Capital Budgeting

Code:

ESG0024

Acronym:

API

Keywords
Classification	Keyword
OFICIAL	Economics

Instance: 2014/2015 - 1S

Active?	Yes
Responsible unit:	Department of Industrial Engineering and Management
Course/CS Responsible:	Master in Services Engineering and Management

Cycles of Study/Courses

Acronym	No. of Students	Study Plan	Curricular Years	Credits UCN	Credits ECTS	Contact hours	Total Time
MESG	10	Syllabus since 2007/08	2	-	6	56	162

Teaching language

Portuguese

Objectives

This course unit aims to provide students with knowledge of basic methodologies for the analysis of the financial and economic feasibility of investment projects in certainty and uncertainty conditions. 

Learning outcomes and competences

After the completion of the course unit, students should be capable of: - justifying a decision or real investments - designing a business plan Inf: the Business Plan will be based on Portuguese relevant legislation

Working method

Presencial

Pre-requirements (prior knowledge) and co-requirements (common knowledge)

Basic concepts of Accounting,  Fnancial  mathematics and Financial Management

Program

I – Introduction 1- An overview on project evaluation; description of project evaluation; concept of real investment; the importance of evaluation; basic evaluation methodology; project typology; life cycle and project stages . 2- Business plan: description; Basic components of a business plan; Structure. II- Project elaboration and evaluation 3- Feasibility studies; project background: analysis; resource and technical feasibility analysis; market analysis; economic and financial analysis; legal procedures; organizational and human analysis; political, social and environmental analysis. 4- The documents of an economic and financial study; investment plans; operational plan; financing plan. III- Economic and financial evaluation of a project 5- Cash flow (CF) analysis; concept of projects’ cash flow; basic principles of measuring and estimating cash flow; cash flow investment analysis; project side vs. entrepreneur side; cash flow estimation in a situation of inflation. 6- Decision criteria: decision criteria no update: recovery, return rate, net present value (NPV). Decision criteria update: internal rate of return (IRR), profitability index, annuity criteria, and macroeconomic indicators. 7- Project cost of capital; cost of capital; weighted average cost of capital for company: why and how to use it; the interaction of investment and financing decisions; estimate the cost of financing sources 8- Selection of mutually exclusive projects; directly comparable projects; incomplete alternatives III- Risk and investment decisions 9- Risk and uncertainty evaluation; basic concepts of risk, risk and uncertainty components; empirical methods in risk management; decision theory; simulation methods- sensitivity analysis, alternative scenarios, breakeven point analysis; Monte Carlo simulation; decision trees; capital asset pricing model (CAPM) – risk management; reference to real options.

Mandatory literature

Maria Dulce Soares Lopes; Elaboração e Análise de Projectos de Investimento, Feup Edições, 2011

Complementary Bibliography

Shapiro, Alan C.; Capital budgeting and investment analysis. ISBN: 0-13-066090-6

Teaching methods and learning activities

The theoretical part of this course is supported by transparencies or data show. Theoretical lectures are complemented with case analysis and practical classes, to which experience in the analysis of investments from the team work will be made part.

keywords

Social sciences > Economics > Management studies > Financial management

Evaluation Type

Distributed evaluation with final exam

Assessment Components

Designation	Weight (%)
Defesa pública de dissertação, de relatório de projeto ou estágio, ou de tese	10,00
Exame	60,00
Trabalho escrito	30,00
Total:	100,00

Amount of time allocated to each course unit

Designation	Time (hours)
Elaboração de projeto	60,00
Estudo autónomo	60,00
Frequência das aulas	42,00
Total:	162,00

Eligibility for exams

 FEUP general rules of evaluation  are applicable.

Calculation formula of final grade

The assessment will be based on a closed book exam and the execution and discussion of a group assignment;: or by final exam only (your choice at the begining of the course). They will be graded as follows: Assignment 40%; Final exam 60%, with minimum mark of 7(out of 20); or final exam 100% FG = 0.60 x GFE + 0.40 x GGA, in which: FG = Final Grade FEC = Grade of the Final Exam GAC = Grade of the Group Assignment

Students with GAC exceeding 4  points  over FEG will be awarded a score in their group  work equal to FEG +4 ; students with GAC  less than the FEG will be assigned a weighting of 20% to the group work.

Final  grade may be majorated  (up  to 2 points) attending to  the work done throughout the tutorials  (assumes full attendance to classes and active participation )

Examinations or Special Assignments

Group Assignment- Business Plan -Groups of  6 students to be defined at the beginning of the semester -2 reports have to be written (one at the middle of the semester and another at the end) - Oral presentation

Special assessment (TE, DA, ...)

Final exam (100%)on specific dates for these students.

Classification improvement

Final Exam (100% weight)