Capital Budgeting, Finance 755, Schedule and Links to Materials, Fall 2008

Professor Gordon Sick, Haskayne School of Business, University of Calgary

A Blackboard discussion forum for this course is at
http://blackboard.ucalgary.ca

Text and Course Materials

    Almost all of the course material will be distributed from web servers. In order to prevent broad distribution of some proprietary material, you will need a University of Calgary IT account for access. You should apply for your IT account now, if you don't already have one. If you have an email address of the form xxx@ucalgary.ca, then you have an IT account.

  • Valuation and Capital Budgeting, by Gordon Sick. A preliminary draft of this book is available for you to review in Acrobat pdf form. Note that it is incomplete and revisions will be made during the term. You can review the book to decide if you would like to take the course, but it is wise to ony print out book chapters no earlier than a week before they are discussed in class, in case a revised chapter is posted. Revised chapters will be linked to the course outline on the web for the day they are to appear in the lecture. If no revision is posted, the original copy of a chapter will be used.
  • Various handouts, spreadsheets and Java programs that will be posted on the instructor's website, with links from the on-line course outline (which will be updated throughout the term), http://www.ucalgary.ca/~sick/FNCE755  
  • Conference material from the Annual Real Options Conferences http://www.realoptions.org Some of this is oriented towards practitioners and some is quite esoteric and challenging material, and will only be optional reading.
  • Journal literature linked from the course outline
  • Slides from lectures
  • Solutions to some of the problems. Students are encouraged to solve a problem themselves or within a group before looking up a solution. If they have partial solutions or want to check their solution, they can show it to the instructor.
  • Old midterm and old final exams, with solutions and grading scheme.

Course Schedule

All Ancillary material requires a U of Calgary ID and is in
https://webdisk.ucalgary.ca/~sick/public_html/CapBudgCourse/

Date Topic Resources
10-Sep Introduction and preliminary quiz Chapter 1, Preliminary Quiz
Present value techniques and decision processes

Chapter 2-3, Ancillary Material
Estimating and Modelling Incremental Cash Flow

Chapter 5, Ancillary Material
17-Sep Estimating Incremental Cash Flow

Chapter 5, Ancillary Material.

Optional reading is Modigliani and Cohn paper "Inflation, Rational Valuation and the Market," Financial Analysts Journal, Mar/Apr79, Vol. 35 Issue 2, p24 on the stock market and inflation
Alternative Capital Budgeting Techniques and EVA

Chapter 4, Ancillary Material
24-Sep Tax-Adjusted Discount Rates

Chapter 6, Ancillary Material
A more technical treatment is optional reading: Gordon Sick "Tax Adjusted Discount Rates", Management Science December 1990
Mutually Exclusive Projects, Leasing and Equivalent Annual Cost Chapter 7, Ancillary Material
1-Oct Traditional Approaches to Risk, Senstivity Analysis, Simulation and Decision Trees Chapter 9, Ancillary Material
Market-based Risk Measures Chapter 10
Cost of Capital and Compensating for Risk Chapter 12, Ancillary Material
8-Oct First Mid-term exam In Computer Lab 2 (SH105)
You will upload your spreadsheets using Blackboard's Digital Dropbox. Here are instructions that will be handed out.
15-Oct Market Imperfections: Capital Rationing, Different Borrowing and Lending Rates Chapter 8
The Antle-Eppen paper "Capital Rationing and Organizational Slack in Capital Budgeting", Management Science February 1985 is optional reading.
State Space and Martingale Models Chapter 11, Ancillary Material
22-Oct Certainty-Equivalent Approaches to Valuation Chapter 15. A Winter 1986 Financial Management article " Certainty-Equivalent Approach to Capital Budgeting" on this is by Gordon Sick.
Introduction to Real Options Chapter 19, Ancillary Material
29-Oct Some Real Options Models and Insights
Lattice Valuation of Real Options Chapter 20 Sections 1-6, Ancillary Material, Optional Technical Surveys of Real Option Models
5-Nov Using lattice models to calculate state prices, hedge ratios and other useful things Chapter 20, Section 7
Modelling real options with spreadsheets

Simple spreadsheets. Ancillary Material

The spreadsheet RealOption.xls analyzes real american development options with a binomial lattice and with a closed-form formula for perpetual options.
12-Nov Second mid-term exam Sample Mid-term Exams with solutions. The exam covers material not covered by the first midterm, going up to and including the material in the week before the exam (lattice models).
19-Nov

Futures and Forward Contracts

Chapter 23, Ancillary Material

Petroleum, Mineral and Convenience Yield
Calibrating futures models with data obtained from the Internet or Reuters Spreadsheets will be made available.
26-Nov Continuous-time Valuation

Chapter 21, ancillary
Some real options models Proven Undeveloped Reserves (PUD)
PUD Slides

Starship
Review and catch-up
3 Dec Project Presentations

Project reports due on the Last Day of Fall lectures at 4:30 pm

TBA Final Exam
Open Book, time 3 hours		 Sample Final Exams with solutions. The final exam will be weighted towards real options, but can cover anything in the course.

Last Modified September 23, 2008