RTI,Chennai Learning Objective Given the concepts of Decision Analysis, Option Pricing and Investment Decisions, the trainee will be able to audit the capital budgeting proposals of projects and critically examine the decisions of management as evaluated by the instructor

RTI,Chennai Three stages of capital budgeting Decision Analysis Exploring the options Investment decision

RTI,Chennai Decision Analysis Multiple Attribute Decision Model (MADM) Cost of the project Risk assessment Rate of inflation Operating costs Capacity utilisation Overheads Demand forecast Market research Life cycle of the project Disposal value

RTI,Chennai Advantages Consideration of financial and non- financial criteria Judgements and assumptions and its impact Important factors are weighed more Collective decision

RTI,Chennai Option Pricing Three common sources of options –Timing option –Abandonment options –Growth options

RTI,Chennai Investment decision Importance of Time value of money –Inflation –Uncertainty –Opportunity costs Calculation of discounted cash flow

RTI,Chennai Economic criteria Net Present Value (NPV) Internal Rate of Return (IRR) Discounted Pay Back (DPB)

RTI,Chennai Risk Analysis Different levels of risks between projects Risks specific to foreign projects Comparing the actuals with estimates during execution of the projects