Course: Investment Appraisal-ECO426
Course Type: Chapters - Development and International Economics
Teaching Semester: Winter (A)
Semester: 7th
Instructor: Paraskevi Boufounou
Aims and Objectives:
The aim of the course is the theoretical and practical training of students on the subject of Investment Appraisal. The course is structured in two parts:
In the first part of the course, special emphasis is given to the understanding of the business investment decision-making process under conditions of certainty. More specifically, an introduction is made to the decision-making process and the time value of money. Then Present and Future Value, Annuity, Growing Annuity and Perpetuity are introduced, using pricing of shares and bonds as case studies. Accordingly, the main criteria for investment appraisal are presented, namely the Net Present Value (NPV) criterion, the Internal Rate of Return (IRR), the Payback Period, the Payback Discount, the Profitability Index and the Book Value Criterion. Accordingly, emphasis is placed on cash flow management interest and amortization, depreciation, residual value and inflation as major issues on investment decisions. Then, specific investment decisions are analyzed (such as lease or loan) Finally, a comparative presentation of the Financial and the Socio-Economic Investment Appraisal is given.
The second part of the course deals in detail with the decision-making process under conditions of uncertainty. More specifically, the course delves into the concept of Financial Market Efficiency, distinguishing its basic forms, while analyzing the consequences of market effectiveness and their importance in their smooth and unseed operation, focusing on empirical ways of measuring market efficiency and on the use of Behavioral Finance. At the same time, the capital markets - primary and secondary - are analyzed together with the financial instruments used in them. Special emphasis is on analyzing alternative uncertain conditions using probabilities and other statistical measures such as arithmetic mean, standard deviation, variance and coefficient of variability. In addition, the Theories of Capital Asset Evaluation are analyzed, placing particular emphasis on the Capital Asset Valuation Model (CAPM), the CAPM Consumption Model (C-CAPM), as well as the Compensatory Valuation Model (APT), resulting also into a comparative analysis. Finally, the use of behavioral economics in investment appraisal and on market effectiveness is presented together with a comparison of Scenario Use vs traditional Investment Appraisal.methods..
E-class is used.
A mixed evaluation system is applied, comprising of a project/essay assignment accompanied by classroom presentation
Content:
Section A
1. The Theoretical Background of the Decision Making Process and the Time Value of Money
2. Investment Criteria I (Net Present Value Method (NPV), Internal Rate of Payoff (IRP) and Benefit-Cost Ratio (B / C))
3. Investment Criteria II (Payback Period), Discounted Payback Period, Profitability Index and Average Book Value)
4. Comparison of Investment Criteria
5. Cash Flow Management
6. Special Issues in Investment Appraisal (Lease or Loan)
7. Financial Investment Appraisal and Socio-Economic Investment Appraisal
Section B
8. Capital and Money Markets
9. Risk and Return
10. Capital Asset Valuation Model (CAPM)
11. Market Efficiency and Behavioral Finance
12. The Use of Scenarios vs to Traditional Investment Appraisal Methods
13. Case-studies
Bibliography:
1Α) Π.Ε. Petrakis, 2007, “Investment Evaluation”, P.E. Publications. Petrakis
1Β) Π.Ε. Petrakis, 2003, “Financial Management and Banking Economics: Exercises and Exercise Solutions”, Volume D, P.E. Publications. Petrakis
2) M. Xanthakis - Ch. Alexakis, 2006, "Business Financial Analysis", Stamouli Publications.
Supporting Bibliography
1) Ross, Westerfield, Jaffe, 2008, “Corporate Finance”, McGraw Hill International Edition, Fifth Edition
2) Brealey, R. and Myers, S., 2008, “Principles of Corporate Finance”, McGraw Hill International Edition, Ninth Edition.
