School of Management, Unit Catalogue 2007/08 |
MN20026 Economic analysis of financial decisions |
| Credits: 6 |
| Level: Intermediate |
| Semester: 1 |
| Assessment: EX 100% |
| Requisites: |
| Before taking this unit you must take MN10008 or take MN10069 or take MN10248 |
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Aims: To acquire knowledge and skills in the economic interpretation of financial and accounting data and criteria used for decision-making.
Learning Outcomes: The student will be able to integrate and reconcile traditional management accounting methods with economic principles and analysis. Numerical skills in developing economically consistent accounting data will be acquired. Knowledge of the main methodological applications will be developed in practical areas such as investment appraisal, opportunity costs, fixed costs and joint cost allocations, and regulated utilities and network industries. Skills: Numerical facility with accounting and financial data, and identification/conversion to relevant economic data for decision-making. Content: Reconciling NPV and IRRs (standard and modified) for Investment Decisions * The 'normal' investment series and the 'true' IRR; * Capital rationing and the extended yield, 'average' (terminal value) IRR; * Mutually exclusive projects and the incremental IRR; * Combining capital rationing and mutually exclusive projects; * Typical problems and approaches. Optimisation and Valuation with Multiple Constraints * Maximising contribution and minimising input costs with constraints; * 'Internal' opportunity costs and marginal costs of constraints: the 'dual' solution. Optimal Decisions where Sales vary with Price * Estimating marginal revenue from demand data; * Optimising with incremental opportunity costs; * Linear demand curves - average and marginal revenue rules. Fixed Costs and Optimal Cost Allocations to Products * Traditional cost allocation methods; * Joint costs and decentralised decision-making, identifying by-products; Regulated Industries * Long run versus short run marginal cost with 'lumpy' investments; two-part tariffs; * Minimising loss of consumer welfare; * Non-discrimination; stand-alone cost and incremental cost for access pricing. |