Capital Budgeting

Code:

LGE401

Acronym:

PI

Keywords
Classification	Keyword
OFICIAL	Business Sciences

Instance: 2005/2006 - 1S

Active?	Yes
Web Page:	http:\\www.fep.up.pt\disciplinas\lge401
Responsible unit:	Department of Management
Course/CS Responsible:	Business Administration

Cycles of Study/Courses

Acronym	No. of Students	Study Plan	Curricular Years	Credits UCN	Credits ECTS	Contact hours	Total Time
GES	135	Official Curricular Structure since 2004	4	3		-

Objectives

The purpose of this course is to provie an inegrated view of the development, analysis and control of the capital budgeting process, following a shareholder value-maximizing perspective. A particular aim will be therefore to enable future executives to identify relevant investment opportunities, to evaluate them correctly and/or to implement them.

Program

Part I: Strategic Investment Analysis

1. The strategic decision to invest
2. The analysis of investment opportunities
3. The Business Plan

Part II: Finacial Evaluation of Investment Projects

4. Cash-Flows Analysis and Forecasting
5. Decision rules for selecting investment projects
6. Selection of investment projects under particular circumstances

Part III: Risk Analysis and Real Options Analysis in Capital Budgeting

7. Risk and Uncertainty in Capital Budgeting
8. Real Options in Capital Budgeting

Part IV: Cost of Capital and Capital Investments Financing

9. The Financing of Investment Projects
10. Cost of Capital and Capital Budgeting

Part V: Other Topics in Capital Budgeting

11. The source of Net Present Values
12. Ex-post Analysis of Investment Projects
13. EVA-Economic Value Added and Capital Budgeting Analysis

Main Bibliography

Brealey, Richard A. e Stewart C. Myers, 2002, Principles of Corporate Finance, 7th Edition, Higher Education

Bierman Jr., H., e S. Smidt, 1993, The Capital Budgeting Decision: Economic Analysis of Investment Projects, 8th Edition

Complementary Bibliography

Grant, R., 1995, Contemporary Strategy Analysis, Blackwell Business
Correia, P., 1998, Técnicas de Análise de Investimentos – do VAL às opções reais
Costa, J., 1995, Análise de Investimentos
Huang, S., 1981, Investment Analysis and Management, Cambridge (Mass.), Winthrop

Lopes, D., 1985, Capital Budgeting Decision Rules: Analysis and Comparison of Three Main Methodologies, London, Imperial College of Science and Technology

Teaching methods and learning activities

Apart from normal lectures by teacher, case study class discussions will also be held, as well as the analysis of practical applications and numerical examples. Also special sessions will take place to help the preparation of written assignments by groups of students. Such written assignments will consist of a business plan creation for a real investment opportunity previously identified by students.

Software

Excel, and specific Softwares for Monte Carlo Simulations

Evaluation Type

Calculation formula of final grade

Continuos evaluation:
• The Final Grade will result from the applicatioin of the following rules:
o If grade in Written assignment < Grade of Final test and difference > 0,5 => Final Grade = Grade of Final Test (*)
o If grade in Written Assignment < Grade of Final Test and difference <= 0,5 Valores => Final Grade = Grade of Final Test + 1 (as long as Grade in Final Test <= 18) (*)
o If grade in Written Assignment >= Grade in FInal Test => Final Grade = 0,6 x Grade in Final Test + 0,4 x Grade in Written Assignment, with a minimum of Grade in FInal test + 1, as long as Grade in Final Test <= 18
(*) If from the application of these rules a student obtains a final grade lower than the one he would get if he hadn´t done the written assignment, then the more favourable situation will prevail for that student.

Final Exam: the final grade will be 100% that of the Final Test