78 Managerial Economics

Unit 5: Capital Budgeting and Risk and

Notes Uncertainty Analysis
Structure
5.1 Objectives
5.2 Introduction
5.3 Investment Analysis
5.3.1 Project valuation
5.3.2 Capital Budgeting Techniques
5.4 Risk and Investment Analysis- Decision Tree Analysis
5.5 Concept of Behavioral Economics
5.6 Summary
5.7 Check Your Progress
5.8 Questions and Exercises
5.9 Further Readings

5.1 Objectives
The primary objective of this chapter is to define and explain the Investment Analysis,
i.e., Project valuation and Capital Budgeting Techniques. The chapter also covers the
Risk and Investment Analysis part, which includes Decision Tree Analysis and Concept
of Behavioral Economics. A unique feature of this chapter is that it explains the very
important concept of economics, i.e., Behavioral Economics. In most of the cases,
explanations are incorporated with mathematical examples.

5.2 Introduction
Any type investment is risky and investment decision is also difficult to make. It
depends on availability of money and information of the economy, industry and company
and the share prices ruling and expectations of the market and also of the companies. For
making such decision the common investors may have to depend more upon a study of
fundamentals rather than technical, although technical is also important. Otherwise they
will burn their fingers as happened in 1992 following the Harshad Mehta Scam and in
2001 following Ketan Parekh Scam. For this purpose, a study of company’s performance,
past record and expected future performance are to be looked into. It is necessary for
a common investor to study the balance sheet and annual report of the company or
analyze the quarterly or half yearly results of the company and decide on whether to buy
that company’s share or not. This is called fundamental investment analysis.

5.3 Investment Analysis

5.3.1 Project valuation
Investment projects are classified as follows. According to project size, the investment
analysis is executed. Small projects may be approved by departmental managers. More
careful analysis and Board of Directors’ approval is needed for large projects of, say, half
a million dollars or more.
Similarly, according to type of benefit to the firm, they are as follows.
 an increase in cash flow, ? a decrease in risk, and ? an indirect benefit (showers
for workers, etc).
According to degree of dependence, they are,

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 mutually exclusive projects (can execute project A or B, but not both),
 complementary projects: taking project A increases the cash flow of project B, Notes
 substitute projects: taking project A decreases the cash flow of project B.
According to degree of statistical dependence,
 Positive dependence,
 Negative dependence
 Statistical independence.
According to type of cash flow,
 Conventional cash flow: only one change in the cash flow sign,
 Non-conventional cash flows: more than one change in the cash flow sign,
Project valuation analysis stipulates a decision rule for accepting or rejecting
Investment projects

5.3.2 Capital Budgeting Techniques

Capital budgeting is the process most companies use to authorize capital spending
on long-term projects and on other projects requiring significant investments of capital.
Because capital is usually limited in its availability, capital projects are individually evaluated
using both quantitative analysis and qualitative information. Most capital budgeting
analysis uses cash inflows and cash outflows rather than net income calculated using
the accrual basis. Some companies simplify the cash flow calculation to net income plus
depreciation and amortization. Others look more specifically at estimated cash inflows
from customers, reduced costs, and proceeds from the sale of assets and salvage value,
and cash outflows for the capital investment, operating costs, interest, and future repairs
or overhauls of equipment.
The Cottage Gang is considering the purchase of $150,000 of equipment for its boat
rentals. The equipment is expected to last seven years and has a $5,000 salvage value
at the end of its life. The annual cash inflows are expected to be $250,000 and the annual
cash outflows are estimated to be $200,000.

Payback technique
The payback measures the length of time it takes a company to recover in cash
its initial investment. This concept can also be explained as the length of time it takes
the project to generate cash equal to the investment and pay the company back. It is
calculated by dividing the capital investment by the net annual cash flow. If the net annual
cash flow is not expected to be the same, the average of the net annual cash flows may
be used.
For the Cottage Gang, the cash payback period is three years. It was calculated by

Capital investment
Cash Payback Period =
Average annual net cash flow

dividing the $150,000 capital investment by the $50,000 net annual cash flow ($250,000
inflows - $200,000 outflows).
The shorter the payback period, the sooner the company recovers its cash investment.
Whether a cash payback period is good or poor depends on the company’s criteria for
evaluating projects. Some companies have specific guidelines for number of years,

$150,000
= 3.0 years
$50,000

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suchas two years, while others simply require the payback period to be less than the
asset’s useful life.
Notes
When net annual cash flows are different, the cumulative net annual cash flows are
used to determine the payback period. If the Turtles Co. has a project with a cost of
$150,000, and net annual cash inflows for the first seven years of the project are: $30,000
in year one, $50,000 in year two, $55,000 in year three, $60,000 in year four, $60,000 in
year five, $60,000 in year six, and $40,000 in year seven, then its cash payback period
would be 3.25 years. See the example that follows.

