The aim of the course is to train students to prepare a financial analysis of a project using the capital budgeting methodology. Students will acquire knowledge for a comprehensive financial assessment of a project and project risks, an estimate of the cost of capital, and a critical assessment of the advantages and disadvantages of individual capital budgeting methods.
1. Basics of capital budgeting: The concept of capital budgeting. Capital budgeting procedure. Characteristics of investment projects. Types of investment projects.
2. Capital budgeting methods. Net present value. Internal rate of return. Payback period. Discounted payback period. Profitability index.
3. Cash flows and financial analysis of an investment project: Relevant cash flows of the project. Estimated investment costs. Estimated replacement costs. Liquidation value of the project. Operating income and expenses. Sources of financing. Profit and loss account. Financial flow. Economic flow.
4. Cost of capital: Components of the cost of capital. Capital Asset Pricing Model (CAPM). Weighted Average Cost of Capital (WACC).
5. Project assessment in risk conditions. Static approach to risk assessment. Dynamic approach to risk assessment.
1. estimate the total cost of capital,
2. review the justification of applying a particular method of capital budgeting in the decision on choosing the optimal project,
3. prepare a financial analysis of the investment project,
4. justify the decision to accept or abandon the implementation of the investment project based on the financial analysis conducted,
5. justify the decision to accept or reject the implementation of an investment project based on the project risk analysis.
