The course will be divided into two parts. Approximately the first half of the course will deal with the financial and risk analyses of projects, while the second half of the course will deal with the economic and social analyses of projects. The first half of the course deals with the construction of cash flow statements emphasizing the importance of analyzing the program from the viewpoints of all stakeholders. In the course, we also analyze the different investment criteria, their usefulness and limitations, as well as provide a framework for the appraisal of integrated projects. Attention is given to the impact of relative inflation rates and changing exchange rates on the viability of projects. The importance of selecting the optimal scale and starting time for a project is also addressed. The course also examines the issue of project risk by using Monte Carlo simulation to determine the distribution for a project’s possible outcomes and the risks associated with these outcomes.
In the second half of the course we deal with the detailed estimation of the economic costs and benefits of both tradable and non-tradable goods and services. While the economic viability of projects will be largely invariant to changes in fiscal regimes, such changes could have significant impacts on the financial riskness and profitability of projects. In this part of the course, the interaction between the economic viability and the financial risk of investment projects will be examined. To determine the social aspects of projects, we need to understand the difference between the financial and economic impacts of these projects. The course will explain the means of estimating the distributional impacts while emphasizing the importance of identifying the beneficiaries of a project and the bearers of the cost. The course will also introduce the basic needs approach to account for the benefits of certain goods or services that society as a whole values more than the consumers of these goods.
Session 1: Introduction to Project Evaluation
Session 2: Introduction to Project Evaluation (Cont)
Session 3: Alternative Investment Criteria
Session 4: Selection of Optimum Investment
Session 5: Cost of Capital
Session 6: Inflation
Session 7: Risk Analysis
Session 8: Risk Analysis (Cont)
Session 9: Overview of Economic Analysis of Non-tradable Goods
Session 10: Overview of Economic Analysis of Non-tradable Goods (Cont)
Session 11: The Economic Cost of Foreign Exchange, The Economic Opportunity Cost of Capital and The Economic Opportunity Cost of Labor
Session 12: Distributive Analysis
Performance will be evaluated on the basis of a midterm exam and a final exam, weighed as follows:
- Midterm exam: 40%
- Final exam: 60%
Manual on Cost-Benefit Analysis of Investment Decisions developed by Glenn Jenkins, Harvard University and Arnold Harberger, University of Chicago, 2002.