Investment Valuation

Scholar Year: 2018/2019 - 2S

Courses

Head Teacher Responsability João Manuel Baptista Piteira Head

Weekly workload Hours/week T TP P PL L TC E OT OT/PL TPL O S Type of classes 2 2 Lectures Type Teacher Classes Hours Theoretical Totals 1 2,00 João Piteira   2,00 Practices Totals 1 2,00 João Piteira   2,00

Teaching language

Portuguese

Intended learning outcomes (Knowledges, skills and competencies to be developed by the students)

A. BACKGROUND

The significant increase in competitiveness at national and international levels often forces organizations to incorporate investments into their strategies, forcing them to make investment decisions in a variety of areas with complex environments that induce uncertainty and risk.
In support of these decision-making and with the aim of minimizing uncertainty and risk, it is first necessary to define, quantify and plan the resources and actions required for investments, as well as to evaluate the expected results with implementation.

B. SYNTHESIS OF THE COURSE

Presentation of the concepts, techniques and models of study, analysis and evaluation of Investments, a priori.

C. CONTRIBUTIONS OF THE COURSE FOR THE DEVELOPMENT OF COMPETENCES

To contribute to:

• Organizational understanding, professional adaptability, autonomy, problem solving and decision making;
• The systemic and interdisciplinary view of economic activity and organizational development;
• The application of knowledge in an organizational context;
• Detection of investment opportunities in organizations;
• Understanding the adequacy of the type of financing to the particular type of investment;
• The autonomy in the execution and evaluation of investment projects, in situation of risk and uncertainty;
• The development of reflective capacities, critical analysis and self-discipline;
• The development of teamwork skills and individual and team continuous improvement.

D - OBJECTIVES (Intented learning outcomes)

By the end of this course students should be able to:

• Know and to understand the concept of investment, its typology and other correlated fundamental elements;
• Identify an investment and develop a business model;
• Analyse the different types of investments, their respective impact on profitability and the associated risk;
• Understand the investment as an integral part of the business strategy implementation;
• Know and to interrelate the phases of execution of an investment project;
• Distinguish business model, investment project and business plan;
• Know the methodologies for calculation of cash flows, the cost of capital and the definition of the discount rates;
• Adapt the process of the financing decision to the characteristics of the investment;
• Develop an investment project and to analyse and evaluate an investment, under uncertainty and risk;
• Select investments of different types and in different situations;
• Know and to understand the effects of inflation on investments evaluation;
• Know and to distinguish the different impacts of the nvestments.

Syllabus

1. INTRODUCTION
1.1 Concept of investment
1.2 Classification of investments
1.3 Stages of an investment
1.4 Opportunity cost of capital
1.5 Uncertainty and risk
1.6 Profitability and economic, social and environmental benefits
1.7 Types of investment evaluation

2. BUSINESS MODEL, INVESTMENT PROJECT AND BUSINESS PLAN
2.1 Investment opportunity
2.2 Creating a business model
2.3 Investment project
2.4 Business plan
2.5 Business model vs. investment project vs. business plan

3. INVESTMENT AND STRATEGY
3.1 Vision, mission and values
3.2 Strategic analysis
3.3 Definition of strategic objectives
3.4 Strategic formulation
3.5 Implementation of the strategy and investments
3.6 Control

4. CASH FLOW
4.1 Concept of cash flow
4.2 Investment cash flow
4.3 Operating cash flow
4.4 Global cash flow
4.5 Provisional financial statements
4.6 Cash flow from the perspective of the firm and from the perspective of the equity

5. FINANCING OF INVESTMENTS
5.1 Concept of financing
5.2 Financing requirements
5.3 Internal and external sources of financing
5.4 Short, medium and long-term financing
5.5 Relationship between investment decision and financing decision

6. COST OF CAPITAL
6.1 Cost of equity without indebtedness (economic capital)
6.2 Cost of external capital and debt service
6.3 Cost of equity capital with indebtedness
6.4 Weighted average cost of capital

7. CRITERIA FOR INVESTMENTS EVALUATION
7.1 Accounting criteria
7.2 Criteria based on cash flows
7.3 Impact of investments on profitability and associated uncertainty and risks

