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Investment appraisal

Articles, reports and other resources that enable accountants in business to make a real difference to their organisations by providing them with practical information on the latest thinking in investment appraisal.

Saving for a rainy day

With the end of the tax year fast approaching, Richard Bertin of FF&P Wealth Planning gives some tips and reminders to help you make the most of your money.

Making better investment decisions

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Chris Jackson, head of the Finance and Management Faculty, introduces recently published IFAC guidance on the use of discounted cash flow analysis and net present value in evaluating investments, and outlines the underlying principles.

Investor relations and the FD

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Faculty members turned out in force on 6 February for the first joint event between the Faculty and the Investor Relations Society. An impressive line-up of speakers, chaired by Penny Bickerstaff, independent consultant and Faculty committee member, debated the demands on FDs from their IR programmes, and the inherent conflicts with the day job.

How to evaluate real options

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The notion of ‘real options’ applies option pricing theory to non-financial assets. The complexity of modelling investments as options means that, to date, options literature has had relatively little impact on management practices. Here Roger Mills, professor of accounting and finance at Henley Management College, examines recent attempts to find an optimum methodology for evaluating real options.

Real options techniques in capital investment

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Over time we have come to rely on our past experiences to help us make better decisions. One of the most important ways that we try and reduce the effects of uncertainty is by ‘keeping our options open’ and waiting until some of the uncertainties are resolved. This Good Practice Guideline focuses on the valuation of these various options and how we can use this information to make better investment decisions.

Valuation of companies

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This article builds on previous work in the series to examine ways of valuing companies. There is no ‘correct’ answer to the question ‘what is the company worth ?’, but there are some standard valuation techniques. The methods used most commonly in practice are discussed, together with their advantages and disadvantages.

The cost of capital

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We conclude our series about the cost of capital with an article that brings together key points from the earlier contributions. It explains how to calculate the weighted average cost of capital, which is suitable for the appraisal of projects where the risk profile matches that of the organisation as a whole. A method of adjusting for project risk is illustrated by a useful worked example.

Post Completion Review

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This Guideline describes the process and benefits of reviewing capital investments after their implementation. A post completion review (PCR) is a process aimed at assessing, after the event, the efficiency and effectiveness of a capital budgeting decision and the management of its implementation. It is based on a comparison between planned and actual actions, costs and resource usage, results and benefits. It encompasses the review of all assumptions about markets, technology, personnel, environment, competition and the cost of capital that were made during the decision making period.