Capital Budgeting

For
Project Appraisal
 Capital Budgeting
 Capital budgeting (or project/ investment appraisal
criteria) is the process of planning, evaluating and
selecting long-term investment decisions that are in line
with the goal of investors’ wealth maximization.
 Firm’s long-term investment decisions generally include
expansion, acquisition, modernization and replacement of
long-term assets and research and development projects.
 It is used to compare and evaluate alternative projects-
• financial and nonfinancial criteria
• short and long-term benefits
• fit with existing technology
• effect on marketing and cost management.
 Capital Budgeting: Scholars’
Points of View
 Project appraisal is a process of investigation and
reasoning designed to assist a decision maker to reach an
informed and rational choice. (Sugden & Williams)

A capital investment appraisal is a means of ensuring

value for money in relation to developing an estate
strategy and capital project. A capital investment
appraisal is not meant to provide an indication of profit
or loss for the institution as a whole, but rather a
comparison of costs in relation to those areas of the
estate where there is an opportunity or an inclination for
change. (Baum T., & Mudambi R.)
 Scope of Capital Budgeting
Capital Budgeting involves:-
 Evaluation of investment project proposals that are
strategic to business’s overall objectives.
 Estimation of after-tax incremental operating cash flows
for investment projects.
 Estimation and evaluation of how much cash flows
incurred for each of the investment proposals.
 Selection of an investment proposal that maximizes the
return to the investors.
 Reevaluation of implemented investment projects
continually and performing post audits for completed
projects.
 Types of Investment Decisions
There are typically two types of investment decisions:
 Selection decisions in terms of obtaining new facilities or
expanding existing facilities. Examples include:
1. Investment in long term assets such as property, plant
and equipment.
2. Resource commitments in the form of new product
development, market research, refunding of long term debt,
introduction of a computer, etc.
 Replacement decisions in terms of replacing existing
facilities with new facilities. Examples include:
1. Replacing a manual bookkeeping system with a
computerized system.
2. Replacing an inefficient lathe with one that is
numerically controlled.
 Good Investment Decision
Nature:
 The exchange of current funds for future benefits
 The funds are invested in long-term assets
 The future benefits will occur to the firm over a series
of years.
Criteria:
We need to ask ourselves the following questions when evaluating
capital budgeting decision rules:
 Does the decision rule adjust for the time value of
money?
 Does the decision rule adjust for risk?
 Does the decision rule provide information on
whether we are creating value for the firm?
 Capital Budgeting Considerations
The capital budgeting decision, under any technique,
depends in part on a variety of considerations:

 The availability of funds

 The relationships among proposed projects
 The company’s basic decision-making approach
 The risk associated with a particular project
 Phases of Capital Budgeting
Capital budgeting is a multi-faceted activity. There are several
sequential stages in the process.
Planning

Analysis

Selection

Financing

Implementation

Review
 Phases of Capital Budgeting contd…
Planning: A firm’s mission and vision is summarized in its
strategic planning framework. A strategic plan is the grand
design of the firm and clearly identifies the business the
firm is in and where it intends to position itself in the
future. Strategic planning translates the firm’s corporate
goal into specific policies and directions, sets priorities,
specifies the structural, strategic and tactical areas of
business development, and guides the planning process in
the pursuit of solid objectives.
Analysis: The focus of this phase of capital budgeting is on
gathering, preparing, and summarizing relevant information
about various project proposals which are being considered
for inclusion in the capital budget.
 Phases of Capital Budgeting contd…
Selection: In the selection phases project worthwhileness
is being judged by applying various appraisal criteria. The
selection rules associated with these criteria are as follows:

Criterion Accept Reject

Payback period (PBP) PBP< target period PBP> target period
Accounting rate of return ARR>target rate ARR<target rate
(ARR)
Net present value (NPV) NPV>0 NPV<0
Internal rate of return (IRR) IRR>cost of capital IRR<cost of capital

Benefit cost ratio (BCR) BCR>1 BCR<1

 Phases of Capital Budgeting contd…
Financing: Once a project is selected, suitable financing
arrangements have to be made. The two broad sources of
finance for a project are equity and debt.

Implementation: The implementation phase for an

industrial project, consists of several stages:

i. Project and engineering designs,

ii. Negotiations and contracting,
iii. Construction,
iv. Training and
v. Plant commissioning.
 Phases of Capital Budgeting contd…
Review: Performance review should be done periodically
to compare actual performance with projected performance.
It is useful in the following ways:

i. It throws light on how realistic were the assumptions

underlying the project;
ii. It provides a documented log of experience that is
highly valuable in future decision making;
iii. It suggests corrective action to be taken in the light of
actual performance;
iv. It helps in uncovering judgmental biases;
v. It induces a desired caution among project sponsors.
 Capital Budgeting: Importance &
Limitations
Importance Limitations
Capital budgeting decisions influence Poor alignment between strategy and
the firm’s growth in the long run. capital budgeting.
Deficiencies in analytical techniques-
 Poorly identified base case
They affect the risk of the firm.  Inadequately treated risk
 Improperly evaluated options
 Lack of uniformity in assumptions
 Side effects are ignored
They involve commitment of large No linkage between compensation and
amount of funds. financial measures.
They are irreversible, or reversible at Reverse financial engineering.
substantial loss.
They are among the most difficult Weak integration between capital
decisions to make. budgeting and expense budgeting.
Inadequate post-audits.
 Project Appraisal Criteria

Project Appraisal Criteria

Discounted Cash Flow Criteria (DCF) Non- discounted Cash Flow Criteria

Net Present Internal Profitability Payback Discounted Accounting

Value Rate Index (PI) Period Payback Rate of
(NPV) of Return (PB) Period Return
(IRR) (ARR)
 Discounted Cash Flow Criteria
(DCF)

 It considers what money will be worth in the

future.

 Discounting – reduce value of future earnings to

reflect opportunity cost of an investment.
 Net Present Value (NPV)
 Evaluates if project rate of return is greater than,
equal to, or less than the desired rate of return.

 It is the excess of the present value (PV) of cash

inflows generated by the project over the amount of
initial investment (I).

