Investment Project Analysis

Code:

EM0062

Acronym:

API

Keywords
Classification	Keyword
OFICIAL	Management

Instance: 2011/2012 - 1S

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

Cycles of Study/Courses

Acronym	No. of Students	Study Plan	Curricular Years	Credits UCN	Credits ECTS	Contact hours	Total Time
EADDP	0	Syllabus since 2010/11	1	-	6	56	160
MIEM	33	Syllabus since 2006/2007	5	-	6	56	160

Teaching language

Portuguese

Objectives

Background

This subject deals with the analysis of one of the most important decisions in Corporate Finance - the allocation of funds to capital projects, in order to maximize firm value.

Specific Aims

To provide students with the knowledge of basic methodologies for the analysis of the financial and economic feasibility of investment projects, in certainty and uncertainty conditions.

Previous Knowledge

Basic accounting concepts; basic financial mathematics.

Learning Outcomes

At the end of the semester, students should:
know how to justify the decision making of real investments in companies, and be capable of analysing and elaborating Business Plans.

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 Projetos de Investimento, Feup Edições, 2011

Complementary Bibliography

Alan C. Shapiro; 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. The theoretical themes of the course will be complemented by case analysis and exercises.

Evaluation Type

Distributed evaluation with final exam

Assessment Components

Description	Type	Time (hours)	Weight (%)	End date
Attendance (estimated)	Participação presencial	48,00
	Trabalho escrito	40,00
	Exame	6,00
	Total:	-	0,00

Amount of time allocated to each course unit

Description	Type	Time (hours)	End date
	Estudo autónomo	70
	Total:	70,00

Eligibility for exams

According to General Evaluation Rules of FEUP

Calculation formula of final grade

Assessment comprises :
1- A closed book exam and the elaboration and discussion of an optional group assignment. They will be graded as follows:
Assignment 40%; Final exam 60%, with minimum mark of 7(out of 20); or
2- Final exam (100%), if students do not do the assignment


FC = 0.6 x FEC + 0.4 x GAC; or 100%FEC, in which:
FC = Final Classification
FEC = Final exam classification
GAC = Group assignment classification

Note:
1- Students who reach a higher mark than 18 out of 20 in the final exam, will have to attend an oral exam. If they do not attend the oral exam, they will earn an 18 out of 20.
2- Students who reach four more values in the group assignment than in the final exam, will be graded as follows: FEC + 4values

Examinations or Special Assignments

Group Assignment- Business Plan

- Groups of 5/6 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
- Discussion (to be scheduled with each group)

Special assessment (TE, DA, ...)

An exam at the corresponding season.
Students who reach a higher mark than 18 out of 20 in the final exam, will have to attend an oral exam. If they do not attend the oral exam, they will earn an 18 out of 20.

Classification improvement

An exam. The mark of group assignment, will not be taken into account.
Students who reach a higher mark than 18 out of 20 in the final exam, will have to attend an oral exam. If they do not attend the oral exam, they will earn an 18 out of 20.

Observations

The time that students can talk to the professor will be posted on-line (SIFEUP).