Capital Investment & Financial Decisions

1. Define capital investment and distinguish between various classes.
2. Compute the Accounting Rate of Return (ARR) and the Payback Period of Investments (PPI).
3. Compute the Net Present Value (NPV), Internal Rate of Return (IRR) and Profitability Index (PI) of projects.
4. Appraise capital investments based on both the traditional and discounted techniques.
5. Apply probabilities to compute the expected value, standard deviation, and co-efficient of correlation of projects.
6. Conduct sensitivity analysis of investments.
7. Evaluate investments under inflationary conditions and when capital is not adequate.

13 weeks, about 32 hours in total. Yours will differ.

1. Week 1Module 1:

   • Unit 1: Conceptual Issues in Capital Investment · 2 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 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..

2. Week 2Module 1:

   • Unit 3: The Payback Period · 2 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 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..

3. Week 3Module 1:

   • Unit 5: Compounding and Discounting · 2 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..

4. Week 4Module 2:

   • Unit 1: The Net Present Value (NPV) · 2 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..

5. Week 5Module 2:

   • Unit 2: The Net Present Value (Annuity) · 2 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..

6. Week 6Module 2:

   • Unit 3: The Internal Rate of Return I · 2 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..

7. Week 7Module 2:

   • Unit 4: Internal Rate of Return II · 2 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..

8. Week 8Module 2:

   • Unit 5: The Profitability Index · 2 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..

9. Week 9Module 3:

   • Unit 1: The Impact of Inflation on Investment Proposals · 2 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..

10. Week 10Module 3:

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

11. Week 11Module 3:

    • Unit 3: Sensitivity Analysis · 2 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..

12. Week 12Module 3:

    • Unit 4: Capital Rationing · 2 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..

13. Week 13Final Revision

    • Final Revision · 4 hours

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