Introduction

This course teaches rigorous methods for evaluating investments. You will learn practical modeling, valuation, and risk-assessment techniques used in real capital decisions. The focus is on producing defensible numbers and clear recommendations. These skills matter as interest rates, capital limits, and regulatory scrutiny change how firms prioritize projects.

Objectives

Week 1

Day 1: DCF Modeling and NPV/IRR Validation

Building the Discounted Cash Flow (DCF) model
A. Projecting free cash flows to the firm (FCFF) and equity (FCFE)
B. Calculating the Weighted Average Cost of Capital (WACC)
C. Determining terminal value using perpetuity growth and exit multiples
Validating model assumptions
A. Stress-testing revenue growth and margin assumptions against historical data
B. Benchmarking capital expenditure and working capital requirements
C. Ensuring the balance sheet balances through circularity checks
Calculating and interpreting returns
A. Computing Net Present Value (NPV) and Internal Rate of Return (IRR)
B. Determining the payback period and discounted payback period
C. Comparing projects with different scales, lives, and risk profiles

Day 2: Cost of Capital and Risk Adjustments

Estimating the cost of equity
A. Applying the Capital Asset Pricing Model (CAPM)
B. Adjusting beta for industry and company-specific risks
C. Incorporating country risk premiums for international projects
Calculating the cost of debt
A. Analyzing current borrowing costs and yield curves
B. Factoring in tax shields and issuance costs
C. Evaluating the impact of credit ratings on debt pricing
Adjusting for project-specific risk
A. Identifying unique operational and market risks
B. Applying risk-adjusted discount rates (RADR)
C. Documenting the rationale for risk adjustments for stakeholder review

Day 3: Sensitivity, Scenario, and Monte Carlo Analysis

Conducting sensitivity analysis
A. Identifying the most critical value drivers (e.g., growth rate, WACC)
B. Building two-variable data tables for valuation outputs
C. Interpreting sensitivity matrices to understand valuation ranges
Developing scenario models
A. Creating base, upside, and downside case assumptions
B. Using data tables to switch between scenario inputs dynamically
C. Analyzing the impact of scenarios on valuation and key ratios
Running Monte Carlo simulations
A. Defining probability distributions for key input variables
B. Running simulations to generate a distribution of possible outcomes
C. Analyzing simulation results to inform probabilistic decision-making

Day 4: Real Options and Financing Structures

Valuing real options
A. Identifying embedded options (e.g., expansion, abandonment, delay)
B. Applying option pricing models (e.g., Black-Scholes, binomial trees)
C. Quantifying the strategic value of flexibility in capital projects
Evaluating financing structures
A. Modeling different financing mixes (cash, debt, stock)
B. Calculating the impact on the acquirer's capital structure
C. Assessing the cost and availability of project financing
Impact on project returns
A. Analyzing the effect of leverage on project IRR and equity returns
B. Evaluating debt covenants and their impact on operational flexibility
C. Structuring the optimal financing package to maximize risk-adjusted returns

Day 5: Investment Memos and Decision Presentations

Structuring the investment memo
A. Defining the executive summary and key decision points
B. Detailing the financial analysis, assumptions, and risk factors
C. Formulating clear, actionable recommendations
Preparing the presentation
A. Designing clear, concise presentation slides for the investment committee
B. Creating executive summaries and detailed appendices
C. Anticipating committee questions and preparing robust responses
Defending the investment case
A. Delivering a compelling narrative to senior stakeholders
B. Justifying assumptions and modeling choices under scrutiny
C. Securing alignment and approval for the proposed investment