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MBF843Management Sciences3 Unitsintermediate

Capital Investment & Financial Decisions

This course, Capital Investment and Financial Decisions, introduces students to the core principles of capital investment and financial decision-making. It explores conceptual issues, various investment types, and decision-making tools. Students will learn traditional and discounted techniques for appraising investments, including ARR, payback period, NPV, IRR, and profitability index. The course also covers the impact of inflation, risk assessment using probabilities, sensitivity analysis, and capital rationing.

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208h

Study Time

13

Weeks

16h

Per Week

intermediate

Math Level

Course Keywords

Capital InvestmentFinancial DecisionsInvestment AppraisalNPVIRR

Course Overview

Everything you need to know about this course

Course Difficulty

Intermediate Level

Builds on foundational knowledge

65%

intermediate

📊

Math Level

Moderate Math

🔬

Learning Type

Hands-on Practice

Course Topics

Key areas covered in this course

1

Capital Investment Decisions

2

Investment Appraisal Techniques

3

Payback Period

4

Accounting Rate of Return

5

Net Present Value

6

Internal Rate of Return

7

Profitability Index

8

Impact of Inflation

9

Risk Assessment

10

Sensitivity Analysis

11

Capital Rationing

Total Topics11 topics

Ready to Start

No specific requirements needed

This course is designed to be accessible to all students. You can start immediately without any prior knowledge or specific preparation.

Assessment Methods

How your progress will be evaluated (3 methods)

assignments

Comprehensive evaluation of course material understanding

Written Assessment

tutor-marked assignments

Comprehensive evaluation of course material understanding

Written Assessment

final examination

Comprehensive evaluation of course material understanding

Written Assessment

Career Opportunities

Explore the career paths this course opens up for you

Financial Analyst

Apply your skills in this growing field

Investment Manager

Apply your skills in this growing field

Project Manager

Apply your skills in this growing field

Management Accountant

Apply your skills in this growing field

Financial Controller

Apply your skills in this growing field

Industry Applications

Real-world sectors where you can apply your knowledge

BankingFinanceManufacturingConsultingPublic Sector

Study Schedule Beta

A structured 13-week journey through the course content

Week

1

Module 1:

4h

Unit 1: Conceptual Issues in Capital Investment

2 study hours

•Read the introduction to understand the importance of capital investment.
•Define investment and differentiate between direct, indirect, real, and paper assets.
•Identify the essential features of investment and their implications.

Unit 2: Decisions: Types, Features and Tools for Decision-Making

2 study hours

•Explore the categories of decision-making, including routine planning, non-routine, investment, long-range, and control decisions.
•Define relevant costs, differential costs, incremental costs, avoidable costs, opportunity costs, sunk costs, committed costs, and notional costs.
•Understand the management accountant's role in short-term decision-making.

Week

2

Module 1:

4h

Unit 3: The Payback Period

2 study hours

•Define payback period and understand its calculation.
•Compute payback period for different projects with varying cash flows.
•Evaluate the merits and demerits of the payback period approach.

Unit 4: The Accounting Rate of Return

2 study hours

•Define Accounting Rate of Return (ARR) and its variations.
•Calculate ARR using initial capital and average capital.
•Discuss the merits and demerits of ARR as an investment appraisal technique.

Week

3

Module 1:

2h

Unit 5: Compounding and Discounting

2 study hours

•Understand the components of cash flows, including inflows and outflows.
•Explain the concept of time value of money and its importance in investment decisions.
•Compute compound interest and solve practical problems involving compounding.

Week

4

Module 2:

2h

Unit 1: The Net Present Value (NPV)

2 study hours

•Define Net Present Value (NPV) and understand its underlying assumptions.
•Apply the formula for simple NPV calculations.
•Describe the investment criteria under the NPV approach.

Week

5

Module 2:

2h

Unit 2: The Net Present Value (Annuity)

2 study hours

•Explain the concept of annuity and its application in investment decisions.
•Apply the annuity factor to calculate Net Present Value (NPV).
•Solve practical questions involving annuity, such as lease rentals and hire purchase.

Week

6

Module 2:

2h

Unit 3: The Internal Rate of Return I

2 study hours

•Define Internal Rate of Return (IRR) and understand its significance.
•State the IRR formula and learn how to derive unknown values within a range.
•Outline the investment criteria under the IRR approach.

Week

7

Module 2:

2h

Unit 4: Internal Rate of Return II

2 study hours

•Outline the steps to find an alternative to pure trial and error in applying the IRR method.
•Read and apply the annuity table in solving IRR problems.
•Explain that at times IRR could yield multiple rates.

Week

8

Module 2:

2h

Unit 5: The Profitability Index

2 study hours

•Explain the meaning of profitability index (PI).
•State and apply the formulae for PI.
•Outline the merits and demerits of PI and compare the IRR method with the NPV method.

Week

9

Module 3:

2h

Unit 1: The Impact of Inflation on Investment Proposals

2 study hours

•Define inflation and its impact on investment proposals.
•Explain the meaning of money and real cash flows.
•Discuss the effects of inflation on investment appraisal.

Week

10

Module 3:

2h

Unit 2: Using Probability to Assess Impact of Risks on Capital Investments

2 study hours

•Define probability and understand its application in investment appraisal.
•Explain the terms expected value, standard deviation, and coefficient of variation.
•Evaluate investments by applying probability estimates.

Week

11

Module 3:

2h

Unit 3: Sensitivity Analysis

2 study hours

•Define sensitivity analysis and its purpose in investment decisions.
•Identify the key factors in any investment appraisal.
•Evaluate investments by varying the key factors and assessing their effects.

Week

12

Module 3:

2h

Unit 4: Capital Rationing

2 study hours

•Define capital rationing and its implications for project selection.
•Understand project selection under capital rationing constraints.
•Evaluate projects and investments under capital rationing scenarios.

Week

13

Final Revision

4h

Final Revision

4 study hours

•Review all modules and units.
•Work on tutor marked assignments.
•Use textbooks for further reading and practices.

This study schedule is in beta and may not be accurate. Please use it as a guide and consult the course outline for the most accurate information.

Course PDF Material

Read the complete course material as provided by NOUN.

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Study Tips & Exam Preparation

Expert tips to help you succeed in this course

1

Master the formulas for ARR, Payback Period, NPV, IRR, and Profitability Index.

2

Practice applying these formulas to various investment scenarios.

3

Focus on understanding the underlying assumptions and limitations of each technique.

4

Review the impact of inflation and risk assessment methods.

5

Work through all examples and tutor-marked assignments.

6

Create concept maps linking Units 3-5 investment appraisal techniques.

7

Practice calculating expected values, standard deviations, and coefficients of variation from Units 7-9 weekly.

8

Review all formulas and decision criteria the week before the exam.

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