 The PV of future cash flows is computed using the

cost of capital or minimum required rate of return
as the discount rate.
 Formulation of NPV
General formula for NPV is as follows:
n
Ct
NPV  t0 (1 k ) t
 Co

Where, C t = Expected net cash inflows at the end of

year t
C o = Initial cash outlay
k = Cost of capital or Discount rate
n = Life of the project
 Acceptance Rules of NPV

NPV > 0 Accept (+)

NPV < 0 Reject (-)
NPV = 0 Indifferent ()

A positive NPV means that the project is expected to add

value to the firm and will therefore increase the wealth of
the owners.
 Calculation of NPV: An
Example
Assuming, a new project A of which the following cash
flows have been estimated:
Tk.
•Year 0: CF = -1,65,000
•Year 1: CF = 63,120
•Year 2: CF = 70,800
•Year 3: CF = 91,080
Required rate of return for assets=12%

Whether the investment should be accepted or not?

 Calculation of NPV
The calculation of the NPV of Project A will be:

NPV = Tk. -165,000 + 63,120/(1.12) + 70,800/(1.12)2

+ 91,080/(1.12)3
= Tk. -1,65,000 + 56,357 + 56,441 + 64,829
= Tk. 12,627

So, the investment’s NPV is positive and therefore should

be accepted according to the acceptance rule of NPV.
 Decision Criteria Test: NPV
 Does the NPV rule account for the time value of money?
 Does the NPV rule account for the risk of the cash flows?
 Does the NPV rule provide an indication about the
increase in value?
 Should we consider the NPV rule for our primary
decision rule?

 The answer to all of these questions is Yes.

 Here, the risk of the cash flows is accounted for through
the choice of the discount rate.
 Modified NPV
When the assumption of NPV(re-investment of intermediate cash
flows at a rate of return= cost of capital) is not valid, then the re-
investment rates applicable to such cash flows need to be defined
for calculating modified NPV (NPV*).
TV
Formula: NPV*   Co , where:
1  k  n

n nt

TV   C 1  k 
t0
t

TV = Terminal value of cash inflows at the end of year t  Ct 

k = The re-investment rate applicable to the cash inflows
 Calculation of Modified NPV
Assuming project A will be re- invested. Two re-investment rates
are 16% & 20%.

 TV A  16%  63,120 1.16  70,800 1.16  91,080  Tk. 2 ,58,142

2

TV A 20%  63,120 1.20  70,800 1.20  91,080  Tk. 2 ,66,933

2

TV A  16%
 NPV *  A  16%   1,65,000  Tk.18,740
1.12 3

TV A  20%
NPV *  A  20%   1,65,000  Tk. 24 ,998
1.12 3
 NPV: Benefits & Drawbacks
Benefits Drawbacks
 Gives the correct financial  Requires detailed long- term
decision in all cases & forecasts of incremental cash
relatively simple to calculate. flow data.
 Recognizes time value of  Sensitive to discount rates
money & consider all cash flows. value of money.
 True measure of profitability. Practical difficulties occur in
computing opportunity cost of capital.
 Useful for comparing similar  It does not consider life of the project
projects with same cost. & hence is biased in favor of longer
term project among mutually
exclusive projects.
 Enables comparisons at  It is expressed in absolute terms
different interest rates to be & hence does not factor in scale
considered. of investment.
 Consistent with shareholders’
wealth maximization.
 NPV & EVA
EVA is a financial performance metric that is most directly
linked to the creation of shareholder value over time.
Negative NPV is equal to the present value of the
project’s future EVAs. Therefore, accepting a positive
NPV projects should result in a positive EVA & MVA.
So,the reward system that compensates managers for
producing positive EVA will lead to the use of NPV for
making capital budgeting decisions.
EVA considers accounting period data and sums them up,
where the NPV works on non accounting data & provides a
global valuation of the project.
 NPV & EVA cont…
In the case of one period (for instance, one year), if C is the
economic book value of the capital committed to business at the
beginning of the period, we can define the rate of return of total
capital as: r = NP/C
Where, NP represents the net operating profit after taxes
(NOPAT).
So, EVA = (r - WACC)C
Where, WACC is the weighted average cost of capital at t = 0.
If EVA is discounted at WACC; it coincides with the NPV of a
financial project in which C is paid in t = 0 and C(1 + r) is
received in t = 1:
Discounted EVA = (r - WACC)C/ 1 +WACC
= - C + [C(1 + r)/ 1 +WACC]
= NPV (WACC)
 Internal Rate of Return (IRR)
 The discount rate which equates the PV of future cash
inflows with the initial investment of a project and thus
makes its NPV equal to zero.

 Using PV tables it is computed by trial- and- error

interpolation, which includes:
 Computation of NPV at the cost of capital (r1).
 If NPV is positive, then r2 is selected, which is higher than r1.
If NPV is negative, then smaller rate r2 is selected rather than
r1 .
 The true IRR at which NPV= 0 must be somewhere in between
these two rates.
 Again NPV is calculated using r2 .
 Interpolation is used for the exact rate.
 Formulation of IRR
IRR can be determined by solving the following equation
For r:
n
Ct
Investment  
t0 (1 r ) t
 Co

Ct
Where, = Expected net cash inflows at the end of
Co year t
= Initial cash outlay
r = Internal Rate of Return (IRR)
n = Life of the project
 Acceptance Rules of IRR
 All projects should be accepted whose IRR exceeds the
company’s cost of capital.

IRR> Cost of Capital Accept (+)

IRR< Cost of Capital Reject (-)

 For mutually exclusive projects, the projects with the

highest IRR should be chosen.
Calculation of IRR: Uneven Cash Flows
Assuming the previously discussed example of project A, where
NPV>0 at 12% discount rate, we will now find out the IRR
(NPV=0) of that project by following the trial- and- error method:

We need a trial rate. The first trial rate will be assumed like
following:
Firstly, we’ll average the inflows to arrive at an assumed annuity:
Tk.(63,120+70,800+91,080)/ 3= Tk. 75,000
Then, we’ll divide the investment by the assumed annuity value
(payback reciprocal):
Tk. 1,65,000/ Tk. 75,000= 2.2= PVIFA
Using the PV table for n = 3, 16% appears to be a reasonable first
approximation (2.246).
Calculation of IRR: Uneven Cash Flows cont…
So, first, let us try 16% as the discount rate. At 16%, the
project’s NPV will be:

NPV= Tk. -165,000 + 63,120/(1.16) + 70,800/(1.16) 2

+ 91,080/(1.16)3 = Tk. 381

Since the project’s NPV is still positive at 16%, a rate higher than
16% should be tried. So, when we try 17% then the project’s
NPV will be:

