Bachelor 2020/2021

Investment Management

Type: Elective course (Economics and Statistics)

Area of studies: Economics

Delivered by: School of Finance

Where: Faculty of Economic Sciences

When: 4 year, 3 module

Mode of studies: distance learning

Instructors: Viсtoria A. Cherkasova, Vitaliy Dyachenko, Alexander Myshenkov

Language: English

ECTS credits: 3

Contact hours: 26

Course Syllabus

Abstract

The main topics covered include: (1) project evaluation criteria (2) justification for required level of cost of capital (3) project evaluation under uncertainty (4) investment program creation. In the course are used the adapted situations from the practice of Russian companies. Participants will have the opportunity to apply this knowledge to the investment projects evaluation in real companies in emerging capital markets. As a result, students obtain theoretical knowledge and practical skills in the analysis of the investment project; use these results in justification of optimal management decisions, in the strategy development and tactics of financial and investment activities. The course is taught in collaboration with the managers and partners of Ernst & Young Company. Ссылка на онлайн-курс: https://ocw.mit.edu/courses/sloan-school-of-management/15-401-finance-theory-i-fall-2008/

Learning Objectives

• The course aims to study methods of investment projects efficiency, to receive investment analysis skills required in developing company's strategy.

Expected Learning Outcomes

• to work with information from a variety of sources (ИК- 4) – analytical tasks that assume the calculation cost of capital, cash flows based on the data from financial statements
• to work in teams (СЛК-7) – cases, analytical tasks based on real information
• to apply traditional criteria of project valuation (ПК-2) – cases, practical exercises, analytical tasks
• to analyze and interpret financial and analytical information, work with data from company’s financial statements (ПК-7) – cases, practical exercises, analytical tasks
• to get and use the necessary information from open excess to apply it to project valuation (ПК-4) – cases, analytical tasks

Course Contents

• 1. Financial modelling in project evaluation
  Groundwork of financial models with future cash flows forecasts. Industry analysis as an important stage in the preparation of the feasibility study. Applications of the NPV, profitability index, modified internal rate of return, equivalent cash flow. The choice of a suitable criterion for unlimited (very long) and limited projects. Abnormally profitable projects. Features of projects accounting in emerging markets. Analysis of incremental cash flows. Typical common mistakes in the evaluation of incremental cash flow for different types of projects. Features of the incremental cash flow for various types of intercompany projects. Calculation of incremental cash flow in projects that are related to the replacement of existing assets. Nominal and real cash flows. Methodological mistakes in the accounting of inflation. Impact of taxes on cash flow. Fiscal, marginal and effective tax rates.
• 2. Project analysis under certainty
  Cash flow evaluation for a separate and integrated into the existing company project. Main problems associated with cash flows estimation of the project: correct prices determination, transfer pricing, infrastructure capital costs, sunk costs, opportunity costs. Choice of the discount rate for a separate project and integrated into the company. Change in the cost of capital of the company as result of project implementation. Structure justification of sources of financing. Capital structure of the project and structure of sources of external financing. Justification of the cost of capital in the case of non-marketable debt. Features of accounting in the cost of the additional capital payments (fees, insurance, deposit) to lender. Application the technique of adjusted present value (APV) for various types of projects. Comparison of methods NPV and APV. Problem of underinvestment, overinvestment, and the adoption of risky projects.
• 3. Investment program creation
  Portfolio of investment projects of the company. Selection, justification and methods of assessment portfolio of projects. Analysis of interrelated projects. Evaluation of projects in the divisional structure and projects that are integrated into one complex. Creation of rational project complex. Coordination of the interests of the participants. Assessment of the strategic prospects: evaluating the possibilities of entering new markets or refusing of the project. Using real CALL option in the analysis. How to create the optimal capital budget, i.e. to distribute capital between projects? Creation of a rational combination of projects in time, evaluation of necessary delay projects. Graph of investment opportunities. Reasons for the growth of the cost of capital. Choice between substitutional projects. Optimization of the capital budget. Cross-financing of the projects. Realization of loss-making project in case of increasing profitability of the entire complex. Implementation of specific projects - cross-holding and the growth of company value. Projects that reduce the risks of the entire complex. Monitoring and reassessment projects. Control by the creditor and by the initiator. System financial effects in investment program: cross-funding, cross-subsidies, cross-hedging. System effects and financial strategy of the company.
• 4. Experience of international consultants in Russia (Ernst&Young).
  Preparation of a feasibility study of investment projects. Main participants of the project. Structuring of the project financing transaction. Determination of the main technical and economic parameters. Preparation of a financial model with forecasts of future cash flows. Analysis of the industry as the most important stage in the preparation of feasibility studies. Analysis of financial performance indicators of the project. Analysis of the results of the investment project.
• 5. Project analysis under risk
  Risks forecasting and analyzing in projects. Methodology of the analysis of project risks. Risk management process. A sensitivity analysis. The technique of sensitivity analysis: a method of control points, method of rational ranges. Conditions of the Monte Carlo method application. Scenario method. Stages of creation scenarios. Analysis of the decision tree.
• 6. Coordination of project participants
  Investment project as a set of interests of its participants. The main categories of project participants: equity investors and sponsors; creditors and guarantors; suppliers and contractors; consumers of products. The interests of the project participants. Demands on the coordination of interests between the main participants of the project. Projects with the participation of the state. The role of the state in the implementation of the project: direct participant of the capital, guarantor. Tax holidays and benefits. Concessions. Public-Private Partnership (PPP). Concept, benefits and limitations. Projects with participation of foreign investor. The specifics of the calculations of the capital budget of the international project. Multi-currency nature of the project. The comparability of rates of return. Purchasing power parity. Reduction of rates of return to one currency in the implementation of financial calculations. Multi-currency cash flows and principles of evaluation of international projects. Transformation of cash flows.

