17008 Capital Budgeting , 8 sp
Capital Budgeting is a tool to evaluate the economic value of corporate investment decisions. Sound capital budgeting practices build upon rigorous valuation theory. Risk analysis is used to understand the impact of uncertainty on project value, and to set proper project hurdle ratios i.e. determine the proper cost of capital. This course also introduces option based tools to evaluate strategic flexibility inherent in corporate investments.
You can analyze and model the financial performance of an investment project and assess whether it creates value for the firm. You can determine the cost of capital and quantify its effect on project value. You can detect, model and assess the value of flexibility in strategic investments at a basic level.
- assess the value of corporate decisions made under uncertainty through the use of Net Present Value / Discounted Cash Flow method.
- estimate incremental, long-run free operative cash flows in corporate decisions regarding e.g. new investments, mergers and acquisitions, outsourcing, rationalizations and choice between mutually exclusive projects.
- transform income statement and balance sheet information to operative and financial cash flows.
- perform risk analyses and determine the proper cost of capital for an investment project.
- identify situations where operative flexibility of investment projects is especially valuable and can evaluate basic real options numerically.
Knowledge corresponding to 1121 Finansiering och investering, or other introductory level course on corporate investments; covering basic financial accounting and time value of money concepts.
214 divided into
scheduled (contact) hours: 26 h
non-scheduled work: 188 h
Selfstudies: (188 h)
Preparations for lectures, exercises 44 h
Performance of exercises 40 h
Preparations for Excel test 40 h
Preparations for Final Exam 64 h
Second year of bachelor studies.
Exercises => Final Exam
Group case work 10%
Individual Excel-test in Examinarium 15%
Final exam 75%
- Brealey, R. A., Myers, S. C. & Allen, F. (2017 or older). Principles of corporate finance (12th International student edition). New York, NY: McGraw-Hill Education. Also the 10th edition (2011) and the 11th edition (2014) can be used. Parts indicated by the examiner.
This course replaces the course Lönsamhetsbedömning (course code 1711). Students who have already taken 1711 cannot take this course.
Quota for Open university: 3
Quota for JOO-students: 3