The cash payback period is easy to calculate but is actually not the only criteria for
choosing capital projects. This method ignores differences in the timing of cash flows
during the project and differences in the length of the project. The cash flows of two
projects may be the same in total but the timing of the cash flows could be very different.
For example, assume project LJM had cash flows of $3,000, $4,000, $7,000, $1,500, and
$1,500 and project MEM had cash flows of $6,000, $5,000, $3,000, $2,000, and $1,000.
Both projects cost $14,000 and have a payback of 3.0 years, but the cash flows are very
different. Similarly, two projects may have the same payback period while one project
lasts five years beyond the payback period and the second one lasts only one year.

Net present value

Considering the time value of money is important when evaluating projects with different
costs, different cash flows, and different service lives. Discounted cash flow techniques,
such as the net present value method, consider the timing and amount of cash flows.
To use the net present value method, you will need to know the cash inflows, the cash
outflows, and the company’s required rate of return on its investments. The required rate
of return becomes the discount rate used in the net present value calculation. For the
following examples, it is assumed that cash flows are received at the end of the period.
Using data for the Cottage Gang and assuming a required rate of return of 12%, the
net present value is $80,452. It is calculated by discounting the annual net cash flows
and salvage value using the 12% discount factors. The Cottage Gang has equal net
cash flows of $50,000 ($250,000 cash receipt minus $200,000 operating costs) so the
present value of the net cash flows is computed by using the present value of an annuity
of 1 for seven periods. Using a 12% discount rate, the factor is 4.5638 and the present
value of the net cash flows is $228,190. The salvage value is received only once, at the
end of the seven years (the asset’s life), so its present value of $2,262 is computed using
the Present Value of 1 table factor for seven periods and 12% discount rate factor of
.4523 times the $5,000 salvage value. The investment of $150,000 does not need to be

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discounted because it is already in today’s dollars (a factor value of 1.0000). To calculate
the net present value (NPV), the investment is subtracted from the present value of the
total cash inflows of $230,452. See the examples that follow. Because the net present
Notes
value (NPV) is positive, the required rate of return has been met.

Present Value of 1

Period 2% 4% 5% 6% 8% 10% 12% 14% 16% 18% 20% 22%

1 0.980 0.961 0.952 0.943 0.925 0.909 0.892 0.877 0.862 0.847 0.833 0.819

4 5 4 4 9 1 9 2 1 5 3 7
2 0.961 0.924 0.907 0.890 0.857 0.826 0.797 0.769 0.743 0.718 0.694 0.671

2 6 0 0 3 4 2 5 2 2 4 9
3 0.942 0.889 0.863 0.839 0.793 0.751 0.711 0.675 0.640 0.608 0.578 0.550

3 0 6 8 8 3 8 0 7 6 7 7
4 0.923 0.8548 0.8227 0.7921 0.7350 0.6830 0.6355 0.5921 0.5523 0.5158 0.4823 0.451

8 8 7 7 0 0 5 1 3 8 3 4
5 0.905 0.821 0.783 0.747 0.680 0.620 0.567 0.519 0.476 0.437 0.401 0.370

7 9 3 5 6 9 4 4 1 1 9 0
6 0.888 0.790 0.746 0.705 0.630 0.564 0.506 0.455 0.410 0.370 0.334 0.303

0 3 0 2 2 5 6 5 4 4 9 3
7 0.870 0.759 0.710 0.665 0.583 0.513 0.452 0.399 0.353 0.313 0.279 0.248

6 9 1 7 5 2 3 6 8 9 1 6
8 0.853 0.730 0.676 0.627 0.540 0.466 0.403 0.350 0.305 0.266 0.232 0.203

5 7 4 8 3 5 9 6 0 0 6 8
9 0.836 0.702 0.644 0.591 0.500 04 2 4 1 0.360 0.307 0.263 0.225 0.193 0.167

8 6 9 6 2 1 6 5 0 5 8 0
10 0.820 0.675 0.613 0.558 0.463 0.385 0.322 0.269 0.226 0.191 0.161 0.136

