• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Pattabhi Ram

Pattabhi Ram offers a `menu' for students to choose from

HOW you learn a subject is as important as what you learn. There are several popular tools of learning. Each has its own brand of strengths and weaknesses. Let us first lay them down and then chalk out a strategy.

Approach 1

The question and answer format: Textbooks are generally not written in this format. Here you learn under a Q&A mode. Suppose you are studying IRR. The very first sentence would be a question "What is meant by IRR and how is it obtained?" This would be followed by the answer. "IRR is the rate of return which a project actually earns and is obtained at the rate at which NPV is zero."

This is then followed by a second question, say, "What are the pitfalls associated with IRR?" The answer would appear immediately thereafter. "IRR has the following disadvantages: Incorrect ranking in the case of mutually exclusive projects; inability to make a distinction between lending and borrowing; existence of multiple IRRs; and does not facilitate value-additivity."

There could be a brief explanation under each of the heads. Some texts create a mnemonic to remember these points. In similar manner, the various issues relating to IRR get taught.

This method has the advantage of structuring. To many a student this becomes convenient reading and, at times, cramming material. This method robs the charm of studying.

A textbook should read like a storybook and be a fast-paced narrative. It should carry end-of-chapter questions. You should then make notes and cull out the answers, which you may write under the Q&A form.

Approach 2

Problem solving approach: In a subject that reeks of numbers, such as financial management, working several problems will ensure that you get your concepts correct. Here, the teacher explains the concept and then lays down a step by step procedure for solving questions of that type. For instance, if you are learning how IRR is computed, he may structure the steps as follows:

Step 1: Compute NPV at an initial guess rate.

Step 2: If NPV under step 1 is positive, re-compute the NPV at a higher guess rate. If NPV under step 1 is negative, re-compute the NPV using another guess rate.

Step 3. Compute IRR using linear interpolation.

The tutor may then lay down some caveats (care and exceptions) to the steps. In the case of IRR it would read, "ensure that the gap between L1 (lower discount rate) and L2 (higher discount rate) is small". And "Ensure that the NPV at one discount rate is positive and at another discount rate is negative".

The teacher then solves a few questions using this format and gives you some homework. You are also told on how to lay down the working notes and how to chalk out the assumptions.

This method is fine because it lays down a clear path; but if you become a slave to the path and seek to structure everything along that path you could court trouble.

Approach 3

The multiple-choice mode: A very useful mechanism, it lays down a question and a number of (say 4) alternative answers. After you have learnt the concept this method acts as a good test.

If the questions were set intelligently, it would strengthen your basic understanding of the subject. For example, a question in IRR could read: IRR is the rate of return on:

a) Initial investment; b) Un-recovered investment balance; c) both (a) and (b); and d) marginal investment.

You may also be required to state why an answer is right. The merit of this method is that unless one is strong and thorough in the subject it would be difficult to crack such questions. On the flip side, you cannot learn a subject just by cramming the answer to the questions. One should take this mode only after formally learning the topic through conventional study.

Approach 4

Quiz: Who doesn't love a quiz? It's always nice to battle out with the brains. Quizzes could use the multiple-choice format or could be on the true or false mode with a brief explanation given as to why the answer is right.

For example: "Only projects with positive NPV s are selected. At IRR, the NPV is zero. Hence, a project with an IRR should be dropped. True or False?"

The statement is obviously incorrect. IRR measures the rate earned. If this is greater than the rate desired (a k a cost of capital) the project should be accepted.

A slew of such questions would perfect your understanding of the subject.

The drawback here is that you have a 50 per cent chance of being right even when you are 100 per cent ignorant of the subject because there are only two answers. True. Or false.

Approach 5

The walk-through case: The case study is the most popular learning tool in most B-schools. Harvard Business School has virtually patented the art of teaching and learning using cases. One is not recommending the 70-page Harvard type case. But a `caselet', a brief narrative that lays down a practical situation and offers you a slew of questions to respond to, is ideal.

A well-written walk-through case can be a one-stop shop for checking out all the issues on a subject. You can thus have a walk through case on IRR. Once you solve it, you have revised everything on IRR.

So what's best? Obviously an a la carte approach helps.

Stories in this Section
Cheques and crossings

Copyright © 2004, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line