NPV= Tk. -165,000 + 63,120/(1.17) + 70,800/(1.17) 2

+ 91,080/(1.17)3 = Tk. -2,463

The true rate of return should lie between 16% and 17%.
 Calculation of IRR: Uneven Cash Flows cont…

We can find out a close approximation of the rate of return by the

method of linear interpolation as follows:
Difference

PV required Tk. 1,65,000

PV at lower rate, 16% 1,65,381 381
PV at higher rate, 17% 1,62,537 2,844

IRR= 16%+ (17%- 16%) (381/2,844)

= 16%+ 0.13= 16.13%

Since the investment’s IRR is greater than the cost of capital

(12%), the investment should be accepted.
 NPV Profile for the Project
70,000
60,000
IRR = 16.13%
50,000
40,000
30,000
NPV

20,000
10,000
0
-10,000 0 0.02 0.04 0.06 0.08 0.1 0.12 0.14 0.16 0.18 0.2 0.22

-20,000
Discount Rate

NPV of a project declines as the discount rate increases & for discount
rates higher than the project’s IRR, NPV will be negative. Here, at
16.13%, the NPV is zero; therefore it is the IRR of the project.
 Calculation of NPV & IRR: Level Cash Flows
Assuming a project’s initial outlay= Tk. 1,00,000, estimated life=10 years,
annual cash inflow= Tk. 23,000, & cost of capital= 12%.

 NPV= -Tk. 1,00,000+ Tk. 23,000(PVFA10, 0.12 )

= -Tk. 1,00,000+ Tk. 23,000 X 5.65= Tk. 29,950
To calculate IRR, first we need to calculate the PV factor.
PV factor= Tk. 1,00,000/ Tk. 23,000 = 4.348
which stands somewhere between 18% & 20% in the 10- year line of the PV
table. Using the interpolation as follows:
PV Factor
18% 4.494 4.494
IRR 4.348
20% 4.192
Difference 0.301 0.146

Therefore, IRR= 18% + 0.146/ 0.301 (20%- 18%)= 18.97%= 19% (approx.)
Since, the project’s NPV is positive & IRR> cost of capital(12%), the project
should be accepted according to both of these techniques.
 Decision Criteria Test: IRR
 Does the IRR rule account for the time value of money?
 Does the IRR rule account for the risk of the cash flows?
 Does the IRR rule provide an indication about the
increase in value?
 Should we consider the IRR rule for our primary decision
criteria?

 The answer to all of these questions is Yes, although it is

not always as obvious.
 We can consider IRR as our primary decision criteria , but
not always as it has some problems that the NPV does not
have.
 IRR: Benefits and Drawbacks
Benefits Drawbacks
 Recognizes time value of money.  Difficult to compute, as a project
may have multiple rates rather than a
unique rate of return.
 Allows the risk associated with an  Fails to recognize the varying size of
investment project to be assessed. investment in competing projects
and
their respective profitabilities.
 Helps measure the worth of an  It may also fail to indicate a correct
investment. choice between mutually exclusive
projects under certain situations.
 Allows the firm to assess whether an
investment in the machine, etc.
would yield a better return based on
internal standards of return.
 Allows comparison of projects with
different initial outlays.
 NPV vs. IRR
 NPV and IRR will generally give us the same decision.
Exceptions:

 Nonconventional cash flows – cash flow signs change

more than once
 Mutually exclusive projects:
• Initial investments are substantially different
(issue of scale).
• Timing of cash flows is substantially different.

 The NPV method has the advantage that the end result of
the computations is expressed in amount and not in a
percentage.
 NPV vs. IRR cont…
 Whenever there is a conflict between NPV and another
decision rule, NPV should always be chosen. Because:
 Individual projects can be added.
 It can be used in situations where the required
rate of return varies over the life of the project.
 The IRR of individual projects cannot be added or
averaged to derive the IRR of a combination of
projects.
 Interpretations of IRR
There are two possible economic interpretations of IRR:
i. The IRR represents the rate of return on the
unrecovered investment balance in the project.
ii. The IRR is the rate of return earned on the initial
investment (I) made in the project.
Example: To understand the nature of these interpretations
let us consider a project with the following cash flows:
Year Cash flow
0 Tk. -3,00,000
1 0
2 4,17,000
3 1,17,000
 First Interpretation of IRR
The IRR of the project is the value of r in the following
expression:
- 3,00,000 0 4,17,000 1,17,000
0   
1  r 0
1  r  1
1  r  2
1  r  3
Where, r = 30% & this figure reflects the rate of return on
unrecovered investment balance, which is defined as:

Where, Ft  Ft 1 1  r   C t

Ft = Unrecovered investment balance at the end of year t

Ft 1 = Unrecovered investment balance at the end of year t-1

Ct = Cash flow at the end of year t
 First Interpretation of IRR cont…
If rate of return= 30% on the unrecovered investment
balance, the balance in the project reduces to zero at the end
of its life like following:

Year Unrecovered Interest Cash flow Unrecovered

Investment for the at the End Investment
Balance at the Year of the Balance at the
Beginning Year End of the Year

F t 1 F t 1r C t Ft 11 r   Ct
1 Tk. -3,00,000 -90,000 0 -3,90,000
2 Tk. -3,90,000 -1,17,000 4,17,000 -90,000
3 Tk. -90,000 -27,000 1,17,000 0
 Second Interpretation of IRR
According to this interpretation, the value of the benefits of
the projects, assessed at the end of n years will be: I  1  r  n
So, in case of the discussed example it will be:
Tk. 3,00,000  1  0.30   Tk.6,59,10 0
3

This interpretation of IRR is based on the assumption that

the intermediate inflows of the project are re-invested at a
rate of return equal to the IRR of the project.
Decision: Since, it is often not possible for a firm to re-
invest intermediate cash inflows at a rate of return equal to
the project’s IRR, the first interpretation seems more
realistic.
Hence, we may view IRR as the rate of return on the time-
varying, unrecovered investment balance in the project.
 Non-conventional Cash Flows:
Multiple IRR
 When the cash flows change sign more than once like
-+-, there is more than one IRR. Then problem occurs like,
which one should we use to make our decision?
 When we solve for IRR we are solving for the root of an
equation, and when we cross the x-axis more than once,
there will be more than one return that solves the equation.
 Another type of nonconventional cash flow involves a
“financing” project, where there is a positive cash flow
followed by a series of negative cash flows. In this case, our
decision rule reverses, and we accept a project if the IRR is
less than the cost of capital, since we are borrowing at a
lower rate.
 Example : Multiple IRR
Assuming an investment will cost Tk. 1,000 initially
and will generate the following cash flows:
Year 1: 4,000
Year 2: -3,750
 The required return is 15%.
 Should we accept or reject the project?

