SYLLABUS 1. Program description 1.1 University Bucharest University of Economic Studies 1.2 Faculty Finance, Insurance, Banks and Stock Exchanges 1.3 Department Finance 1.4 Field of study Finance 1.5 Study cycle Master 1.6 Program of study/ Qualification Financial management and investments 2. Course description 2.1 The name of discipline Corporate Finance: Capital Investment Decisions under Risk and Uncertainty Course Code 14.0215ZI2.2-0001 2.2 Professor for the course Prof. univ. dr. Ion Stancu 2.3 Professor for the Prof. univ. dr. Ion Stancu 2.4 Year of 2.5 Semester 2.6 Type of the II II Exam Study evaluation 2.7 Type of the course Mandatory 3. Total estimated time (hours/semester of didactic activities) 3.1 Total number of teaching hours per week 3 of which: 3.2 course 2 3.3 /lab activities 3.6 /lab activities 3.4 Total number of teaching of which: 42 hours/semester (cf. curricula) 3.5 course 28 14 Time allotment for individual study Study of the lecture notes, course support, bibliography 35 Additional documentation (in libraries, on electronic platforms, field documentation) 30 Preparation for / lab classes, homework, referrals, projects and essays 20 Tutorship 1 Evaluation 2 Other activities: Work on the projects assigned at the 20 3.7 Total number of hours for individual study 108 3.8 Total number of hours per semester (teaching hours and individual study) 150 3. 9 Number of ECTS credits allocated 6 1 hours 4. Pre-requisites (if necessary) 4.1 curriculum Advanced Financial Reporting and Analysis, Corporate Finance: Financial Planning and Policy 4.2 competences Operating with basic concepts regarding statistics, econometrics that were acquired during bachelor studies A good knowledge of Microsoft Excel, acquired during bachelor studies
5. Requirements ( if necessary ) 5.1. regarding course delivery The lectures will take place in classrooms with multimedia teaching equipment 5.2. regarding delivery The s will take place in classrooms with internet access 6. Specific competencies acquired Professional competencies C6 - Planning, development and substantiation of the investment and financing decisions and integration of corporate governance mechanisms 7. Objectives of the discipline (outcome of the acquired competencies) 7.1 General objective of The course addresses capital budgeting analysis, focusing on the the discipline application of concepts in the corporate finance decision process: -These capital budgeting principles are critical for an analyst inside a company preparing capital budgeting recommendations as well as for an analyst estimating the value of the company -Topics will be developed around key concepts that are relevant to a capital management of a company: Corporate Governance, Dividend Policy, Capital Investment Decisions, Business and Financial Risk, Long-Term Financial Policy, Short-Term Financial Policy, Mergers and Acquisitions and Corporate Restructuring Capital projects, which make up the long - term asset portion of the balance sheet, can be so large that sound capital budgeting decisions ultimately decide the future of many corporations: -Define the capital budgeting process, understand the typical steps in the capital budgeting process, explain the process and design focus of the process on maximizing shareholder value: - use several important criteria to evaluate capital investments and categorize the capital projects that can be evaluated -explain the principles of capital budgeting, understanding yearly cash flows (of an expansion capital project and of a replacement capital project), show how the depreciation method affects those cash flows and the identification of the proper discount rate (estimate the standalone risk of a capital project) and effects of inflation on discount rate and capital budgeting analysis -describe the role of taxes in the cost of capital from the different capital sources After graduation, students can explain the effects of the NPV on a stock price, by performing sensitivity analysis, scenario analysis, and Monte Carlo simulation. -Understand capital budgeting process that companies use for decision making on capital projects with a life of a year or more. 7.2 Specific objectives of the discipline Building the skills for assessing company performance, its investment projects and the optimality of its capital
structure, financing and maximizing shareholders value Building the skills for selecting the most efficient investment projects taking into account technical, economic and financial criteria. 8. Content 8. 1 Course Teaching methods Remarks Company performance and the sustainability of its investment projects Present value, capital opportunity cost, perpetuities, annuities, real interest rate and inflation Investment decision in a certain environment: NPV, IRR and other selection criteria A comprehensive study of NPV: initial investment expenditures, free cash-flows, residual value, time period and discount rate Investment decision under uncertainty: analysis of business and financial risk, sensitivity analysis, scenario analysis, break-even point analysis, Monte Carlo simulations, decision trees and real options Financing decision: adjusted NPV and WACC Dividend policy and impact on company value Bibliography: Lecture and debates supported by.ppt presentations, word and excel, apps and other multimedia resources. The course notes will be available for download on the program site prior to every activity. It is recommended that the students should read the course notes in advance so that they will be able to participate in debates. - Bodie Z., Kane A., Marcus A., Investments, 6th edition, McGraw-Hill/Irwin, 2005. - Brealey, R. and Myers, St.,Principles of Corporate Finance, seventh edition, The McGraw-Hill Companies, 2003 - Ciobanu, A., Company performance evaluation, Ed. ASE, 2006 - Clayman, M. R. et al., Corporate Finance: A Practical Approach, Wiley, 2008. - Copeland T., Koller T., Murrin, J., Valuation, measuring and managing the value of companies, 3rd ed., John Wiley&Sons, Inc., 2000 - Damodaran A., Damodaran on Valuation, 2nd ed., John Wiley&Sons, Inc., 2006 - DeFusco, R. A. et al., Quantitative Investment Analysis, 2nd ed., Wiley, 2007 - Dragotă, Victor; Ciobanu, Anamaria; Obreja, Laura; Dragotă, Mihaela, Financial