3 6 4 9 2 5 0 7 7 1 5 9
11 0.804 0.649 0.584 0.526 0.428 0.350 0.287 0.236 0.195 0.161 0.134 0.112

3 6 8 7 9 5 5 6 4 9 6 2
12 0.788 0.624 0.556 0.497 0.397 0.318 0.256 0.207 0.168 0.137 0.112 0.092

5 6 0 8 1 6 7 6 5 2 2 0
13 0.773 0 .600 0.530 0.468 0.367 0.289 0.229 0.182 0.145 0.116 0.093 0.075

0 6 8 3 7 7 2 1 2 3 5 4
14 0.757 0.577 0.505 0.442 0.340 0.263 0.204 0.159 0.125 0.098 0.077 0.061

9 5 3 1 5 3 6 7 2 5 9 8
15 0.743 0.555 0.481 0.417 0.315 0.239 0.182 0.140 0.107 0.083 0.064 0.050

0 3 3 0 2 4 7 1 9 5 9 7
16 0.728 0.533 0.458 0.393 0.291 0.217 0.163 0.122 0.093 0.070 0.054 0.041

4 9 6 1 9 6 1 9 0 8 1 5
17 0.714 0.513 0.436 0.371 0.270 0.197 0.145 0.107 0.080 0.060 0.045 0.034

2 4 4 3 3 8 6 8 2 0 1 0
18 0.700 0.493 0.415 0 .350 0.250 0.179 0.130 0.094 0.069 0.050 0.037 0.027

2 6 3 5 2 9 0 6 1 8 6 9
19 0.686 0.474 0.395 0.330 0.231 0.163 0.116 0.082 0.059 0.043 0.031 0.022

4 6 5 7 7 5 1 9 6 1 3 9
20 0.673 0.456 0.376 0.311 0.214 0.148 0.103 0.072 0.051 0.036 0.026 0.018

0 4 8 9 5 6 7 8 4 5 1 7

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Cash Outflows Cash Inflows

Notes
Project Cost $150,000 Cash from Customers (1) $250,000

Operating Costs (2) 200,000 Salvage Value 5,000

Estimated Useful Life 7 years

Minimum Required Rate of Return 12%

Annual Net Cash Flows ($250,000 - $200,000) $50,000

(1) - (2)

Present Value of Cash Flows

Annual Net Cash Flows ($50,000 × 4.5638) $228,190

Salvage Value ($5,000 × .4523) 2,262

Total Present Value of Net Cash Inflows 230,452

Less: Investment Cost (150,000)

Net Present Value $ 80,452

When net cash flows are not all the same, a separate present value calculation must
be made for each period’s cash flow. A financial calculator or a spreadsheet can be
used to calculate the present value. Assume the same project information for the Cottage
Gang’s investment except for net cash flows, which are summarized with their present
value calculations below.

Estimated Annual 12% Discount Present Value

Period
Net Cash Flow (1) Factor (2) (1) × (2)

1 $ 44,000 .8929 $ 39,288

2 $ 55,000 .7972 $ 43,846

3 $ 60,000 .7118 $ 42,708

4 $ 57,000 .6355 $ 36,224

5 $ 51,000 .5674 $ 28,937

6 $ 44,000 .5066 $ 22,290

7 $ 39,000 .4523 $ 17,640

Totals $350,000 $230,933

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Managerial Economics 83
The NPV of the project is $83,195, calculated as follows:

Present Value of Cash Flows

Notes
Annual Net Cash Flows $ 230,933

Salvage Value ($ 5,000 × .4523) 2,26

Total Present Value of Net Cash Inflows 233,195

Less: Investment Cost (150,000)

Net Present Value $ 83,195

The difference between the NPV under the equal cash flows example ($50,000 per
year for seven years or $350,000) and the unequal cash flows ($350,000 spread unevenly
over seven years) is the timing of the cash flows.
Most companies’ required rate of return is their cost of capital. Cost of capital is the
rate at which the company could obtain capital (funds) from its creditors and investors.
If there is risk involved when cash flows are estimated into the future, some companies
add a risk factor to their cost of capital to compensate for uncertainty in the project and,
therefore, in the cash flows.
Most companies have more project proposals than they do funds available for projects.
They also have projects requiring different amounts of capital and with different NPVs.
In comparing projects for possible authorization, companies use a profitability index.
The index divides the present value of the cash flows by the required investment. For the
Cottage Gang, the profitability index of the project with equal cash flows is 1.54, and the
profitability index for the project with unequal cash flows is 1.56.
Present Value of Cash Flows
Profitability Index =
Required Investment

