Corporate Finance: Course Notes
Having studied this chapter you will be able to:
Evaluate the potential value added to a firm arising from a specified capital investment project or portfolio using the net present value model. Project modelling should include explicit treatment of:
(a) Inflation & specific price variation
(b) Taxation including capital allowances and tax exhaustion
(c) Single & multi-period capital rationing to include the formulation of programming methods and the interpretation of their output
(d) Probability analysis and sensitivity analysis when adjusting for risk and uncertainty in investment appraisal
(e) Risk adjusted discount rates (covered in chapter 7)
Outline the application of Monte Carlo simulation to investment appraisal. Candidates will not be expected to undertake simulations in the exam but will be expected to demonstrate understanding of
(a) simple model design
(b) the different types of distribution controlling the key variables in the simulation
(c) the significance of the simulation output and the assessment of the likelihood of project success
(d) the measurement and interpretation of project value at risk
Establish the potential economic return using IRR and modified
IRR & advise on a projects return margin. Discuss merits of NPV
& IRR.
Discounted cash flow techniques are also extensively examined in the context of business valuations
(business valuations are covered in chapters 9-12).
Slow Fashions
- 20 marks, June 09
Your business
- 28 marks, June 09
Seal island
- 24 marks, June
2010 Q1i,ii,iii
Seal island - 4 marks, June 2010
Q1iv
Tisa Co- 4 marks,
June 2012 Q4c
Tisa Co- 8 marks,
June 2012 Q4b
Neptune- 6 marks,
June 2008 Q5b
5: DCF TECHNIQUES AND THE USE OF FREE CASH FLOWS
Maximisation of shareholder wealth
Investment decision
DCF techniques & the use of free cash flows
Estimating the potential value added to a firm from a capital investment project
Financing decision
Evaluate the potential value added to a firm arising from a specified capital investment project or portfolio using the net present value model. Project modelling should include explicit treatment of:
(a) Inflation & specific price variation
(b) Taxation including capital allowances and tax exhaustion
(c) Single & multi-period capital rationing to include the formulation of programming methods and the interpretation of their output
(d) Probability analysis and sensitivity analysis when adjusting for risk and uncertainty in investment appraisal
(e) Risk adjusted discount rates (covered in chapter 7)
Outline the application of Monte Carlo simulation to investment appraisal. Candidates will not be expected to undertake simulations in the exam but will be expected to demonstrate understanding of
(a) simple model design
(b) the different types of distribution controlling the key variables in the simulation
(c) the significance of the simulation output and the assessment of the likelihood of project success
(d) the measurement and interpretation of project value at risk
Establish the potential economic return using IRR and modified
IRR & advise on a projects return margin. Discuss merits of NPV
& IRR.
Discounted cash flow techniques are also extensively examined in the context of business valuations
(business valuations are covered in chapters 9-12).
Slow Fashions
- 20 marks, June 09
Your business
- 28 marks, June 09
Seal island
- 24 marks, June
2010 Q1i,ii,iii
Seal island - 4 marks, June 2010
Q1iv
Tisa Co- 4 marks,
June 2012 Q4c
Tisa Co- 8 marks,
June 2012 Q4b
Neptune- 6 marks,
June 2008 Q5b
5: DCF TECHNIQUES AND THE USE OF FREE CASH FLOWS
Maximisation of shareholder wealth
Investment decision
DCF techniques & the use of free cash flows
Estimating the potential value added to a firm from a capital investment project
Financing decision