Syllabus revised: 3 March 2017, DRAFT version
CEU Business School
BUSI 559F Project Appraisal (1.5 credits)
2017 Summer Trimester
Instructor: Joy Chan (See last page for bio sketch) Class meets: See MSc Finance schedule
Classroom: Please check the MSc Finance calendar Office: Room 507
Tel: 887-5012
Office hours: by appointment or before class E-mail: adj_chanj@business.ceu.edu Program Manager: Zoi Hrisztodulakisz
1. PREREQUISITES
This is an MSc Finance elective course. Non-MSc Finance students enrolled should have successfully completed core courses in finance and accounting. This is an advanced course in finance, and it assumes that participants are interested in finance, capable of working under pressure and have shown to possess a good understanding of financial statements, capital budgeting techniques and discounted cashflow models. Over the years I have seen weak students struggle with this class and with the group project (much to the frustration of their group project mates) and therefore, it is imperative that you have a very strong foundation in finance.
2. POLICY ON ADMITTING NON-MBA STUDENTS
It is the general policy of the Business School to admit students from other units of CEU, provided that the prospective student meets the course perquisites stated above.
In the unlikely case that the number of non-MBAs registering for this course exceeds the maximum number, 5, priorities will be established on the basis of
i. Length and type of work experience
ii. Whether the course is highly useful for the MA or Ph.D. thesis or specialization iii. In the order in which students have registered
3. REQUIRED TEXT AND READINGS
Berk, Jonathan and DeMarzo, Peter, 2011, Corporate Finance, Second Global Edition, Pearson Education. ISBN: 978-0-13-245322-6 (referred to as Berk in chapter readings) Bierman, Harold Jr. and Smidt, Seymour, 2007, The Capital Budgeting Decision – Economic Analysis of investment projects, 9th edition, Routledge, ISBN: 978-0-415400046 (referred to as BS in the chapter readings)
Dayananda, D., Irons, R., Harrison, S., Herbohn, J., and Rowland, P., 2002, Capital
Budgeting – Financial appraisal of investment projects, Cambridge University Press, ISBN:
978-0-521-52098-0 (referred to as DD in the chapter readings)
Harvard Business Case, Luehrman T. and Heilprin JL., Midland Energy Resources, Inc.: Cost of Capital (Case 4129, 2009)
Harvard Business Case, Stafford E., Luchs K. and Chao A., Ocean Carriers, (Case 9-202-027, 2002)
McKinsey Global Survey “How companies spend their money” (2007) McKinsey “A bias against investment” (2011)
Graham & Harvey “Theory and Practice of Corporate Finance- Evidence from the field”
Journal of Financial Economics (2001)
Other readings and notes may be distributed in class. All Powerpoint slides are the property of the instructor, and may be used for class review purposes only. The slides and handouts may not be copied, modified, or used in any other way, except for class review.
4. COURSE OBJECTIVES
The course will cover the appraisal of projects and investments using the Project Appraisal model. It will focus on the key steps of the capital investment process: defining the project appraisal parameters, underlying assumptions and consideration of the key variables affecting project viability.
Participants will gain a thorough understanding of the tools and techniques used in project appraisals, and appreciate the issues in project appraisal as well as the adaptation of the model to real world corporate decision-making: evaluating projects of different lives, replacement choices, investment timing decisions and capital rationing.
Other topics discussed will include managing uncertainty and risk in project cash flows where techniques such as sensitivity, scenario and break-even analysis are used. We will also explore the use of “embedded options” in projects analysis and the issues surrounding the analysis of foreign projects.
5. MAIN TOPICS
• Project Appraisal techniques – Cash flow and Accounting based techniques: NPV, IRR, MIRR, AAR, Payback, Discounted Payback, Profitability Index
• Critique of techniques – strengths and weaknesses
• 5 Step Project Appraisal Model
• Variations in Project Appraisal– Evaluating projects of different lives, Replacement decisions, Investment timing decisions, Capital rationing
• Risk and uncertainty in Project Appraisal – Types of Project risks, Foreign projects, Sensitivity analysis, Scenario analysis, Break-even analysis; Options embedded in Projects
6. INTENDED LEARNING OUTCOMES
Core Learning Area Learning Outcome
(or Educational Objective)
Methods used for assessing learning
Interpersonal Communication Skills
Participate in class discussions and problem solving exercises. They will be able to present their arguments or findings, persuade fellow students of the usefulness of their own conclusions and objectively critique findings presented by their fellow students
Participation in class discussions and problem solving class will be assessed and graded.
Technology Skills
Demonstrate an ability to use MS Excel tools in problem solving
Class problems and
homework assignments will require the use of Excel spreadsheets.
Cultural Sensitivity and Diversity
Work harmoniously with students of various nationalities. They will be capable of harnessing the diversity advantage in viewing issues and problems with a different, if not, international, perspective.
Utilize classroom diversity for projects and discussion requiring teamwork
Quantitative Reasoning
Apply financial models and formulae to evaluate key parameters in the project appraisal models.