Equal Cash Flows = $ 230,452 / $ 150,000 = 1.54, and

Unequal Cash Flows = $ 233,195 / $ 150,000 = 1.56

Internal rate of return

The internal rate of return also uses the present value concepts. The internal rate of
return (IRR) determines the interest yield of the proposed capital project at which the
net present value equals zero, which is where the present value of the net cash inflows
equals the investment. If the IRR is greater than the company’s required rate of return, the
project may be accepted. To determine the internal rate of return requires two steps. First,
the internal rate of return factor is calculated by dividing the proposed capital investment
amount by the net annual cash inflow. Then, the factor is found in the Present Value
of an Annuity of 1 table using the service life of the project for the number of periods.
The discount rate of the factor is the closest to is the internal rate of return. A project for
Knightsbridge, Inc., has equal net cash inflows of $50,000 over its seven-year life and a
project cost of $200,000. By dividing the cash flows into the project investment cost, the
factor of 4.00 ($200,000 ÷ $50,000) is found. The 4.00 is looked up in the Present Value
of an Annuity of 1 table on the seven-period line (it has a seven-year life), and the internal
rate of return of 16% is determined.
Period 2% 4% 5% 6% 8% 10% 12% 14% 16% 18% 20% 22%
1 0.980 0.961 0.952 0.943 0.92 0.90 0.89 0.87 0.86 0.84 0.83 0.81

4 5 4 4 59 91 29 72 21 75 33 97
2 1.941 1.886 1.859 1.833 1.78 1.73 1.69 1.64 1.60 1.56 1.52 1.49

6 1 4 4 33 55 01 67 52 56 78 15

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Period 2% 4% 5% 6% 8% 10% 12% 14% 16% 18% 20% 22%

Notes 3 2.883 2.775 2.723 2.673 2.57 2.48 2.40 2.32 2.24 2.17 2.10 2.04

9 1 2 0 71 69 18 16 59 43 65 22
4 3.807 3.629 3.546 3.465 3.31 3.16 3.03 2.91 2.79 2.69 2.58 2.49

7 9 0 1 21 99 73 37 82 01 87 36
5 4.713 4.451 4.329 4.212 3.99 3.79 3.60 3.43 3.27 3.12 2.99 2.86

5 8 5 4 27 08 48 31 43 72 06 36
6 5.601 5.242 5.075 4.917 4.62 4.35 4.11 3.88 3.68 3.49 3.32 3.16

4 1 7 3 29 53 14 87 47 76 55 69
7 6.472 6.002 5.786 5.582 5.20 4.86 4.56 4.28 4.03 3.81 3.60 3.41

0 1 4 4 64 84 38 83 86 15 46 55
8 7.325 6.732 6.463 6.209 5.74 5.33 4.96 4.63 4.34 4.07 3.83 3.61
2 8
5 7 66 49 76 89 36 76 72 93
9. 8.162 7.435 7.107 6.801 6.24 5.75 5.32 4.94 4.60 4.30 4.03 3.78

2 3 8 7 69 90 82 64 65 30 10 63
10. 8.982 8.110 7.721 7.360 6.71 6.14 5.65 5.21 4.83 4.49 4.19 3.92

6 9 7 1 01 46 02 61 32 41 25 32
11. 9.786 8.760 8.306 7.886 7.13 6.49 5.93 5.45 5.02 4.65 4.32 4.03

8 5 4 9 90 51 77 27 86 60 71 54
12 10.57 9.385 8.863 8.383 7.53 6.81 6.19 5.66 5.19 4.79 4.43 4.12

53 1 3 8 61 37 44 03 71 32 92 74
13 11.34 9.985 9.393 8.852 7.90 7.10 6.42 5.84 5.34 4.90 4.53 4.20

84 6 6 7 38 34 35 24 23 95 27 28
14 12.10 10.56 9.898 9.295 8.24 7.36 6.62 6.00 5.46 5.00 4.61 4.26

62 31 6 0 42 67 82 21 75 81 06 46
15 12.84 11.11 10.37 9.712 8.55 7.60 6.81 6.14 5.57 5.09 4.67 4.31

93 84 97 2 95 61 09 22 55 16 55 52
16 13.57 11.65 10.83 10.10 8.85 7.82 6.97 6.26 5.66 5.16 4.72 4.35
96
77 23 78 59 14 37 40 51 85 24 67
17 14.29 12.16 11.27 10.47 9.12 8.02 7.11 6.37 5.74 5.22 4.77 4.39

