appreciate the pivotal
position of TVM in
financial decision making
Even and Uneven Cash
flows
Compounding and
DiscountingPresent
Value, Future Value,
Terminal Value
Annuity and Perpetuity
What is Capital
Budgeting?
Cash flows vs. accounting
profits
Basic Ingredients
Project Classifications
Payback Period
Net Present Value
Internal rate of Return
Profitability Index and
Capital Rationing
Discounted Payback
Comparative study of
Various Decision Rules
Which is the best
technique?
Clash among IRR and
NPV results
Evaluation
Assignment # 1
Quiz # 1
Assignment # 2
Quiz # 2
Case Studies
Page 4
6
Specialized
Decision
using
Capital
Budgeting

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Make or Buy
Buy or Lease
Buy now or Later
Asset Replacement
Decision
Project Announcement
Mid
7
Mid Term

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8-9
Cash flows




10-11
Risk Analysis
of Capital
budgeting

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12
Post Modelling
Analysis
Course Outline

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Concept of Incremental
Cash flows
Even and Uneven Cash
flows
Conventional and
Unconventional Cash
flows
Computation of Initial
Terminal Cash flows
Differential Cash flow
method
Role of depreciation, tax
and inflation
Evaluation of Project Risk
Factors
Beta Factor
CAPM Concepts and
Calculations
Use of CAPM in Capital
Budgeting
Dividend yield plus
growth rate
Bond yield plus risk
premium approach
The divisional cost of
capital
Sensitivity Analysis
Pure play and Risk
Adjustment
Project Monitoring
Project Progress Review
Project Revisions
Post Completion Audits
Assignment # 3
Quiz # 3
Case Studies
Assignment # 4
Quiz # 4
Page 5
13
International
Capital
Budgeting
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14
Current
Development
15
Course Outline

Capital Budgeting in
Foreign Projects
Sovereign Risk
Real Options
Option to Expand,
Abandon or delay project
Investment Timing
Opinion
Case Studies
Case Studies
Presentations
Page 6