Managment, Ed. Economică, Bucureşti, 2003 - Michelle R. Clayman, Martin S. Fridson, George H. Troughton, Matthew Scanlan (Foreword by), Corporate Finance: A Practical Approach, 2nd Edition, March 2012 - Michael G. McMillan, CFA, Jerald E. Pinto, Wendy Pirie, CFA, Gerhard Van de Venter, CFA, Lawrence E. Kochard, CFA (Foreword by), Investments: Principles of Portfolio and Equity Analysis, March 2011 - Jerald E. Pinto, Elaine Henry, CFA, Thomas R. Robinson, John D. Stowe, CFA, Abby Cohen, CFA (Foreword by), Equity Asset Valuation, 2nd Edition March 2010 8. 2 Seminar/lab activities Assessing performance on the basis of accounting reports: Computing NPV, ROA and ROE vs. break-even point analysis Explain how project relative affect the evaluation of a capital project: (1) independent versus mutually exclusive projects, (2) project timing, and (3) unlimited funds versus capital rationing. Computation and substantiation of initial investment expenditures, free cash-flows, residual value, time period and discount rate -Calculate and interpret the results when evaluating a single capital project: net present value (NPV), internal rate of return (IRR), payback period, discounted payback period, average accounting rate of return (AAR), and profitability index (PI). -Calculate and interpret accounting income and economic income in the context of capital budgeting. -Determine and interpret the weighted average cost of capital (WACC) of a company, and explain the necessary adjustments to derive the cost of capital for a specific project. -Calculate and analyze the cost of equity capital using the capital asset pricing model approach, the dividend discount approach, and the bond yield plus risk premium approach. Computation and assessment of the selection criteria for investment projects: NPV, IRR, payback period, profitability index Calculate and interpret the results when evaluating when evaluating more than one capital project Explain the NPV profile, compare and contrast the NPV and IRR methods, and describe the multiple IRR and no IRR problems that can arise when calculating an IRR. Sensitivity analysis, scenario analysis, break-even point analysis, Monte Carlo simulations, decision trees and real options for an investment project -Explain the marginal cost of capital s role in determining the net present value of a project. -Explain the country risk premium in the estimation of the cost of equity for a company situated in a developing market. Setting the optimal capital structure for financing the investment project: adjusted NPV and WACC -Describe alternative methods of calculating the weights used in the WACC, including the use of the company s target capital structure. -Discuss the procedure for determining the discount rate for capital Teaching methods Remarks Each group works on case study (investment project)
project and illustrate the procedure based on the CAPM. -Describe and contrast the following valuation models of a capital project: economic profit (EP), residual income, and claims valuation. For a complete understanding by the students of the management of finance of a company, one will address the subject of alternative Investments on Derivatives by introduction to basic risk management applications for derivatives, and credit derivatives. Bibliography: - Bodie Z., Kane A., Marcus A., Investments, 6th edition, McGraw-Hill/Irwin, 2005. - Brealey, R. and Myers, St., Principles of Corporate Finance, seventh edition, The McGraw-Hill Companies, 2003 - Copeland T., Koller T., Murrin, J., Valuation, measuring and managing the value of companies, 3rd ed., John Wiley&Sons, Inc., 2000 - Damodaran A., Damodaran on Valuation, 2nd ed., John Wiley&Sons, Inc., 2006 - DeFusco, R. A. et al., Quantitative Investment Analysis, 2nd ed., Wiley, 2007 - Michelle R. Clayman, Martin S. Fridson, George H. Troughton, Matthew Scanlan (Foreword by), Corporate Finance: A Practical Approach, 2nd Edition, March 2012 - Michael G. McMillan, CFA, Jerald E. Pinto, Wendy Pirie, CFA, Gerhard Van de Venter, CFA, Lawrence E. Kochard, CFA (Foreword by), Investments: Principles of Portfolio and Equity Analysis, March 2011 - Jerald E. Pinto, Elaine Henry, CFA, Thomas R. Robinson, John D. Stowe, CFA, Abby Cohen, CFA (Foreword by), Equity Asset Valuation, 2nd Edition March 2010Stancu, I., Stancu Dumitra, Corporate Finance with Excel, Ed Economică, Bucureşti, 2010. - Scientific papers and study cases related to the subject of the course. 9. Corroborating the content of the discipline with the expectations of the epistemic community, professional associations and representative, relevant employers. The syllabus of the course is discussed with experts from CFA România (Chartered Financial Analyst), with specialists and representatives of notable companies in the industrial sector 10. Evaluation Type of activity 10.1 Evaluation criteria 10.2 Evaluation methods 10.4 Course Minimum 80% attendance at scheduled activities. Involvement in the lecture with comments, questions and examples. Final exam (project presentation) 10.3 Share in the final grade (%) 50%
10.5 Seminar/lab activities 10.6 Minimum performance standard Minimum 80% attendance at scheduled activities. Involvement in the lecture with comments, questions and examples Elaborating a capital budgeting project Final exam (project presentation) 50% Date of syllabus proposal Signature of the professor for the course, Signature of the professor for the, 10.09.2013 Prof. univ. dr. Ion Stancu Prof. univ. dr. Ion Stancu Date of the approval in the department Signature of the Head of the department, 12.09.2013 Conf. univ. dr. Lucian Tâtu