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This video will cover section D of ACCA’s F9 - Financial Management.
1. Investment appraisal techniques
2. Allowing for inflation and taxation in DCF
3. Adjusting for risk and uncertainty in investment appraisal
4. Specific investment decisions (lease or buy, asset replacement, capital rationing)
Download ACCA F9 2022 - 20233 Syllabus here: www.accaglobal.com/in/en/stud...
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On successful completion of this video, you will be able to:
1. Investment appraisal techniques
a) Identify and calculate relevant cash flows for investment projects.
b) Calculate payback period and discuss its usefulness as an investment appraisal method.
c) Calculate discounted payback and discuss its usefulness as an investment appraisal method.
d) Calculate return on capital employed (accounting rate of return) and discuss its usefulness as an investment appraisal method.
e) Calculate net present value and discuss its usefulness as an investment appraisal method.
f) Calculate internal rate of return and discuss its usefulness as an investment appraisal method.
g) Discuss the superiority of discounted cash flow (DCF) methods over non-DCF methods.
h) Discuss the relative merits of NPV and IRR.
2. Allowing for inflation and taxation in DCF
a) Apply and discuss the real-terms and nominal-terms approaches to investment appraisal.
b) Calculate the taxation effects of relevant cash flows, including the tax benefits of tax-allowable depreciation and the tax liabilities of taxable profit.
c) Calculate and apply before- and after-tax discount rates.
3. Adjusting for risk and uncertainty in investment appraisal
a) Describe and discuss the difference between risk and uncertainty in relation to probabilities and increasing project life.
b) Apply sensitivity analysis to investment projects and discuss the usefulness of sensitivity analysis in assisting investment decisions.
c) Apply probability analysis to investment projects and discuss the usefulness of probability analysis in assisting investment decisions.
d) Apply and discuss other techniques of adjusting for risk and uncertainty in investment appraisal, including:
i) Simulation
ii) Adjusted payback
iii) risk-adjusted discount rates.
4. Specific investment decisions (lease or buy, asset replacement, capital rationing)
a) Evaluate leasing and borrowing to buy using the before- and after-tax costs of debt.
b) Evaluate asset replacement decisions using equivalent annual cost and equivalent annual benefit.
c) Evaluate investment decisions under single-period capital rationing, including:
i) The calculation of profitability indexes for divisible investment projects
ii) The calculation of the NPV of combinations of non-divisible investment projects
iii) A discussion of the reasons for capital rationing.
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