Financial Knowledge and Skills for Business: Week 11

  • Created by: EvemChas
  • Created on: 30-01-23 13:09

Investment Appraisal: Part 1

Investment Appraisal/Capital Budgeting

  • Meaning: Process decision making respect investments fixed assets (non-current assets) that is, should proposed project accepted/rejected.
  • Easier evaluate profitable projects, than identify suitable projects + collect necessary data.
  • Large amounts resources often involved.
  • Often difficult +/ expensive bail out an investment once undertaken.

Cash based Appraisal Techniques

  • Payback
  • NPV
  • IRR

Alternative Appraisal Techniques

  • Discounted Payback
  • Sustainable NPV
  • MIRR
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Investment Appraisal: Part 2

Investment Appraisal/Capital Budgteing Part 2

Sophisticated Techniques

  • Net present value 
  • Internal rate return
  • Modified internal rate return
  • Profitability index
  • Real options

Non-Sophisticated Techniques

  • Payback
  • Disocunted payback
  • Accounting rate return 
  • Return investments
  • Return equity
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Investment Appraisal: Part 3


  • Meaning: Number years needed recover initial cash outlay capital budgeting project.
  • Decision Rule: Project feasible/desirable if payback period less than/equal firm's maximum desired payback period.
  • General, shorter payback period preferred while comparing 2 projects.

Net Present Value

  • Meaning: NPV equal present value all future free cash flows less investment's initial outlay.
  • Measures net value project today's currency.
  • Equation: NPV = PF of Benefits - PV of Costs

Internal Rate of Return 

  • Meaning: IRR discount rate equates present value project's future net cash flows project's initial cash outlay.
  • Decision Rule: IRR + than Required Rate Return = accept + IRR - than RRR = reject.
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Investment Appraisal: Part 4

Categories of AI

  • AI divided several categories, although some overlap between them +  boundaries between categories not always clear.
  • Rule-based: Follows set explicit rules/Algorithms solve problems, e.g. Medical diagnosis.
  • Expert system: Designed mimic decision-making abilities human expert specific field.
  • Machine learning: Involves training computer recognise patterns data + make decisions based patterns.
  • Natural language processing: Focused enabling computer understand, interpret + generate human language.
  • Neural network: Inspired structure + function human brain, typically used tasks, e.g. image + speech recognition.
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Investment Appraisal: Part 5

Examples of Different Categories of AI

Expert Systems

  • Medical diagnosis
  • Financial decision-making
  • Legal advice
  • Technical support

Machine Learning

  • Image recognition 
  • Speech recognition - voice text
  • Language translation
  • Fraud detection
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Investment Appraisal: Part 6

Natural Language Processing 

  • Voice assistants - Siri, Alexa, Bixby
  • Language translation
  • Text analysis
  • Dialogue systems

Neural Network

  • Language translation
  • Fraud detection 
  • Recommendation systems
  • Autonomous vehicles
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Investment Appraisal: Part 7

Expert Systems and Rule-Based Systems

  • Use combination AI + expert knowledge reason + make decisions.
  • Rules developed using knowledge human experts + encoded into Knowledge Base.
  • Facts about domain stored Facts Database.
  • Inference Engine uses rules + facts draw conclusions.
  • Feature ES ability explain reasoning.

Key Benefits

  • Better decision quality 
  • Cost reduction 
  • Consistent solutions
  • Speed
  • Relaibility
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Investment Appraisal: Part 8

Expert and Rule-Based Reasoning 

  • These systems strict boundaries + used e.g. very specific areas medical diagnosis, finance, human resources, etc.
  • Rules typically of If-Then type.

Forward Chaining

  • Method starts set known facts + works way towards conclusion.
  • Might start fact that patient fever + cough, use rules conclude patient has respiratory infection.

Backward Chaining

  • Starts desired goal/conclusion, works backward determine necessary steps/conditions must met order reach goal.
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Investment Appraisal: Part 9

(Artificial) Neural Networks

  • Inspired biological neural networks constitute animal brains.
  • ANNs consist layers interconnected 'neurons', process + transmit info.
  • Connections between neurons modified, allowing network 'learn'.
  • Particularly useful solving problems difficult solve using tradtional methods.
  • Convolutional neural networks (CNNs) - image + video recognition.
  • Recurrent neurla networks (RNNs) - natural language processing + speech recognition.
  • Feedforward neural networks - function approximation, regression + classification.
  • ChatGPT uses engine called GPT-3 + type RNN.
  • Midjourney creates images text decriptions + CNN.
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Investment Appraisal: Part 10

ChatGPT (Generative Pre-training Transformer)

  • PArt OpenAI (AI research + development company).
  • Trained dataset billions words web text. Text publically available (e.g. Wikipedia, Project Gutenberg).
  • GPT language model trained predict next word sequence words, given context words come before it.
  • Opened public (beta) late 2022.
  • Seemingly provide answers any type instruction, e.g. programming, poetry, text descriptions + essays.

ChatGPT extended...

  • God in a Box
  • Uses API connect ChatGPT WhatsApp
  • Messaging phone number/continuing conversation with instruction provide result.
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