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Finance Archive

Curriculum

Investment Appraisal

Deciding what capital to commitMove from a discounted cash flow to a decision: build the NPV, compare it with IRR and payback, derive the cost of capital that discounts it, and check the financing risk underneath.

Modules
3
Chapters
8
Concepts
8
Study time
190 min

Who it is for

Corporate finance and capital-budgeting students

By the end you can

You can appraise a project end to end: estimate cash flows, discount at a defensible rate, rank projects correctly, and explain the financing risk.

  1. 1

    Discounting decisions

    The appraisal toolkit and when each measure misleads.

    Intermediate75 min
    1. 1.1

      A quick foundation

      The discounting mechanics the rest of the module assumes.

      Time value of money
    2. 1.2

      Net present value

      Value created, expressed in money.

      NPV and IRR
    3. 1.3

      IRR and payback

      Return as a rate, speed as a number, and their limits.

      IRR and payback
  2. 2

    The cost of capital

    Where the discount rate comes from.

    Intermediate55 min
    1. 2.1

      Weighted average cost of capital

      Blending equity and after-tax debt costs.

      Cost of capital (WACC)
    2. 2.2

      CAPM and beta

      Estimating the cost of equity from systematic risk.

      CAPM and beta
  3. 3

    Financing and risk

    What the appraisal leaves out: the balance sheet underneath the project.

    Intermediate60 min
    1. 3.1

      Leverage

      How debt magnifies the outcome.

      Operating and financial leverage
    2. 3.2

      Working capital and liquidity

      The cash a growing project consumes.

      Working capital management
    3. 3.3

      Risk review

      Coverage, leverage, liquidity, and runway in one picture.

      Financial risk management