Assessment Elements

• Accumulated mark
  Grading in the course will be based on the following criteria: • Class participation - 5% • Team projects - 25 % • Midterm - 70 % Total 100% Lectures are held on the zoom platform at the link: https://zoom.us/j/94102142888?pwd=cVI5WFdmSEdoWXNWS1VxL2Z2alRpZz09 The midterm will be held offline - in the university building.
• Class participation
• Team projects
  Feasibility study of the project for Ernst&Young company includes (it is necessary to choose a project either with state participation or with foreign investor and prepare): 1. The main participants of the project 2. The preparation of technical and economic proposals 3. Determination of the capital structure and its cost 4. Determination of the main technical and economic parameters 5. Preparation of a financial model with forecasts of future cash flows 6. Industry analysis as the most important stage in the preparation of the technical and economic proposals 7. Calculations of financial indicators 8. Conducting sensitivity analysis 9. Using of scenario method to assess project risks. Teams consist of 4-6 people.
• Midterm test
  The midterm will be held offline - in the university building. The midterm consists of 6 cases. It is necessary to write solutions to these cases. Time of writing for first midterm is 2 hour 15 min. Students can use printed lecture presentations, tables with annuities and a calculator.

Interim Assessment

• Interim assessment (3 module)
  0.05 * Accumulated mark + 0.15 * Class participation + 0.4 * Midterm test + 0.4 * Team projects

Bibliography

Recommended Core Bibliography

• Борисова О. В., Малых Н. И., Овешникова Л. В. - ИНВЕСТИЦИИ В 2 Т. Т.1. ИНВЕСТИЦИОННЫЙ АНАЛИЗ. Учебник и практикум для бакалавриата и магистратуры - М.:Издательство Юрайт - 2019 - 218с. - ISBN: 978-5-534-01718-2 - Текст электронный // ЭБС ЮРАЙТ - URL: https://urait.ru/book/investicii-v-2-t-t-1-investicionnyy-analiz-432922

Recommended Additional Bibliography

• Инвестиционный анализ : учебное пособие / И.Ф. Смирнов. — Москва : ИНФРА-М, 2019. — 232 с. - Режим доступа: http://znanium.com/catalog/product/1045169
• Инвестиционный анализ / Блау С.Л., - 2-е изд. - Москва :Дашков и К, 2018. - 256 с.: ISBN 978-5-394-02843-4 - Текст : электронный. - URL: http://znanium.com/catalog/product/512662