From SSKE
FEUP MESG - Services Engineering and Management
Capital Budgeting Course
Objectives, Skills and Learning Outcomes
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
Inf: the Business Plan will be based on Portuguese relevant legislation
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.