Using the IRR formula, we get: 4,000  3,750  1,000  0

1  r  1  r 
2

1
Assuming  x , we obtain:
1 r
 3 , 750 x 2  4 , 000 x  1, 000  0

This is a quadratic equation of the form: ax 2  bx  c  0

Which can be solved by using the following formula:
 Example : Multiple IRR cont…
-b b 2  4 ac
x=
2a
Substituting values in this equation, we obtain:

- 4 ,000   4,000  2  4   1,000   3,750 

x=
2   3,750 

- 4 ,000  1, 000 2 2
x =  ,
 7 , 500 5 3
1 , therefore 1  2 , 1  2
Since x 
1 r 1 r 5 1 r 3
3 1
r  or 150%, r  or 50%
2 2
 NPV Profile: Multiple IRR
NPV(Tk.) IRR = 50% and 150%
250

0
0 50 100 150 200 250

-250

-500

-750
Discount Rate(%)

We should accept the project if the required return is between 50% and
150% because none of these two rates of IRR will work satisfactorily. So,
simply we will follow NPV, which is positive at a required return of 15%
ranging between 50 and 150%, so we should Accept.
 IRR and Mutually Exclusive
Projects
 Mutually exclusive projects
• If we choose one, we cannot choose the other.
• Example: We can choose to get admitted in either
A&IS or Finance Department, but not both.

 Intuitively,
we would use the following decision rules:
 NPV – project with the higher NPV should be chosen.
 IRR – project with the higher IRR should be chosen.
 Example With Mutually
Exclusive Projects
Period Project Project B The required return
A for both projects is
0 -500 -400 10%.

1 325 325
Which project
2 325 200 should we accept
and why?
IRR 19.43% 22.17%

NPV 64.05 60.74

 NPV Profiles
160.00
140.00
120.00
IRR for A = 19.43%
100.00 IRR for B = 22.17%
80.00
A
NPV

60.00 Crossover Point = 11.8% B

40.00
20.00
0.00
(20.00) 0 0.05 0.1 0.15 0.2 0.25 0.3
(40.00)
Discount Rate

If the required return is less than the crossover point of 11.8%, then we
should choose A, and B will be chosen in the opposite case. Here, A
fulfills the condition and also has higher NPV. So, to maximize wealth
and to avoid unreliability of IRR we’ll go for the project with larger
NPV, which is project A.
 Modified Internal Rate of Return
(MIRR)
To overcome the conflict between NPV & IRR about
reinvestment, Modified Internal Rate of Return method
(MIRR) can be adopted:

Terminal value (TV) of cash inflow

PV of cash inflow 
1  MIRR n

Where, n n 1

TV   C t  1  r 
t0
 MIRR: Benefits and Drawbacks

Benefits Drawbacks
 MIRR assumes that project  For choosing among mutually

cash flows are reinvested at the exclusive projects of different

cost of capital. Hence it size, NPV is a better
reflects better the profitability alternative in measuring the
of a project. contribution of each project to
the value of the firm.

 The problem of multiple rates

does not exist.
 Profitability Index (PI)
 PI is the ratio of the discounted cash inflows, at the
required rate of return, to the initial cash outflow of the
investment.

 It is used as a mean of ranking projects in descending

order of attractiveness, especially when resources are
limited.

 Also known as benefit- cost ratio.

 Formulation of PI
The formula for calculating PI is as follows:

PV of cash inflow PV  C t 
PI  
Initial cash outlay Co

n
 Ct 
   ( 1  k ) t   Co
t0  
Acceptance Rules of PI

PI> 1.0 Accept (+)

PI< 1.0 Reject (-)
PI= 1.0 Indifferent ()
 Calculation of PI

The Profitability Index of project A will be:

PI= Tk. 1,77,627/ Tk. 1,65,000 = Tk. 0.077

Since this project generates Tk. 0.077 for each Taka

invested and its PI< 1, the project should be rejected.
 PI: Benefits and Drawbacks
Benefits Drawbacks
 It can discriminate better  It provides no means for
between large and small aggregating several smaller
investments and hence is projects into a package that can
preferable to the NPV criterion. be compared with a large
project.
 When the capital budget is  When cash outflows occur
limited in the current period, PI beyond the current period, the
may rank projects correctly in PI criterion is unsuitable as a
the order of decreasingly selection criterion.
efficient use of capital.

 Recognizes time value of money

and easy to compute as well.
 NPV vs. PI
 The NPV and PI yield same accept or reject rules, because
PI can be grater than one only when the project’s NPV is
positive.
 In case of marginal projects, NPV will be zero and PI will
be equal to one.
 The NPV method should be preferred, except under
capital rationing, because the NPV reflects the net
increase in the firm’s wealth.
 But a conflict may arise between the methods if a choice
between mutually exclusive projects has to be made. In
this case between projects with same NPV, the one with
lower initial cost or higher PI will be selected.
 Payback period
 The payback period is the length of time required for a
firm to recover its original investment ,it tells how long
it will take a project to break even.

 Calculated by:
 Estimating the cash flows, and
 Subtracting the future cash flows from the initial cost
until the initial investment has been recovered.
 Formulation of Payback Period
In case of Uniform Cash Flows, the formula of Payback
period is:

Net initial investment

Payback period 
Uniform increase in annual future cash flows

Example: If a project’s initial outlay= Tk. 50,000, annual

cash inflow= Tk. 12,500 for 7 years, then:

Tk. 50,000
PB   4 years
Tk. 12,500
 Acceptance Rules of Payback
period
A projectwould be accepted if its payback period is less
than the maximum or standard payback period set by
management.
Shortest
payback period gives highest ranking to a project,
where lowest ranking is given to a project with highest
payback period.
Between two mutually exclusive projects, the project with
shorter payback period will be selected.
Generally a payback period of 3 years or less is preferred.
According to some advisors, project with payback period
of less than a year should be considered essential.
 Calculation of Payback Period:
Non-uniform Cash Flows
Assuming that, project A will be accepted if it pays back within 2 years
(standard payback period). So, whether we will accept or reject the project?
Adding up the cash inflows (Tk. 63,120, Tk. 70,800, and Tk. 91,080), we
find that in the first 2 years Tk. 1,33,920 of the original outlay of Tk.
-1,65,000 is recovered. Third year’s cash inflow is Tk. 91,080 and only Tk.
31,080 of the original outlay remains to be recovered. Now, if the cash
inflows occur evenly during the year, the time required to recover Tk.
31,080 will be:
(Tk. 31,080/Tk. 91,080) X 12 months= 4 months.
Thus, the payback period is 2 years and 4 months.
Again, if the cash inflows occur at the end of the year, the payback period
will be 3 years.
As in both the cases, payback period is more than the standard period of 2
years, the project should be rejected.
Decision Criteria Test: Payback
Period
 Does the payback rule account for the time value of
money?
 Does the payback rule account for the risk of the cash
flows?
 Does the payback rule provide an indication about the
increase in value?
 Should we consider the payback rule for our primary
decision rule?

