Operational Investment Analysis

Bank Management and Administration
5 ECTS; 3º Ano, 1º Semestre, 60,0 TP

Lecturer

Prerequisites
Basics of Financial Calculus

Objectives
Study of the most important concepts on Investment Analysis. Special attention will be given to investment decision rules and to uncertainty and risk in the capital budgeting process. One wants that the students master the main concepts, models and tools on investment analysis.

Program
I ? INTRODUCTION TO CORPORATE FINANCE 1. The 3 major decisions in Corporate Finance. 2. First principles of 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. Side Costs of Projects. 4.2.1. Opportunity Costs. 4.2.2. Product Cannibalization.

Evaluation Methodology
- Written Test

Bibliography
- Damodaran, A. (2011). Applied Corporate Finance. U.S.A.: Wiley

Method of interaction
Lectures making use of audiovisual resources and resolution of practical cases.

Software used in class
Excel.