Capital Budgeting 1 Syllabus
General Information Business School owner: SDA Bocconi School of Management Module Director: Professor Alberto Dell Acqua Place and date: SDA Bocconi School of Management Via Bocconi 8 MILAN January, 14-15-16 Y2016 (Milan)
Module Description This course will provide the class participants with the skills required for analyzing the economic and financial convenience of undertaking investments and the pillars for the evaluation of the main financial securities. This will be done in three steps: in the first step the participants will learn the basic financial techniques (NPV, IRR, PBP, DPBP) to evaluate investments from a financial standpoint. The second step shows how to derive the discount rate from financial markets information. This part strongly focuses on various segments of the capital market (debt and equity capital markets). The third step relates advanced issues in the estimation of the main inputs of the cost of capital (market and country risk, beta), which are particularly relevant in actual times for organizations operating on an international field. The course ends with the application of the main concepts to the valuation of stocks and bonds.
Syllabus Module I Investment analysis and evaluation (lectures 1 3) Jan 14-15-16 2016 The first module relates the fundamental concepts and techniques of capital budgeting, with the aim to provide those established tools that guide to appraise the financial convenience of an investment and to undertake investment decisions. In particular, this first module addresses the theoretical knowledge of the main financial techniques employed for capital budgeting, namely the Net Present Value (NPV), the Internal Rate of Return (IRR), the Payback Period (PBP) and the Discounted Payback Period (DPBP). The objective is to analyze the logic and the structure behind each methodology and to debate the main limitations. After assessing the theoretical knowledge on the main techniques, the module will deliver practical applications in order to enforce the skills to handle and correctly use these instruments.
Schedule Lecture Date Topic Instructor Reference 1 Jan 14, 9.00-17.30 Capital budgeting: the logic and the main methodologies Alberto Dell Acqua 1. Alberto Dell Acqua, Cash flow analysis, Slides, SDA Bocconi. Time value of money and cash flow discounting The NPV rule 2. Alberto Dell Acqua, Capital budgeting, Slides, SDA Bocconi. The IRR rule The Payback Period rule The Discounted Payback Period rule Limitations and suggested use of the different methodologies
Schedule Lecture Date Topic Instructor Reference 2 Jan 15 9.00 17.30 Capital budgeting: applications Wrap-up with a summary of the previous lesson Q&A session Practical applications I: the Silvia Caffé case. Alberto Dell Acqua 3. Alberto Dell Acqua, Silvia Caffé, Case study, SDA Bocconi. 4. Alberto Dell Acqua, New Gourmet Food Experience, Case study, SDA Bocconi. Plenary discussion Practical applications II: The New Gourmet Food Experience case Plenary discussion
Schedule Lecture Date Topic Instructor Reference 3 Jan 16 9.00 16.00 Capital budgeting: Whitegoods case study Group-work on the Whitegoods case study Class discussion Alberto Dell Acqua 5. Barbara Rovetta, Whitegoods case study, SDA Bocconi 6. Alberto Dell Acqua, The Bonus Puzzle, SDA Bocconi 7. Alberto Dell Acqua, Claim Capital Budgeting MCF, SDA Bocconi
Final exam and grading system Valuation of Capital Budgeting 1 and 2 will be based on: a final individual exam (70%) scheduled on 25 May (immediately after Managerial Accounting exam) An evaluation of group works/assignment (30%). The deadline for the assignment will be communicated directly in class. Please notice that in accordance to the ethical standards of Bocconi University, cheating is absolutely forbidden. Participants caught in the act of cheating will have their exam immediately withdrawn and the name will be signaled to the Discipline Committee of Bocconi University that will act in accordance to Bocconi Honor Code.
Further information Instructors e-mail addresses: Prof. Alberto Dell Acqua alberto.dellacqua@sdabocconi.it Director Master in Corporate Finance Professor of Corporate Finance Accounting, Control, Corporate and Real Estate Finance Dept. SDA Bocconi School of Management and Department of Finance Bocconi University Personal page: http://didattica.unibocconi.eu/mypage/index.php?idute=50263&idr= &lingua=eng www.sdabocconi.it/mcf
Course Etiquette The module design is based on the assumption that each of you is a learner, as well as a resource for your classmates and that each of us has a responsibility to contribute to the group s learning. This means that if you miss a class or do not prepare for class everyone misses your contribution, especially those you work with during group work. In your own interest and for that of your colleagues, please observe the following courtesy rules: 1. Arrive in class on time; do not leave early. 2. Keep your mobiles and laptops off; do not use wireless network emailing in class. 3. Participate fully in class. 4. Do not free-ride on your colleagues! 5. do not talk each other during lectures and avoid to disturb the colleagues