Projecto de Investimentos

Auditoria e Fiscalidade
5 ECTS; 2º Ano, 2º Semestre, 60,0 TP

Lecturer
- Eduardo Fontão MontAlverne Brou

Prerequisites
Basics of Financial Calculus

Objectives
It is intended that students hold the key concepts, models and tools for investment analysis and thus be able to intelligently participate in the process of making decisions on the selection of projects, in the perspective of adding value to the company.

Program
I – INTRODUCTION TO CORPORATE FINANCE

1. The 3 major decisions in Corporate Finance.
2. First principles of Corporate Finance.
3. The objective in Corporate Finance


II – THE TOOLS OF CORPORATE FINANCE

1. Present value
1.1. The intuitive basis for the time value of money.
1.2. Cash Flows and time lines.
1.3. Compounding and discounting.
1.4.Annuities and perpetuities.
2. Fundamentals of Valuation
2.1. Discounted cash-flow valuation.
2.2. Valuing a finite-life asset.
2.3. Valuation with infinite life.


III – THE BASICS OF RISK AND COST OF CAPITAL ESTIMATION

1. What is risk?
2. The C.A.P.M. model (Capital Asset Pricing Model).
3. The importance of diversification; risk types.
4. Cost of Equity.
5. Cost of Debt.
6.Cost of capital.
7. Choosing a hurdle rate.


IV – INVESTMENT PROJECTS

1. Project definition.
2. Project categorization.
3. Hurdle rates for Projects and Investments.
4. Estimation earnings and cash-flows on projects.

V – INVESTMENT DECISION RULES

1. What is an Investment Decision Rule?
2. Categorizing investment decision rules.
2.1. Accounting income-based decision rules.
2.2. Cash-flow-based decision rules.
2.3. Discounted cash-flow measures.
3. Comparing investment decision rules.
3.1. Net Present value and Internal rate of return: a closer look
4. Project Interactions..
4.1. Mutually exclusive projects.
4.1.1. Projects with equal lives.
4.1.2. Projects with different lives. .
4.2. Capital Rationing.
4.2.1. Reasons for capital rationing.
4.2.2. Profitability Index.
4.3. Side Costs of Projects.
4.3.1. Opportunity Costs.
4.3.2. Product Cannibalization.
4.4. Synergies.


VI – UNCERTAINTY AND RISK IN CAPITAL BUDGETING.

1. Sensitivity analysis.
2. Breakeven analysis.
3. Scenario analysis.
4. Simulations.
5. Decision trees.


VII – INVESTMENT RETURNS AND CORPORATE STRATEGY

1. The relation between Corporate Strategy and Investment Returns.
2. Analyzing a Firm`s Project portfolio.
3. Underperforming Projects: reasons and response.

Evaluation Methodology
- 2 Written Tests

- Quality of Participation in classes.

Bibliography
- Damodaran, A. (2001). Corporate Finance: Theory and Practice. USA: John Wiley & Sons
- Barros, C. (2007). Avaliação Financeira de Projetos de Investimento. Lisboa: Escolar Editora
- Damodaran, A. (2011). Applied Corporate Finance. USA: Wiley

Method of interaction
Theoretical and practical sessions in which are taught the planned syllabus, using support materials, power point presentations and practical exercises.

Software used in class
Excel