Capital budgeting – I (CFA Level I Suggested Reading)
The four methods used to evaluate capital projects: payback period, discounted payback period, net present value (NPV), and internal rate of return (IRR)
The NPV profile
The relative advantages and disadvantages of the NPV and IRR methods, particularly with respect to independent versus mutually exclusive projects
The "multiple IRR problem" and the cash flow pattern that causes the problem
The role of the post-audit in the capital budgeting process
Capital budgeting – II (CFA Level II Suggested Reading)
Cash flows and accounting profits
Incremental cash flow, sunk cost, opportunity cost, externality, and cannibalization
The importance of changes in net working capital in the capital budgeting process
How to determine whether a project (expansion or replacement) should be undertaken by NPV analysis
Initial investment outlay, operating cash flow over a project's life, and terminal-year cash flow
Comparing two projects with unequal lives
The effects of inflation on capital budgeting analysis
MACRS, half-year convention, and depreciable basis
Capital Structure and Leverage (CFA Level I Suggested Reading)
Target (optimal) capital structure and factors that influence a company's capital structure decision
Business risk and financial risk
The breakeven quantity of sales and the company's gain or loss at various sales levels
Operating leverage, financial leverage and total leverage, as well as the consequence of greater amounts of debt
How changes in the use of debt can cause changes in the company's earnings per share and in the stock price
Taxes and bankruptcy, the optimal capital structure, and the Modigliani and Miller (MM) capital structure irrelevance proposition compared with the trade-off theory of leverage
How a company signals its prospects through its financing choices