Class problems and
homework assignments will require the use of extensive quantitative reasoning.
Critical Thinking
Exercise powers of inquiry, logical thinking, and critical analysis of arguments and evidence. Interpret and evaluate theoretical arguments and empirical evidence
Lectures and seminars will highlight many real world business issues and examples that would demand analytical thinking and problem solving skills.
Management Knowledge and Skills
Provide a comprehensive understanding of the principles and techniques of project appraisal. Students are exposed to a number of finance concepts that practitioners in the field use and apply.
Lectures and seminars will involve real world data and scenarios, focusing on how financial managers make investment and financial decisions in a complex interplay of business dynamics.
7. HOW THE CLASS SESSIONS WILL BE CONDUCTED
Lectures, class discussions (about readings, lectures, and current business events), extensive reading, group presentations and group project for submission at the end of the course.
Regular on-time attendance is required to pass the class. Students should have a calculator (scientific or financial) in ALL classes. iPads/Mobile devices should not be used while the class is in session.
8. POLICY ON THE AVAILABILITY OF LECTURE NOTES
Lecture notes and seminar questions will be handed in advance of the class and made available on Moodle.
9. MINUTE PAPERS
There is ONE minute paper in this course.
10. POLICY ON CLASS ATTENDANCE
Regular and punctual attendance at every class session is a requirement of all degree programs at CEU Business School. Each class covers material not found in the readings.
Furthermore, participation in class discussions is an important part of the learning experience for all students as well as a factor in grading. If illness or another unusual circumstance requires missing a class, please do your best to inform me (or, if I cannot be reached, the Program Manager) in advance.
Missing more than one lecture will automatically result in a grade of “AF” (Administrative Fail), consistent with CEU policy. There are no exemptions allowed on this policy of non- attendance (such as personal/travel commitments etc) as you would have missed a substantial amount of material covered during lectures and seminar discussions/presentations to have acquired the knowledge required for the successful completion of the course. The AF grade earns no credit, 0 points, and affects the GPA in the same way as a regular F grade.
11. CLASS PARTICIPATION
Surfing the internet is highly discouraged when the class is in session. Laptops should not be used during class sessions. Studies have shown that most people cannot learn effectively when they are distracted. Multi-tasking might work for menial tasks but it is ineffective when you are required to think and contribute.
It is paramount that all students prepare for class and participate in the discussions, and this means asking and answering questions in class, and volunteering to solve and assisting your classmates in solving problems.
Almost all participation noted by the instructor will increase the student’s class participation grade, but negative class participation includes disrupting class (e.g. by coming in late), not paying attention during a student presentation, continuously on the laptop and other forms of rudeness toward your fellow students, and a lack of cooperation with methods to ensure that no cheating occurs during minute papers and exams. Grading class participation is necessarily subjective and no subdivision of the grade will be available to students. Blatant disregard of class regulations (see class participation section), including the frequent use of laptops and mobile phones amounting to more than 30% of class time, will result in zero grade for class participation (no negotiations or further discussions will be accepted once grades are released).
12. GRADING
The assessment for the course comprises of 4 sections, with weighting as follows:
5% Peer assessment for Group assignment 15% Class attendance and class participation 30% Minute papers
50% Group assignment
The grade obtained for the course is marked against the standards of the CEU and as such, is final and non-negotiable. No emails/conversations on trying to better your score will be entertained after the exam.
Adequate class participation is required for passing the class. You will be called upon to participate or contribute to classwork discussions if your participation score has been inadequate (or non-existent).
There is one case assignment in this course, and you will work in teams of 4 members to analyse and address the requirements of the case, and to submit your findings in a hardcopy report. Details of the case assignments will be furnished in class.
There is a peer evaluation component for the case assignments and it comprises 5% of your final grade. All team members should provide a peer evaluation, ranking each member (including oneself), and providing a rational for the evaluation. Peer evaluation serves as a factor in assessing individual contributions to the success of the project. Note that the peer evaluation may determine your final grade for the group assignment, and may vary from your team members. The project is graded based 50% on individual effort and 50% on group results. The peer evaluation is kept confidential and not shared. Not submitting each peer evaluation by the required deadline means that you will lose 5% of your final grade.
13. ACADEMIC INTEGRITY
The Business School expects all students to adhere to the fundamental principles of academic integrity in any and all behaviors associated with their course work and otherwise, as stated in the CEU Honor Code (see Student Handbook). Attempted cheating of all forms is treated extremely seriously and can result in dismissal from the School and University.
14. LIBRARY AND INTERNET LIBRARY RESOURCES
The CEU Library, at Nador St. 9, has the largest collection of English-language materials in the social sciences and humanities in Central Europe: 180,000 monographs and 30,000 volumes of periodicals, working papers, dissertations and so on. CEU faculty and students have access to 30,000 electronic journals, searchable via the Journal Search tool on the library catalogue page (http://goya.ceu.hu/; the icon is in the upper right corner.