 The answer to all of these questions is No.

 Payback Period: Benefits and
Drawbacks
Benefits Drawbacks
 Easy to understand.  Ignores the time value of
money.
 Adjusts for uncertainty of  Requires an arbitrary cutoff
later point.
cash flows.

 Biased towards liquidity.  Ignores cash flows beyond the

cutoff date.
 Payback reciprocal is a good  Biased against long-term
approximation of the rate of projects, such as research and
return under certain development, and new
conditions. projects.
 Discounted Payback Period

 Computes the present value of each cash flow and then

determine how long it takes to pay back on a
discounted basis.
 Compares to a specified required period.
 Acceptance Rule – The project should be accepted if it
pays back on a discounted basis within the specified
time.
 Calculation of Discounted
Payback Period: An Example
Assuming that, we will accept project A if it pays back on a
discounted basis in 2 years. Shall we accept or reject the
project?
First we will Compute the PV for each cash flow and
determine the payback period using discounted cash flows:
Year 1: 165,000 – 63,120/1.121 = 108,643
Year 2: 108,643 – 70,800/1.122 = 52,202
Year 3: 52,202 – 91,080/1.123 = -12,627
So, the project pays back in year 3
Since, it doesn’t pay back on a discounted basis within the
required 2-year period, we should reject the project.
 Decision Criteria Test:
Discounted Payback Period
 Does the discounted payback rule account for the time value of
money?
 Does the discounted payback rule account for the risk of the
cash flows?
 Does the discounted payback rule provide an indication about
the increase in value?
 Should we consider the discounted payback rule for our
primary decision rule?
 The answer to the first two questions is Yes.
 The answer to the third question is No because of the arbitrary
cut-off date.
 Since the rule does not indicate whether or not we are creating
value for the firm, it should not be the primary decision rule.
 Accounting Rate of Return
(ARR)
 Looks at the profit generated by the investment
compared to the cost of the investment.
 This gives the business a percentage figure showing the
average rate of return.
 Businesses can then compare this figure to how much
they would get with alternative investments or the
bank.
 Also known as ‘Average Rate of Return’, and ‘Return
on Investment (ROI)’.
 Formulation of ARR
ARR can be determined by the following equation:

Average Income
ARR 
Average Investment

Or, it can be defined in terms of earnings after taxes without

an adjustment for interest i.e. EBIT(1-T). Thus:
 n 
  EBIT t  1  T    n
ARR   t  1 
Io  In   2
Where, EBIT= earnings before interest & taxes, T= tax rate,
Io= BV of investment in the beginning, In= BV of
investment at the end of n number of years.
 Acceptance Rules of ARR
 All those projects are to be accepted whose ARR is
higher than the minimum rate established by the
management and projects are to be rejected which have
ARR less than that preset rate.

 Project with highest ARR will be ranked as number one

and lower rank would be assigned to the project with
lowest ARR.
 Calculation of ARR
Assuming a 50% tax rate for project A and, a straight- line
depreciation method is also assumed to be used here. We also
assume that, an average return of 15% from project A is required.
Shall we accept or reject the project?
Calculation of ARR
(Tk.)
Year 1 Year 2 Year 3 Average
EBDIT 63,120 70,800 91,080 75,000
Depreciation 55,000 55,000 55,000 55,000
EBIT 8,120 15,800 36,080 20,000
Taxes at 50% 4,060 7,900 18,040 10,000
[EBIT(1-T)] 4,060 7,900 18,040 10,000
Book value of investment:
Beginning 1,65,000 1,10,000 55,000
Ending 1,10,000 55,000 -
Average 1,37,500 82,500 27,500 82,500
 Calculation of ARR contd…
Tk 10,000
 ARR of project A   100
Tk. 82,500

= 12.12%

Since, the ARR of the project is lower than the preset rate,
the project should be rejected.
 Decision Criteria Test: ARR
 Does the AAR rule account for the time value of money?
 Does the AAR rule account for the risk of the cash flows?
 Does the AAR rule provide an indication about the
increase in value?
 Should we consider the AAR rule for our primary
decision rule?

 The answer to all of these questions is No.

 In fact, this rule is even worse than the payback rule in
that it doesn’t even use cash flows for the analysis.
 Only a few large firms employ the payback and/or ARR
methods exclusively.
 ARR: Benefits and Drawbacks

Benefits Drawbacks
 Easy to calculate.  Not a true rate of return; time
value of money is ignored.
 Needed information will  Uses an arbitrary benchmark
usually be available. cutoff rate.
 Based on accounting net
income and book values, not
cash flows and market
values.
 ARR and IRR
 The ARR tends to understate the IRR for earlier years and
overstate it for later years.

 The ARR and the IRR can be the same only if the
depreciation schedule is equal to the economic
depreciation schedule.

