LES5797 - Special Topics in Applied Economics

Credit hours

Instructor
Daniel Ferreira Caixe
Mirian Rumenos Piedade Bacchi
Sérgio De Zen

Objective
Engineering Economy field, also known as Capital Budgeting, is a special topic in Applied Economics,
which deals with the evaluation of investment decisions. The objective of this course is to present and
discuss in depth the main Engineering Economy techniques, focusing on their applications in projects
related to agribusiness. More specifically, this course provides students with the development of the
following skills: (a) analysis of the economic viability of independent projects; (b) comparison of the
economic value of mutually exclusive projects with equal and distinct useful lifes; (c) identification of the
advantages and disadvantages of established Capital Budgeting tools; and (d) mitigation of forecasting
risks in projects using probabilistic and non-probabilistic approaches.

Content
1. Introduction to Engineering Economy
1.1. Ultimate Goal of the Firm and Value Creation
1.2. Corporate Finance and Capital Budgeting
1.3. Foundations of Engineering Economy
2. Present Worth Analysis
2.1. Net Present Value (NPV)
2.1.1. Evaluation of Independent Projects by NPV
2.1.2. Comparison of Mutually Exclusive Projects by NPV
2.2. Equivalent Uniform Annual Value (EUAV)
2.2.1. Evaluation of Independent Projects by EUAV
2.2.2. Comparison of Mutually Exclusive Projects by EUAV
3. Rate of Return Analysis
3.1. Internal Rate of Return
3.1.1 Evaluation of Independent Projects by IRR
3.1.2. Comparison of Mutually Exclusive Projects by IRR
3.2. Problems of IRR
3.3. Modified Internal Rate of Return
4. Minimum Attractive Rate of Return (MARR)
4.1. Capital Asset Pricing Model
4.2. Cost of Equity Capital
4.3. Cost of Debt Capital
4.4. WACC and TMA of projects
5. Tools for Reducing Uncertainty
5.1. Sensitivity Analysis and Breakeven Point
5.2. Scenario Analysis and Decision Tree
5.3. Monte Carlo Simulation
5.4 Real Options
6. Economic Growth Movement and Projects:
6.1. Microeconomic Vision and Insertion
6.2. Macroeconomic Vision and Insertion
7. Analysis of Social Benefits and Costs of Socio-Environmental Projects
7.1. Environmental Impact
7.2. Externalities
7.3. Social Benefits and Costs
8. Project Success or Failure Cases
8.4.1. Financial Failure X Strategic Success
8.4.2. Financial Success X Strategic Failure

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