19 57 41 73 16 16 96 29 87 23 46 08
18 14.99 12.65 11.68 10.82 9.37 8.20 7.24 6.46 5.81 5.27 4.81 4.41

20 93 96 76 19 14 97 74 78 32 22 87
19 15.67 13.13 12.08 11.15 9.60 8.36 7.36 6.55 5.87 5.31 4.84 4.44

85 39 53 81 36 49 58 04 75 62 35 15
20 16.35 13.59 12.46 11.46 9.81 8.51 7.46 6.62 5.92 5.35 4.86 4.46

14 03 22 99 81 36 94 31 88 27 96 03

Annual rate of return method

The three previous capital budgeting methods were based on cash flows. The
annual rate of return uses accrual-based net income to calculate a project’s expected
profitability. The annual rate of return is compared to the company’s required rate of
return. If the annual rate of return is greater than the required rate of return, the project
may be accepted. The higher the rate of return, the higher the project would be ranked.

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The annual rate of return is a percentage calculated by dividing the expected annual
net income by the average investment. Average investment is usually calculated by
adding the beginning and ending project book values and dividing by two.
Notes
Estimated Annual Net Income
Annual Rate of Return =
Average Investment

Assume the Cottage Gang has expected annual net income of $5,572 with an
investment of $150,000 and a salvage value of $5,000. This proposed project has a 7.2%
annual rate of return ($5,572 net income ÷ $77,500 average investment).
Annual Rate of Return = Estimated Annual Net Income/Average Investment
7.2% = $5,572 / $77,500
(1) (2)

(1) Accrual Basis Income Statement

Revenues $310,000

Operating Expenses 280,000

Depreciation Expense (A) 20.714

Income before Taxes 9,286

Income Taxes (40%) 3.714

Net Income $ 5,572

(A) Straight-line with cosl of % 1 MMK.X). salvage value of SS.(XK). and a service life
of seven years.
$150,000 - $5,000

(2) Calculation of Average Investment

Beginning Investment $150,000

Ending Investment (Salvage Value) 5,000

155,000

Divide for Average ÷ 2

Average Investment $ 77.500

The annual rate of return should not be used alone in making capital budgeting
decisions, as its results may be misleading. It uses accrual basis of accounting and not
actual cash flows or time value of money.

5.4 Risk and Investment Analysis- Decision Tree Analysis

Decision Trees are useful tools for helping you to choose between several courses
of action. They provide a highly effective structure within which you can explore options,

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and investigate the possible outcomes of choosing those options. They also help you to
form a balanced picture of the risks and rewards associated with each possible course
Notes of action. This makes them particularly useful for choosing between different strategies,
projects or investment opportunities, particularly when your resources are limited.

Uses:
You start a Decision Tree with a decision that you need to make. Draw a small square
to represent this on the left hand side of a large piece of paper, half way down the page.
From this box draw out lines towards the right for each possible solution, and write a
short description of the solution along the line. Keep the lines apart as far as possible so
that you can expand your thoughts.
At the end of each line, consider the results. If the result of taking that decision is
uncertain, draw a small circle. If the result is another decision that you need to make, draw
another square. Squares represent decisions, and circles represent uncertain outcomes.
Write the decision or factor above the square or circle. If you have completed the solution
at the end of the line, just leave it blank.
Starting from the new decision squares on your diagram, draw out lines representing
the options that you could select. From the circles draw lines representing possible
outcomes. Again make a brief note on the line saying what it means. Keep on doing this
until you have drawn out as many of the possible outcomes and decisions as you can see
leading on from the original decisions.
Once you have done this, review your tree diagram. Challenge each square and circle
to see if there are any solutions or outcomes you have not considered. If there are, draw
them in. If necessary, redraft your tree if parts of it are too congested or untidy. You should
now have a good understanding of the range of possible outcomes of your decisions.
An example of the sort of thing you will end up with is shown in Figure 1:

Figure 1

5.5 Concept of Behavioral Economics

The main features of Concept of Behavioral Economics are as follows.
 Fastest growing field in economics
 Behavioral economics is concerned with the ways in which the actual decision-
making process influences the decisions that are made in practice; combines
psychology and economics
 Assumes bounded rationality – meaning that people have limited time and
capacity to weigh all the relevant benefits and costs of a decision.
 Decision making is less than fully rational. People are prone to make predictable
and avoidable mistakes.

