Course Scope

The main purpose of this course is to introduce students to the basic principles of investment evaluation methods in a simple, intuitive, and practical way.  The main goal is the detailed development of all the available financial methods of economic evaluation of the various investment programs that have an important role in the prosperity, efficiency and development of businesses, due to their short-term and long-term effects on its operation and the sacrifice of capital that their implementation requires. As part of the teaching of the course, a detailed analysis of all stages of investment evaluation will be carried out, starting from the identification and selection process of investment programs and continuing to the time horizon of the program, the frequency and adjustment of cash flows to the respective risk of the program, the comparison of alternative investment programs and finally the correct choice of the most profitable investment program which will have the greatest added value to the company. Finally, the main purpose of the course is its practical application, using Excel, of all the financial evaluation methods that determine the acceptance of investment programs.

Course Outline

1. Review of the use of Net Present Value and other traditional valuation criteria under conditions of certainty
2. Rules for making an investment decision – emphasis on the rule of Net Present Value and determination of cash flows considering: depreciation, taxes, interest and inflation
3. Sensitivity analysis and scenario analysis
4. Breakeven analysis
5. Monte Carlo simulation
6. Real options and decision trees
7. Valuation of leasing

Suggested Reading

• Benninga S., Principles of Finance with Excel, 2nd Edition
• Brealey, R., Myers, S., Allen, F., & Edmans, A., Principles of Corporate Finance, McGraw-Hill, latest edition
• Damodaran A., Applied Corporate Finance, Wiley, latest edition
• Hillier D., Ross S., Westerfield R., Jaffe J., Jordan B., Corporate Finance, McGraw-Hill, latest edition
• Ross S., Westerfield R., Jaffe J, Jordan B., Core Principles and Applications of Corporate Finance, McGraw-Hill, latest edition