Project Economics &
Decision Making
Training Course Manual
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thor, Project Economics & Decision Making
Contents
Introduction Sra u
Course Objectives cece Si nae eo aire near
Suggested Attendees... : 1
Criterion for Decision Making 2
The Project Life Cycle..... 7 eee, 3
Decision Analysis 4
Accountants’ vs Economists’ View of Financial Decisions ...... if
Accountant’s Rate of Return ..... 8
Definition... 8
Criteria for Decision Making 8
o EXAMPLE - ACCOUNTANTS RATE OF RETURN 9
Critique of ARR Method escoessveseneeenueesinenueeenneetin 7
SOME esti UAW coTMaRIDR ee eee cece caca eens eee ees sees 10
Payback Period Method. 13
Investment Decision Criteria. 2 13
a EXAMPLE - PAYBACK PERIOD... - a 13
Critique of Payback Period Method 14
Present Value Concept - the Time Value of Money mae 15
a EXAMPLE - DISCOUNT FACTORS TABLE. ................sssssssesssssssesssssssssssse 16
a EXAMPLE - PRESENT VALUES. 17
The Cost of Capital...
The Cost of Equity
The P/E Growth Model.
The Capital Asset Pricing (CAPM) Model..
‘Net Present Value Method. eae 22
Investment Decision Criteria. 22
EXAMPLE - NET PRESENT VALUE... . aan
Critique of NPV Method 23
Discounted Payback Period Method .... 224
EXAMPLE - DISCOUNTED PAYBACK PERIOD. 24
Project Economics & Decision Making 7
©MDT Imernational 2004 C:MDT Training Public Zconomies REVISIONS 2004MfanualECONOMIC.DOC Ver 06 Project Economics & Decision Making
Critique of Discounted Payback Method.........
Internal Rate of Return Method ...
Definition.
( EXAMPLE- INTERNAL RATE OF RETURN.
IRR Criteria for Decision Making...
Critique of IRR Method
(EXAMPLE - IRR Cash Flow “Change of Signs”.
Profitability Index Method...
Definition :
Criteria for Decision Making
(EXAMPLE - PROFITABILITY INDEX
Critique of PI Method eee fesse
NPV/Max Exposure
Qo EXAMPLE - ‘NPV/MAX EXPOSURE..
Critique of NPV/MaxExp Method
Methods Compared...
(EXAMPLE - COMPARISON OF APPRAISAL METHODS.......
Decision Making Under Capital Rationing
(1 EXAMPLE - DECISIONS UNDER CAPITAL RATIONING.
—_ EXAMPLE - COMPARISON OF NPVs
The Impact of Rising Prices and Inflation.
1 EXAMPLE - RISING COSTS.......
(EXAMPLE - INFLATION ADJUSTED DCF
‘The Impact of Exchange Rates...
Oo EXAMPLE —- EXCHANGE RATES.
The Impact of Taxation
Introduction 0
UK Corporation Tax...
Writing Down Allowances...
im EXAMPLE - WRITING DOWN ‘ALLOWANCE
Impact of Tax on the Cost of Capital. eaten
fees EXAMPLE - IMPACT OF TAX ON COST OF: CAPITAL
OG -EXAMPLE - IMPACT OF TAX ON DISCOUNTED CASH FLOW.........
Incremental Development Investment
Criteria for Decision Making ....
46
Project Economics & Decision Making
©MDI International 2004 (C/MDI Training Public Economics REVISIONS 2004\Mfanual ECONOMIC.DOC Ver 06
