Time Value of Money and Capital Budgeting Techniques

Present Value, Future Value, Compounding, Discount Factor, Annuity Factor, Annuity ,IRR, Capital Budgeting Techniques

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Description

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This course provides a detailed knowledge about Time Value of Money - Basic concept about Finance ands Capital Budgeting. The course consists of video lectures that explains concept along with illustrations. The illustrations are simple ones that makes it easy to understand the concept.

The course is divided into following section :

Section 1 : Introduction

This section explains basic concept of Time value of Money - Meaning along with examples.

Section 2 :  More about Time value of Money

This section explains

  • Uses of concept of Time Value of Money.

  • The factors such as inflation and purchasing power place important role in measuring time value of money. This is explained in detail.

Section 3 : Interest, Present Value and Future Value

This section explains

  • Difference between Simple Interest and Compound Interest. How to calculate simple interest and compound interest and power of compounding.

  • Other concepts related to Time Value of Money - Meaning of Present Value and Future Value

Section 4 : Present Value and Future Value for single cash flow

This section explains

  • How to calculate Present Value and Future Value for single cash flow ?

  • How to derive formula for calculating present value and future value of single cash flow ?

  • The explanation is followed by detailed illustrations.

Section 5 : Present Value and Future Value for Annuity

This section explains

  • How to calculate Present Value and Future Value for annuity.

  • How to derive formula for calculating present value and future value of Annuity ?

  • The explanation is followed by detailed illustrations.

Section 6 : Discount Factor and Annuity Factor

This section explains meaning of discount factor and Annuity factor and how to calculate the same.

Section 7 : Compounding Daily, Weekly, Monthly, Quarterly and Half Yearly.

This section explains

  • Calculation of present value and future value of single cash flow when rate of interest is compounded daily, weekly , Quarterly and half yearly.

  • Calculation of present value and future value of Annuity- Ordinary Annuity and Annuity due when rate of interest is compounded daily, weekly , Quarterly and half yearly.

Section 8 : Internal Rate of Return (IRR)

This section explains

  • Meaning of IRR (Internal rate of return) and calculation of IRR using Interpolation method.

Section 9 : Capital Budgeting Basics

This section explains meaning of Capital Budgeting along with it's purpose and process.

Section 10 : Types of Capital Budgeting Decisions

This section explains about following types of capital budgeting decisions along with examples :

  • Replacement and Modernization decision

  • Expansion decision

  • Diversification decision

  • Mutually exclusive decision

  • Accept or Reject decision

  • Contingent decision

Section 11 : Treatment of various costs for purpose of calculating Cashflows

This section includes following topics :

  • Difference in accounting profit and cashflow

  • Meaning of incremental cashflow along with calculation

  • Calculation of Tax Benefit on Depreciation

  • Opportunity Cost - Meaning , Example and impact on cashflows

  • Sunk Cost - Meaning , Example and impact on cashflows

  • Working Capital costs - Meaning , Example and impact on cashflows

  • Allocated Overhead costs - Meaning , Example and impact on cashflows

Section 12 : Types of Cashflows

This section explains types of cashflows for new projects and replacement projects.

Section 13 : Principles for calculating cashflows

This section includes following topics :

  • Block of Assets and Depreciation Principle

  • Exclusion of Financing Cost Principle

  • Post Tax Principle

  • Difference in treatment of depreciation and interest while calculating cashflows from profit and loss

Section 14 ,Section 15, Section 16, Section 17, Section 18, Section 19, Section 20, Section 22 and Section 23 :

Capital Budgeting Techniques

These sections include meaning , examples , advantages and limitations of following capital budgeting techniques :

  • Payback Period Method

  • Accounting Rate of Return (ARR) Method

  • Discounted Payback Period Method

  • Profitability Index (PI) Method

  • Net Present Value (NPV) Method

  • Internal Rate of Return (IRR) Method

  • Modified Internal Rate of Return (MIRR)

Section 21 : IRR and NPV

This section explains anomalies in result for mutually exclusive projects as per Internal Rate of Return (IRR) Method and Net Present Value (NPV) Method under different situations

Section 24 : Special Cases

This section includes following topics :

  • Capital Rationing for divisible and indivisible projects

  • Methods to analyze Mutually Exclusive Projects with different periods

  • Replacement Chain Method

  • Equivalent Annualized Criterion Method

All the sections are logically arranged so that it is easy to understand concept of Time Value of Money. The sections should be viewed chronologically.

TIP : If the student simultaneously solves illustrations along with video lecture it will be easy to understand concept.

Thank you

Happy Learning !



What You Will Learn!

  • Basic Concept about Time value of Money
  • Use of Concept of Time value of money
  • Time value of Money - Inflation and Purchasing power
  • Difference between Simple interest and Compound interest
  • Power of Compounding
  • What is Present Value and Future value ?
  • Calculation of Present value and Future value (Single Payment/receipt) without formula
  • How to derive a formula for present value and future value
  • What is Annuity and types of annuity
  • Present value of annuity without formula
  • How to derive a formula to calculate Present Value of Annuity
  • Future value of annuity without formula
  • How to derive a formula to calculate future Value of Annuity
  • Formula for present value when compounded daily, monthly, quarterly and half yearly
  • Formula for future value when compounded daily, monthly, quarterly and half yearly
  • Formula for present value of annuity when compounded daily, monthly, quarterly and half yearly
  • Formula for future value of annuity when compounded daily, monthly, quarterly and half yearly
  • Discount factor and computation
  • Annuity factor and computation
  • What is IRR (Internal rate of Return) ?
  • How to calculate Internal rate of return using interpolation
  • Capital Budgeting - Meaning and Process
  • Types of Capital Investment decisions
  • Replacement and Modernization decision
  • Expansion Decision
  • Diversification Decision
  • Mutually Exclusive Proposals Decision
  • Accept or Reject Decision
  • Contingent Decision
  • Difference between Accounting Profit and Cashflow
  • Meaning of Incremental Cashflows
  • Depreciation and Tax Benefit on Depreciation
  • Opportunity Cost and Sunk Cost
  • Working Capital Cost
  • Allocated Overhead costs
  • Types of Cashflow for New Projects and Replacement Projects
  • How to Calculate Cashflows
  • Block of Assets and Depreciation Principle
  • Treatment of Financing Costs
  • Post Tax Principles
  • Capital Budgeting Techniques
  • Payback Period Method - Meaning, Illustrations advantages and Disadvantages
  • Payback Period Reciprocal Method
  • Accounting Rate of Return Method (ARR) - Meaning, Illustrations advantages and Disadvantages
  • Discounted Payback Period Method - Meaning, Illustrations advantages and Disadvantages
  • Profitability Index Method (PI) - Meaning, Illustrations advantages and Disadvantages
  • Net Present Value Method (NPV) - Meaning, Illustrations advantages and Disadvantages
  • Internal Rate of Return (IRR) - Meaning, Illustrations advantages and Disadvantages
  • Internal Rate of Return (IRR) and Net Present Value Method (NPV) Reinvestment Assumption
  • Multiple Internal Rate of Return (Multiple IRR)
  • Modified Internal Rate of Return (MIRR) - Meaning, Illustrations advantages and Disadvantages
  • Capital Rationing
  • Divisible and Non-Divisible Projects
  • Methods to analyze Mutually Exclusive Projects with different tenures
  • Replacement Chain Method
  • Equivalent Annualized Criterion Method

Who Should Attend!

  • Those who want to understand concept of Time value of money thoroughly