Theory & Practice of Investment Appraisal

THEORY & PRACTICE OF INVESTMENT APPRAISAL

The financial manager's objective is to maximize shareholders' wealth. In doing this, the manager must evaluate investment opportunities and determine which ones will add value to the company. In this course, we will look at the different types of investment decisions and discuss the ways to estimate the benefits and costs associated with these decisions. 

Making decisions today regarding future cash flows requires understanding that the value of money does not remain the same throughout time. We will thus need to first familiarize ourselves with the financial mathematics tools to perform compounding and discounting and to value different patterns of cash flows, including perpetuities and deferred annuities. 

We then look at how to take account of risk; either by measuring the mean and standard deviation of the project’s net present value or reflect risk by using a risk-adjusted discount rate in the calculation of the net present value. In investment appraisal, we discuss the traditional and time value of money methods. We examine the payback method, the return on capital employed method and compare the net present value, profitability index, internal rate of return and modified internal rate of return methods.

We then review practical aspects of investment appraisals in evaluating opportunities; learning about the process and cash flow evaluation of an opportunity. 

Course Objective

This course introduces participants to the financial mathematics tools and techniques of investment appraisal. It aims to provide participants with knowledge and use of analytical tools and practices in investment appraisal and capital budgeting processes. Participants should be able to:

  • Understand the concept of the time value of money in investment analysis
  • Learn about the different types of investment decisions and risks associated
  • Understand the theory and application of investment appraisal models in valuation models
  • Learn about the process in evaluating an opportunity
  • Understand the cash flow financial appraisal of an opportunity  

Course Outline and Duration

The course will be covered over two (Saturday afternoons) three-hourly lecture sessions. Participants will also be expected to study the assigned readings and materials and be sufficiently prepared to ask questions during the lecture sessions.

The main outline of the course is as follows:

1st Week

The Theory: introducing and understanding financial mathematics tools in investment analysis and capital budgeting.

Introduction to investment evaluation techniques; Traditional and time value of money methods; application in business valuation models

2nd Week

The Practice: evaluating an opportunity; the process and financial cash flow appraisal.

Textbooks

There are no required textbooks; however, the publication listed below provides useful material for those interested in additional understanding:

Pamela Peterson & Frank Fabozzi, Theory and Practice, Capital Budgeting, Wiley Finance, 2002

Additional Readings

Several additional readings and financial statements’ models will be assigned with the course.

Intended for

Managers, engineers and individuals who are keen on understanding theory and application of investment appraisal techniques.

Course Instructor

Frankie has a fourteen-year career in technology and venture capital, and is the Managing Founder of Innovation Ventures. 

He currently serves as an Entrepreneur-in-Residence in Exploit Technologies and is their nominee director on the boards of Commontown Pte Ltd, BLC Solutions Pte Ltd and D-SIMLAB Technologies Pte Ltd.

Since January 2009, he was appointed Adjunct Associate Professor in the Division of Engineering and Technology Management (ETM), National University of Singapore Faculty of Engineering.  He is currently running a course “Finance for Engineering and Technology Managers” for students undergoing MSc and PhD programmes offered by the ETM in NUS.

Frankie is a Singaporean and holds Master of Science degrees in Financial Management (with Distinction) from the University of London, United Kingdom and in Strategic Management (Dean’s Honours List) from the Nanyang Technological University, Singapore. He is also a graduate of the Association of Certified Chartered Accountants in the United Kingdom, and a member of the Institute of Certified Public Accountants of Singapore. 

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