 Inflation and creative accounting tend to create a

discrepancy between the ARR and the IRR.
 Goal Congruence Issues in Capital
Budgeting
 Inconsistency between capital budgeting decision
making and management performance evaluation
persists when a company uses.
 NPV method for capital budgeting decisions and ARR
method to evaluate performance or
 ARR for both purposes
 Inconsistency means managers are tempted to make
capital budgeting decisions on the basis of the method by
which they are being evaluated.
 This conflict can be reduced by evaluating managers on
a project-by-project basis and by the amount and timing
of forecasted cash flows.
 Assessment of Basic Evaluation
Methods
Considerations NPV PI IRR Payback ARR
Period
Theoretical
Considers all cash flows Yes Yes Yes No ?
Discounts CFs at the opportunity
cost of fund Yes Yes No No No
Satisfies the principle of value
additivity Yes No No ? ?
From a set of mutually exclusive
projects chooses the projects
which maximize shareholder
wealth Yes No No ? ?
Practical
Simple method Yes Yes Yes Yes Yes
Requires limited information No No No Perhaps Yes
Gives a relative measure No Yes Yes No Yes
 Post Investment Audit
A post investment audit compares the actual results for
a project to the costs and benefits expected at the time
the project was selected.
 It provides management with feedback about
performance.
 It is performed after project has stabilized.
 Same analysis techniques are used.
 Identifies areas where results differ from expectation.
 Evaluates capital budgeting process, particularly
original projections, problems with implementation,
and sponsors credibility.
 Qualitative Techniques of Project
Appraisal
 As well as financial methods firms need to consider:
• Corporate image – we may reject an investment
opportunity as it will reflect badly on our business.
• Corporate objectives – also have to judge if the
investment is aligned to our corporate objectives
• Environmental and ethical reasons – is the investment
environmentally and ethically sound
• Industrial relations – what is the impact on the work
force – does it decrease jobs?
 Some companies also consider intuition, security and
social considerations as important qualitative factors.
 Role of Judgement
 The opportunities and constraints of selecting a project, its
evaluation of qualitative and quantitative factors, and the
weightage on every bit of pros and cons, cost-benefit analysis,
etc., are essential elements of judgement.
 Judgement and intuition should definitely be used when a
decision of choice has to be made between two or more,
closely beneficial projects, or when it involves changing the
long-term strategy of the company. For routine matters,
liquidity and profits should be preferred over judgement.
 It plays a very important role in determining the reliability of
figures with the help of qualitative methods as well as other
known financial matters affecting the projects.
 Capital investment decisions that are strategic in nature
require managers to consider a broad range of factors that
may be difficult to estimate.
Strategic Considerations in Capital
Budgeting
Capital investment decisions that are strategic in nature
require managers to consider a broad range of factors that
may be difficult to estimate.
 Customer Value and Capital Budgeting
 NPV can also be used to evaluate the value of customers.
 The higher the profitability of “customer churn”, the
lower the NPV of the customer.
 Investment in Research and Development
 “Real options” of R&D investments increases the NPV
of investment projects.
Project Risk Analysis
 Risks in Capital Budgeting
Three types of risk are relevant in capital budgeting:

 Stand-alone risk
 Corporate risk
 Market (or beta) risk
 Stand- Alone Risk

 The project’s risk if it were the firm’s only asset and

there were no shareholders.

 Ignores both firm and shareholder diversification.

 Measured by the s or CV of NPV, IRR, or MIRR.

 Corporate Risk
 Reflects the project’s effect on corporate earnings
stability.
 Considers firm’s other assets (diversification within
firm).
 Depends on:
 project’s s, and
 its correlation with returns on firm’s other
assets.
 Measured by the project’s corporate beta.
 Market Risk
 Reflects the project’s effect on a well-diversified
stock portfolio.

 Takes account of stockholders’ other assets.

 Depends on project’s s and correlation with the

stock market.

 Measured by the project’s market beta.

 Techniques of Risk Analysis
Statistical Techniques: To measure and incorporate risk
in capital budgeting two important statistical methods
are used, which are: expected monetary value, and
standard deviation.

Conventional Techniques: Decision- makers in practice

may handle risk in conventional ways. Such as: they
may use a shorter payback period, or conservative
forecasts of cash flows, or discount net cash flows at the
risk- adjusted discount rates.
 Capital Rationing
 It occurs any time there is a budget ceiling, or
constraints, on the amount of funds that can be
invested during a specific period, such as a year.
 When capital is rationed over multiple periods; several
alternative methods can be applied to the capital
rationing problem.
 If capital is to be rationed for only the current period,
selecting projects by descending order of profitability
index generally leads to a selection of a project mix
that adds most of firm value.
 Sensitivity Analysis
 Shows how changes in a variable such as unit sales
affect NPV or IRR.

 Each variable is fixed except one. Change this one

variable to see the effect on NPV or IRR.

 Answers “what if” questions, e.g. “What if sales

decline by 30%?”
 Illustration: Sensitivity Analysis
Change from __ Resulting NPV (000s)_____
Base Level Unit Sales Salvage k_
30% $ 10 $78 $105
-20 35 80 97
-10 58 81 89
0 82 82 82
+10 105 83 74
+20 129 84 67
+30 153 85 61
 NPV
(000s)
Unit Sales

82 Salvage

-30 -20 -10 10 20 30

Base Value
 Results of Sensitivity Analysis

 Steeper sensitivity lines show greater risk. Small

changes result in large declines in NPV.

 Unit sales line is steeper than salvage value or k, so

for this project, should worry most about accuracy
of sales forecast.
 Sensitivity Analysis: Benefits &
Drawbacks
Benefits Drawbacks
 Gives some idea of stand-  Does not reflect
alone risk. diversification.
 Identifies dangerous  Says nothing about the
variables. likelihood of change in a
variable, i.e. a steep sales line
is not a problem if sales
won’t fall.
 Gives some breakeven  Ignores relationships among
information. variables.
 Scenario Analysis

Examines several possible situations, usually worst

case, most likely case, and best case.

Provides a range of possible outcomes.

 Illustration: Scenario Analysis
Assuming that, we know with certainty all variables
except unit sales, which could range from 900 to
1,600.
Scenario Probability NPV(000)
Worst 0.25 $ 15
Base 0.50 82
Best 0.25 148
E(NPV) = $ 82
s (NPV) = 47
CV(NPV) = s(NPV)/E(NPV) = 0.57
 Simulation Analysis
 A computerized version of scenario analysis which
uses continuous probability distributions.

 Computer selects values for each variable based on

given probability distributions.

 NPV and IRR are calculated.

 Process is repeated many times (1,000 or more).

 End result: Probability distribution of NPV and IRR

based on sample of simulated values.
 Generally shown graphically.
 Monte Carlo Simulation
 Monte Carlo simulation of capital budgeting projects
is often viewed as a step beyond either sensitivity
analysis or scenario analysis.
 Interactions between the variables are explicitly
specified in Monte Carlo simulation; so, at least
theoretically, this methodology provides a more
complete analysis.
 While the pharmaceutical industry has pioneered
applications of this methodology, its use in other
industries is far from widespread.
 Computation Steps: Monte Carlo
Simulation
Step 1: Specify the Basic Model

Step 2: Specify a Distribution for Each Variable in the

Model

Step 3: The Computer Draws One Outcome

Step 4: Repeat the Procedure

Step 5: Calculate NPV

Relevant Issues in Capital Budgeting
When we talk about a project we have to keep full attention on
the cash flows of that project . It is the most critical step.
Because the cost and revenue forecasting of a large complex
project often shows a big forecasting error. Suitable example
may be Padma bridge.
Before making cash flow analysis, we should keep in mind
some relevant Issues.