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 At the same time, decision making is systematic and amenable to scientific study.

Six Key Ideas from Behavioral Economics Notes

1. Framing. Allowing the way a decision is presented to affect the choice that is
selected even though the marginal benefit and marginal cost are unaffected.
2. Letting Sunk Costs Matter. Allowing sunk costs, which have already been paid
and do not affect marginal costs regardless of which option is chosen, to affect a
decision.
3. Faulty discounting. Being too impatient when it comes to decisions that involve
benefits that are received in the future or discounting future benefits inconsistently
depending on when the delay in receipt of benefits occurs.
4. Overconfidence. Believing you will know what will happen in the future to a
greater extent than is justified by available information.
5. Status Quo Bias. It is a tendency to make decisions by accepting the default
option instead of comparing the marginal benefit to the marginal cost.
6. Desire for Fairness and Reciprocity. It is also a tendency, to punish people
who treat you unfairly and to reward those who treat you fairly, even if you do
not directly benefit from those punishments and rewards. Behavioral Economics
recognizes that people respond to incentives, but their response is not always a
rational one.

5.6 Summary
Investment is very risky decision, so it needs priory analysis before finalizing. It
depends on availability of money and information of the economy, industry and company
and the share prices ruling and expectations of the market and also of the companies. For
making investment decision the investors are depend more on a study of fundamentals
rather than technical. It is necessary for a common investor to study the balance sheet
and annual report of the company or analyze the quarterly or half yearly results of the
company and decide on whether to buy that company’s share or not. This is called
fundamental investment analysis. Capital budgeting is the process of spending capital
on long-term projects and on other projects requiring significant investments of capital.
Capital is usually limited in its availability. So, capital budgeting is individually evaluated
using both quantitative analysis and qualitative information. Most of the capital budgeting
analysis uses cash inflows and cash outflows rather than net income calculated using the
accrual basis. Decision Trees analysis is also useful tools for choosing best one among
available several courses of actions. This makes them particularly useful for choosing
between different strategies, projects or investment opportunities, particularly when your
resources are limited.

Check Your Progress

1. Capital budgeting analysis uses
(a) Cash inflows, (b) Cash outflows,
(c) Cash inflows and cash outflows, (d) None of the above
2. Cost of capital is the rate at which the company could obtain
(a) Capital (funds) from its creditors and investors,
(b) Capital (funds) from its bankers,
(c) Capital (funds) from its employees, (d) All the above.
3. Decision Trees are useful tools for helping you to choose between several courses of
(a) Process, (b) Action,

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88 Managerial Economics

(c) Plan, (d) Management

Notes 4. Behavioral economics is concerned with the ways in which the actual decision-
making process influences
(a) Decisions that are made in practice; combines psychology and mathematical,
(b) Decisions that are made unpracticed; combines psychology and economics,
(c) The decisions that are made in practice,
(d) The decisions that are made in practice; combines psychology and economics.

Questions and Exercises

1. Explain how the investment analysis will help to achieve the target of the company.
2. What do you mean by capital budgeting? Explain with examples.
3. ‘The payback measures the length of time it takes a company to recover in cash
its initial investment’, comment on it.
4. ‘Most companies’ required rate of return is their cost of capital’, explain with
suitable example.
5. Why Decision Trees are useful tools for helping you to choose between several
courses of action?
6. Write down the main features of Behavioral Economics.
7. Explain Six Key Ideas of Behavioral Economics.
8. Explain with example the Internal Rate of Return.

Further Readings
 Hirschey, Economics for Managers, Cengage Learning
 Baumol, Microeconomics: Principles & Policies, 9th editions, Cengage Learning
 Froeb, Managerial Economics: A Problem Solving Approach, Cengage Learning
 Mankiw, Economics: Principles and Applications, Cengage Learning
 Gupta, G.S. 2006, Managerial Economics, 2nd Edition,Tata McGraw Hill
 Peterson, H.C and Lewis, W.C. 2005, Managerial Economics, 4th Edition, Prentice
Hall of India
 R Ferguson, R., Ferguson, G.J and Rothschild,R.1993 Business Economics
Macmillan.
 Varshney,R.Land Maheshwari, 1994 Manageriaql; Economics, S Chand and Co.
 Chandra, P.2006, Project: Preparation Appraisal Selection Implementation and
Review, 6th Edition, Tata McGraw Hill.

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