Capital Budgeting

Code:

ESG0024

Acronym:

API

Keywords
Classification	Keyword
OFICIAL	Economics

Instance: 2009/2010 - 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	22	Syllabus since 2007/08	2	-	6	42	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.
After the completion of the course unit, students should be capable of:
- justifying a decision or real investments
- designing a business plan

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

Shapiro, Alan C.; Capital budgeting and investment analysis. ISBN: 0-13-066090-6
Barros, Hélio; Análise de projectos de investimento. ISBN: 972-618-185-2
Barros, Carlos; Decisões de investimento e financiamento de projectos. ISBN: 972-618-059-7

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 without final exam

Assessment Components

Description	Type	Time (hours)	Weight (%)	End date
Attendance (estimated)	Participação presencial	39,00
	Trabalho escrito	50,00
	Total:	-	0,00

Amount of time allocated to each course unit

Description	Type	Time (hours)	End date
	Estudo autónomo	73
	Total:	73,00

Eligibility for exams

Calculation formula of final grade

The assessment will be bases on a closed book exam and the execution and discussion of a group assignment. They will be graded as follows:
Assignment 50%; Final exam 50%, with minimum mark of 7(out of 20);

FG = 0.50 x GFE + 0.50 x GGA, in which:
FG = Final Grade
FEC = Grade of the Final Exam
GAC = Grade of the Group Assignment

Examinations or Special Assignments

Group Assignment- Business Plan

-Groups of 3/4 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

By an exam. The assignment will be not be taken into account in the final grade.