Interest Payment:
Common mistakes made by many students and financial analysts
is that they subtracts interest payment in estimating project
cash flows .the cost of the debt is already embedded in the
WACC(weighted average cost of capital).so subtracting interest
payment from the project cash flow would amount to double
counting interest costs.
 Relevant Issues in Capital Budgeting
Cont…
Sunk Cost:
We focus on the cash flow if and only if we accept the project this cash flows
are called incremental cash flows.
For example assuming, standard chartered has considered whether to establish a
branch in Sylhet and for site analysis they hired a consulting firm. For this task
they paid tk. 2,00,000 and undoubtedly it is a sunk cost for that firm. Because
we know a sunk cost is an outlay that has already occurred & it is not affected
by the decision under condition.so Either the project accepted or rejected,
should this cost be taken into consideration in project cash flow analysis ?
 The answer is no. because sunk cost does not fall under incremental cash
flow.
Opportunity cost:
Agrani bank owns a piece of land in Konabari, Gazipur, which is suitable for a
branch location, now in project cash flow analysis should the cost of the land be
disregarded in cash flow estimation in the argue that no additional cash outlay
be required?
 The answer is no because there is an opportunity cost. If this land have a
market value tk.1,50,000, then that value should be charged against the
project.
 Relevant Issues in Capital Budgeting
Cont…
Externalities:
Another potential problem involves the effects of a project on the other parts
on the firm. which is called externalities.
• A suitable example would be Mina bazar. suppose Mina bazar opened its
new branch in dhanmondi-5.Now many of its customers who previously
purchased their daily necessities from mohammadpur branch, will come to
this new branch. Thus net income provided by this customers should not
be treated as incremental cash flows in the capital budgeting decision.
Cannibalization:
Another problem in project cash flow estimation is cannibalization. When a
new product takes away sales from existing product , then we call this
situation as Cannibalization. A suitable example may clear this concept-
• Nautica international inc. is a American company that sales sport wares.
Nautica sales its products to the traditional retailers. These retailers adds a
mark up &they further sales this commodities to the consumers.
• Now if Nautica open a new own online store , then it could potentially
increase its profit margin by huge amount.
 Relevant Issues in Capital Budgeting
Cont…
• But internet sales would most probably cannibalize its existing sales.
that is the new project will decrease its existing sales stream. Even
worse , dealers/ retailers might react adversely by moving their product
line to another brands.

Inflation Adjustment:
inflation is a fact of life in Bangladesh. Recently it has been touched two
digit. In the absence of inflation the real rate (rr) would be equal to
nominal rate. Moreover , the real & nominal expected cash flow RCFt &
NCFt would also be equal .But when the expected rate of inflation is
positive then all of the projects cash flow including depreciation related
items also should be rise at the rate i. in this case the nominal net cash
flow NCFt will increase at the rate of i percent, result will be ,
NCFt =RCFt (1+i)^t
Thus the cost of capital which is used as the discount rate calculation
formula will be:
(1+rn) = (1+rr) X (1+i)
 Relevant Issues in Capital Budgeting
Cont…

Tax & Depreciation Effect:

• Tax have a major effect on cash flows. In many cases tax effect will
make or break a project. therefore it is critical that taxes should be
dealt with correctly.
• Depreciation on assets should be considered in cash flow estimation.
Because accountants do not subtract the purchase price of fixed assets
when calculating net income ,they do subtract a charge each year for
depreciation. depreciation shelters income from taxation.
Depreciation must be added to NOPAT in following estimating a
projects cash flow-

FCF =EBIT(1-t)+ depreciation- gross fixed asset

expenditure- ∆ in net operating working capital

• The main effect of depreciation is-higher depreciation

expense results in lower taxes in the early years that shows a
higher net present value in cash flow analysis.
 Tax Effect in Bangladesh
In Bangladesh taxation system is not so critical as the MACRS of USA.
There are a lot of exemption & incentives to encourage investment .Some
of them are
• Industry engaged in agro-processing, ship building, diamond cutting.
Physical Sea or river port, container terminals, container freight station,
LNG terminal and transmission line, CNG terminal and transmission
line, flyover, mono rail, underground rail, large water. Tourism Industry
Eligible for Tax holiday.
• Income derived from any Small and Medium Enterprise (SME) engaged
in production of any goods and having an annual turnover of not more
than taka twenty four lakh is exempt from tax. 
• Accelerated depreciation: Accelerated depreciation on cost of
machinery is admissible for new industrial undertaking in the first year of
commercial production 50%, in the second year 30% and in the third
year 20%. 
• Industry set up in EPZ is exempt from tax for a period of 10 years from
the date of commencement of commercial production. 
• Avoidance of Double Taxation Agreement : There are agreements on
 A Popular Survey
Author –JOHN GRAHAM,Associate Professor of Finance at
Duke University’s Fuqua School of Business. & CAMPBELL
HARVEY , J. Paul Sticht Professor of Finance at Duke
University’s Fuqua School of Business.

This survey conducted in 1998 published in 2001 in the ‘journal

of financial economics’ & it won the best best JFE paper in 2001.
The 3- page long survey was conducted on all of the Fortune-500
company CFOs .