8. UNCERTAINTY AND RISK IN INVESTMENTS EVALUATION
8.1 Empirical methods
8.2 Simulation methods
8.3 Probabilistic methods

9. SELECTION OF INVESTMENTS
9.1 Mutually exclusive investments
9.2 Investments with unconventional cash flows
9.3 Replacement investments
9.4 Modernization and innovation investments
9.5 Investments under financial constraints

10. INFLATION IN THE INVESTMENTS EVALUATION
10.1 Inflation
10.2 Nominal values vs. actual values
10.3 Impact of inflation on the investments evaluation

11. IMPACT OF INVESTMENTS
11.1 Organizational impact
11.2 Macroeconomic impact
11.3 Social impact
11.4 Environmental impact

Demonstration of the syllabus coherence with the UC intended learning outcomes

The chapter (s):

• 1 of the syllabus, Introduction, aims to answer to the objectives "To know and to understand the concept of investment, its typology and other correlated fundamental elements";
• 2, Business model, investment project and business plan, aims to: "Identify an investment and develop a business model", "Know and interrelate the phases of execution of an investment project" and "Distinguish business model, investment project and business plan";
• 3, Investment and strategy, welcomes the objective "To understand investment as an integral part of the business strategy implementation";
• 4 and 6, Cash flows and cost of capital, respond to the objective "To know the methodologies for calculating cash flows, the cost of capital and the definition of discount rates";
• 5, Financing of investments, welcomes the objective "To adapt the process of the financing decision to the characteristics of the investment";
• 7 to 10, Criteria for investments evaluation, Uncertainty and risk in investments evaluation, Selection of investments and Inflation in the investments evaluation, aim to respond to the objectives "To select investments of different types and in different situations", "To know and to understand the effects of inflation on investments evaluation "and" Analyse the different types of investments, their respective impact on profitability and the associated risk ";
• 11, Impacts of investments, welcomes the objective "To know and to distinguish the different impacts of the investments";
• 1 to 11, respond to the objective "To develop an investment project and to analyse and evaluate an investment, under uncertainty and risk ".

Teaching methodologies

• Theoretical lectures: Use of expository, deductive and participative methods, to introduce the concepts, techniques and models;

• Practical classes: Use of the participatory method in the analysis, discussion and resolution of problems; Use of teamwork method in the development of an investment project - identification of the idea, study and feasibility analysis and evaluation of the investment.
Use of the coaching method in the follow-up and development of teamwork.

Demonstration of the teaching methodologies coherence with the curricular unit's intended learning outcomes

• In the theoretical lectures the expository method is used to present the concepts, techniques and models, and the participative method, student-centred, in the analysis and discussion of several organizational examples, involving them in the teaching-learning process and developing reflective capacity, critical analysis and self-discipline.
The combination of the two methods will lead the students to acquire the knowledge that allows to reach the objectives set forth.

• In the practical classes the participatory method is used in the analysis, discussion and resolution of problems, since it allows students to be involved and to acquire in a consolidated way the technique to develop a business model based on an idea, to discount and to capitalize capital, to calculate investments, operating and global cash flows, to prepare an investment plan, operating plan and financial plan, to evaluate investments, to analyse their sensitivity and to prepare the financial statements related to an investment project, as the experience and practice lead to the discovery, assimilation of knowledge and autonomy of decisions.
The teamwork method is used in the design of an investment project, including idea generation, business model, technical and feasibility studies, investments, exploration and financial plans, sensitivity, investment decision, once it allows the application of knowledge simulating the organizational context, generating reflective and critical analysis skills, management skills and competences, autonomy in decisions and problem solving, teamwork skills and encouragement of individual and team continuous improvement, with the study, research and execution of the work;
The method of coaching that aims at non-directive follow-up, questioning and active listening is applied in the follow-up and development of the teamwork.

• The tests allow to assess concepts, techniques, models and their application, verifying if the respective objectives have been reached, and

• Teamwork will evidence the integration and consolidation of knowledge, in simulation of organizational context, as well as the skills and competences mentioned above, validating the pursuit of the objectives.