CEU Business School core faculty, students and staff are automatically eligible for full membership in the Library, after registering at the Circulation Desk. (To use the Library, adjunct faculty should first obtain a pass at the B School Academic Office Rm 311.)
The CEU Library has 5,000 business-related titles, supplemented by leading electronic databases, accessible through http://www.library.ceu.hu/databases.html (Click on the icons and then click on the tag next to “connect to”.) The Ebsco Host Business Source Complete contains 3,700 periodicals in full text, many monographs, some case studies, and videos of the Harvard Faculty Seminar Series. Emerald Management Journals collection has a portfolio of 175 journals in management, marketing, econ and finance.
New business databases include OneSource, the most comprehensive company & executive information. Global Market Information Database has comprehensive data and reports across industries, countries and type of consumers. Thomson One Banker provides data on internationally quoted companies, international stock exchange indices, private equity, and financial deals. Science Direct is an extensive full-text database covering authoritative titles from the core scientific literature. The Company Dossier in Lexis Nexis Academic allows users to browse in-depth company profiles and industry reports. Core statistical databases include IFS, GFS Online, OECD Main Economic Indicators, National Accounts Statistics,
and Tax Statistics. Econlit at the CSA/Proquest platform provides bibliographic coverage of a wide range of economics-related literature.
Business dailies and weeklies can be accessed through the library. Business Eastern Europe by EIU is a weekly briefing on operating a business in Eastern Europe. Country Reports also by EIU provide in-depth economic, political and business analysis and short-term market outlooks. Electronic versions of The WSJ are in PressDisplay. The Economist is included by EbscoHost. For The Fin. Times online, see Journal Search.
News on economic and social developments in the Caucasus and Central Asia can be downloaded directly (not via the CEU Library): http://www.icegec.hu/eng/index.htm.
Help with Case Studies and Research Projects
Available on CEU Library reserve is a reference work that students preparing case-study assignments or undertaking individual or team research projects should find helpful, Business Case Studies: Preparation, Teaching and Learning (compiled, with contributions, by Susan Harmeling, Lead Case Writer, Harvard Business School, and Paul Marer, Professor, CEU Business School). This work, whose reference code is CM-GSB, can be found on the shelf marked Business School Readers, right behind the Circulation Desk, at the CEU Library on Nador utca.
The VPN access makes it easy to reach from outside of the CEU network the full version of UIS and all CEU Library databases and journals. (Visit https://vpn.ceu.hu, accept the security- certificate, and enter: User name: ceubs Password: Ceubusi987. The password is case sensitive, and to enter it, only the virtual keyboard appearing on the screen can be used. Once logged in, the "built in" browser can be used to access the respective sites: UIS:
https://infosys.ceu.hu.
15. COURSE OUTLINE AND SESSION ASSIGNMENTS 30 June (Friday)
Lecture 1: Techniques for evaluating corporate investments
• Review of techniques: NPV, IRR, MIRR, AAR, Payback, Profitability Index &
Capital rationing
• Ranking mutually exclusive investments Berk Chpt 6
30 June (Friday)
Lecture 2: Building the Project Appraisal Model – Step 1
• Step 1 – Determining the cost of capital: Company vs Project cost of capital BS Chpt 7
1 July (Saturday)
Lecture 3: Building the Project Appraisal Model – Steps 2 & 3
• Step 2 - Estimating revenues/earnings: Sensitivity Analysis, Scenario Analysis, Break-even analysis
• Step 3 – Converting accounting earnings into incremental earnings Berk Chpt 7, DD Chpt 3, 4 & 8
Lecture 4: Building the Project Appraisal Model – Steps 4 & 5
• Step 4 – Side costs and benefits in project – sunk, opportunity costs, synergy
• Step 5 – Determining incremental CF – considerations of taxation, depreciation, working capital and discounting the CF using an appropriate appraisal technique
2 July (Sunday)
Lecture 5: Issues in Project Appraisal Analysis
• Evaluating projects of different lives
• Investment timing decisions
• Options embedded in projects
• Inflation and Capital investments BS Chpt 5
MINUTE PAPER
Note: The course outline is subject to changes either before or during class at the discretion of the instructor.
16. BRIEF BIO OF THE INSTRUCTOR
Joy Chan delivers various EMBA Finance core courses and electives (Company Valuation, Project Appraisal, Corporate Restructuring & Personal Finance) at the CEU Business School where she serves as an adjunct faculty member since 2005. Joy is also a visiting Finance professor in many European and American universities and has been invited by corporations and banks to deliver executive education training programs. Joy bridges academic studies with relevant and insightful illustrations gleaned from her industry experiences in senior governmental positions in the Inland Revenue Singapore, International Enterprise Singapore and Ministry of Trade & Industry, Singapore and Regional Controller in KPMG Central &
Eastern Europe headquarters. Joy holds a M.Commerce (Finance) (Summa cum Laude), University of Sydney, Australia; B.Business (Honors), Nanyang Technological University, Singapore. Apart from lecturing and training, she also seeks out investment and business opportunities and enjoys managing her portfolio of investments.