It represented a wide verity of companies , ranging from

small(26% has sales less then $100 million) to very large(42%
had sales at least $1 billion.) 40% of them was manufacturing
firm,15% was financial ,11% retailers & 9% high tech firms. they
also asked a number of questions to the CEOs because they are
the ultimate decision.
 Findings of the Research by
Graham & Campbell
NPV has been the dominant method taught in business
schools, but past surveys have suggested that IRR was for
long the primary corporate criterion for evaluating
investment projects. For example, a 1977 survey of 103
large companies reported that fewer than 10% of the firms
relied on NPV as their primary method, while over 50%
said they relied mainly on IRR. Although the two
measures are similar in several respects, the critical
difference is that IRR is a ratio while NPV is a dollar
measure of value added. The main problem with using the
former is that, in some cases, managers intent on
maximizing IRR may actually reduce value by rejecting
positive- NPV projects.
Findings of the Research by
Graham & Campbell
 Findings of the Research by
Graham & Campbell
 As shown in Figure 1, most respondents cited net present
value and internal rate of return as their most frequently used
capital budgeting techniques; 74.9% of CFOs always or almost
always used NPV and 75.7% always or almost always used
IRR.
 However, large companies were significantly more likely to
use NPV than were small firms.
 Highly leveraged firms were significantly more likely to use
NPV and IRR than firms with low debt ratios.
 And as in the case of highly leveraged companies, companies
that pay dividends ,were also significantly more likely to use
NPV and IRR than firms that do not pay dividends,
regardless of firm size.
 Findings of the Research by
Graham & Campbell
 Highly levered firms were also more likely to use sensitivity and
simulation analysis, in part to assess (and limit to acceptable levels)
the probability of financial distress. Utilities, too, perhaps because of
regulatory requirements, were also more likely to use IRR and NPV
and to perform sensitivity and simulation analyses.
 It also found that companies whose CEOs had MBAs were more
likely to use NPV than firms whose CEOs did not. also found that,
among small firms, older CEOs with long tenures and without MBAs
were more likely to use the payback criterion. The simplicity of the
method, combined in some cases with top management’s lack of
familiarity with more sophisticated techniques.
 Public companies were significantly more likely to use NPV and
IRR than were private corporations. Other than NPV and IRR (and
the hurdle rate), the payback period was the most frequently used
capital budgeting technique (56.7% always or almost always used it).
 Findings of the Research by
Graham & Campbell
 Finally the other capital budgeting techniques were used less
frequently. For example, only about 20% of the companies said
they used accounting rate of return; 14% always or almost
always used value at risk or some other form of simulation,
12% used a profitability index, and 11% used adjusted present
value (APV).

 Somewhat surprisingly, more than one-fourth of the companies

claimed to be using real options (RO) evaluation techniques In
comparison, it is also surprising that only 11% of firms used
APV since the method is fairly easy to use while at the same
time flexible enough to handle a wide variety of project
evaluation situations.
 Summary
Capital budgeting or project appraisal is the process of
selecting investment projects whose returns or cash flows
are expected to extend beyond one year.
Project appraisal techniques aim to assess the financial
feasibility of investment options and based on a number of
assumptions.
NPV, IRR and PI are the discounted cash flow criteria and
PB, Discounted PB and ARR are the non discounted criteria
for appraising the worth of an investment project.
Payback method looks at how long it will take to pay back
the cost of the initial investment.
 ARR looks at the percentage rate of return on the
investment.
 Summary cont…
Discounted cash flow (NPV) looks at the present values of
any future revenues from the investment.
For small sized projects payback method & ARR are
preferred to be used.
Capital rationing occurs when a company chooses not to
fund all positive NPV projects.
NPV method is the most superior investment criterion as it
always consistent with the wealth maximization principle.
But for larger projects IRR appears to be the most
commonly used method as the end result of the
computations is expressed in percentage.
Payback is a commonly used secondary investment
criteria.
THANK YOU……
 Theoretical Questions
1. What is capital budgeting? Why is it significant for a firm?
2. Why NPV & IRR Give contradictory results in case of mutually exclusive
project?
3. Under what circumstances do the NPV & IRR methods differ? Which
method would you prefer & why?
4. What is the rationale for the NPV rule? How is modified NPV calculated?
5. Why is MIRR superior to the regular IRR?
6. Why is payback so popular, despite its shortcomings?
7. Under what conditions would the internal rate of return be a reciprocal of
the payback period?
8. What are the similarities & dissimilarities between NPV & PI?
9. How EVA influences managerial decisions and is related to the firm value
creation?
10. List the risk techniques & discuss the steps involved in Monte Carlo
Simulation analysis.
11. Explain the limitations of the NPV & PI rules in selecting investment
projects under capital rationing.
 Problems
1) Your company is considering two mutually exclusive
projects, Projects A & Projects B. Projects A involves an
outlay of TK. 100 million which will generate an
expected cash inflow of TK. 25million per year or 6
years. Projects B calls for an outlay of TK 50 million that
will produce an expected cash inflow of TK. 13 million
per year for 6 years. The company’s cost of capital is
12%.
Requirements:
a) Calculate the NPV & IRR for each project.
b) What are the NPV & IRR of the differential project (the
project that reflects the difference between project A and
project B.)
 Problems
2) Power company is considering two mutually exclusive
investments, project P and Project Q. The expected cash
flows of these projects are as follows:
Year Project P Project Q
0 Tk.(1,000) Tk.(1,600)
1 (1,200) 200
2 4,000 100

a) Construct the NPV profiles for projects P & Q.

b) What is the IRR of each project?
c) Which Projects would you choose if the cost of capital is
10 Percent? 20 Percent?
d) What is each project’s MIRR if the cost of capital is 12
percent?
 Problems
3) The Ogden Corporation makes an investment of $25,000,
which yields the following cash flows:
Year Cash Flow
1 $ 5,000
2 5,000
3 8,000
4 9,000
5 10,000

a) What is the payback period of the investment?

b) What is the internal rate of return? Use the interpolation
procedure.
c) In this problem would you make the same decision in parts
and b?
 References
1. I. M. Pandey (Financial Management)
2. Prasanna Chandra (Projects)
3. Ross, Westerfield, Jordan (Fundamentals of Corporate Finance)
4. Horngren, Datar, Foster, Rajan, Ittner (Cost Accounting- A Managerial
Emphasis)
5. Kotas E. Siilignakis, Capital Investment Appraisal Process: The 5 project
choice case study. www.sillignakis.com
6. Chapter 9: Capital Budgeting (provided by Dr. Mahfuzul Hoque)
7. Kinney, Prather, Raiborn (Cost Accounting Foundations and Evolutions)
8. Weygandt, Kieso, & Kimmel (Managerial Accounting)
9. Brigham & Houstom (Fundamentals of Financial Management)
10. James C. Van Horne & John M Wachowicz, JR (Fundamentals of Financial
Management)
11. Paola Modesti (EVA and NPV: some comparative remarks)
12. Nikhil Chandra Shil, Md. Zakaria Masud, Md. Faridul Alam (Bangladesh
Income Tax- Theory & Practice)
13. www.icb.gov.bd