Assessment methodologies and evidences

I.1 - CONTINUOUS ASSESSMENT
(it is intended for students who explicitly opt for this method of assessment, requiring the attendance of at least 2/3 of the theoretical lectures and 2/3 of the practical classes)

The assessment of knowledge is constituted as follows:

• Two written tests (T1 and T2), on a date to be designated.
• Execution, presentation and discussion of a teamwork (execution and evaluation of an investment project, according to the respective guideline), which evaluation may be individual (TW).

Final Score = O, 25 T1 + 0.25 T2 + 0.50 TW

The Student will obtain approval with a score equal or superior to 10 values in both forms of assessment, in the average of T1 and T2 and in the TW. Otherwise he/she will have to make a final assessment.

I.2 - FINAL ASSESSMENT

There are three moments for final assessment:

• Normal Season | 1st Season
(It is intended for students who do not opt for continuous assessment)

The normal season assessment of knowledge consists of:

• Individual written exam (E)
• Execution, presentation and discussion of a teamwork (execution and evaluation of an investment project, according to the respective guideline), which assessment may be individual (TW).

Final Score = 0, 50 E + 0.50 TW

The student will obtain approval with a score equal or superior to 10 values in both assessment elements, E and TG.

• Time of Appeal | 2nd season
(It is intended for students who did not take or did not take advantage of the continuous assessment or at the normal season)

The assessment system is the same as in the Normal Season, with E being the exam score of the Appeal Time.

• Special Season

The assessment system is the same as in the Normal and Appeal Times, where E is the Special Period exam score.

I.3 - NOTE
All elements relating with teamwork are set out in the guideline.

Attendance system

The frequency of theoretical lectures and practical classes is mandatory for students who opt for continuous assessment.
Frequency is the attendance of the student, effective presence throughout the class, equal to or greater than 2/3 of the number of contact hours of the course, excluding the moments of evaluation.

Assement and Attendance registers

Bibliography

Essential:

* Cebola, António – Projetos de Investimento de PME, Elaboração e Análise, 2ª ed., Lisboa, Edições Sílabo, 2017;
* Soares, Isabel et. al. – Decisões de Investimento, Análise Financeira de Projetos, 4ª ed., Lisboa, Edições Sílabo, 2015.

Complementary:

*Abecassis, Fernando e Cabral, Nuno - Análise Económica e Financeira de Projeto, Lisboa, Fundação Calouste Gulbenkian, 2000;
* Barros, Carlos - Decisões de Investimento e Financiamento de Projetos, Lisboa, Edições Sílabo, 2000;
* Barros, Hélio - Análise de Projeto de Investimento, Lisboa, Edições Sílabo, 2002;
* Carvalho, José C. e Filipe, José – Manual de Estratégia, Conceitos, Prática e Roteiro, 4ª ed., Edições Sílabo, 2014;
* Damodaran, Aswaht - Corporate Finance: Theory and Practice, New York, John Wiley & Sons Ed., 2001;
* Megre, Leonilde - Análise de Projeto de Investimento: Uma Perspetiva Económica, Lisboa, Edições Sílabo, 2013;
* Osterwalder, Alexander e Pigneur, Yves – Criar Modelos de Negócio, 7ª ed., Lisboa, Ed. D. Quixotes, 2016.

Observations

SUPPORT FOR STUDENTS

Office hours:

Professor: Joaquim Silva Ribeiro; Email: silva.ribeiro@esce.ips.pt; Office: C2.09
Hours: Tuesday, from 1:30 p.m. to 2:30 p.m. and Wednesday, from 2:00 p.m. to 3:00 p.m.

Professor: João Piteira; Email: joao.piteira@esce.ips.pt; Office: B2.03
Hours: Monday, from 12:30 a.m. to 1:30 p.m. and Thursday, from 4:30 p.m. to 6:30 p.m.


Notes:

1. If the office hours are not favourable, Students may contact the teacher, by mail, requesting the scheduling of another moment, which will be observed, as far as the availability of the teacher;
2. Any contacts with teachers should be made in advance so that a timely response is possible.