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Regular version of the site
Bachelor 2018/2019

Corporate Finance

Type: Elective course (HSE/NES Programme in Economics)
Area of studies: Economics
Delivered by: School of Finance
When: 3 year, 3, 4 module
Mode of studies: Full time
Language: English
ECTS credits: 6

Course Syllabus

Abstract

The main objective of the course is to present the modern approach to the financial analysis of a company and to teach the principles and techniques of evaluating the most important corporate decisions. The core of the course is the analysis of investment (capital budgeting) and financing (capital structure) decisions of a firm. We will first discuss the principles and techniques of selecting investment projects. Secondly, we will examine the determinants of the capital structure choices by firms as well as the notion of the optimal capital structure. We will then discuss how to value a company, taking into account its capital structure. We will also analyze how firms decide on their payouts to shareholders and what the optimal payout policy should be. Finally, we will briefly cover initial public offerings, corporate governance and mergers and acquisitions (time permitting).
Learning Objectives

Learning Objectives

  • To present the modern approach to the financial analysis of a company
  • To teach the principles and techniques of evaluating the most important corporate decisions
  • Understanding of factors/forces that affect firm value
  • Ability to analyze and evaluate financial decisions of a firm
  • Fundamental valuation skills
Expected Learning Outcomes

Expected Learning Outcomes

  • Understanding of the concept of real options, knowledge of techniques of real option valuation
  • Understanding of the basic principles and concepts of accounting
  • Understanding of firms’ motives to go public, IPO mechanisms, IPO pricing and performance.
  • Comprehension of various approaches to assess the value of a company, ability to compare these approaches.
  • Ability to build valuation models.
  • Understanding of the payout policy choices of firms, ability to evaluate payout policies
  • Understanding of the key corporate governance mechanisms and their effect on the cost of external capital and value of companies
  • Understanding the motives, sources of value creation/destruction, and negotiation aspects of M&A transactions.
Course Contents

Course Contents

  • Introduction to corporate finance. Notion of corporation, financial statements and financial ratios
  • 2. Fundamentals of capital budgeting
    2.1. Refresher on time value of money, discounting, stocks and bonds valuation, risk and return, CAPM 2.2. Basic investment decision rules (NPV, IRR, payback period, etc.) 2.3. Projects with unequal lives: matching cycle, Equivalent Annual Cost (Benefit) method, replacement problem 2.4. Evaluating a project: forecasting earnings, determining cash flows, computing NPV 2.5. Sensitivity analysis, scenario analysis
  • Advanced capital budgeting: real options
    3.1. Financial options: notion, properties, pricing (binomial model, Black and Scholes formula, Monte-Carlo simulations) 3.2. Real options: types and examples, valuation of projects with real options
  • Capital structure
    4.1. Sources of long-term financing, types of equity and debt financing 4.2. Capital structure in a perfect market (Modigliani-Miller propositions) 4.3. Impact of taxes and costs of financial distress 4.4. Impact of agency costs of equity and debt 4.5. Impact of information asymmetries 4.6. Firms’ choices of capital structure: empirical evidence
  • Initial public offerings
    5.1. Motives for going public 5.2. Short- and long-run performance of IPOs
  • Capital budgeting and valuation with leverage
    6.1. Establishing required rates of return. WACC, APV and FTE (ER) methods 6.2. Valuing a firm: building the financial model, estimating the cost of capital, using DCF to value the firm 6.3. Valuation by comparables (multiples)
  • Payout policy (dividends and stock repurchases)
    7.1. Payout policy in a perfect market 7.2. Effects of taxes, agency problems and information asymmetries on payout policy
  • Corporate governance
  • Mergers and Acquisitions
    9.1. Motives for M&A 9.2. Hostile and friendly takeovers, takeover defenses, bidding strategies 9.3. Announcement returns and long-run performance of M&A
Assessment Elements

Assessment Elements

  • non-blocking Problem sets
  • non-blocking Cases
    4-5 problem sets to be solved individually. 4 cases to be solved in groups of 3 to 5 people, with subsequent student presentations in class. Cases are real-life situations in which you will have to put yourselves in the shoes of managers taking real-life decisions.
  • non-blocking Midterm test
  • non-blocking Final test
Interim Assessment

Interim Assessment

  • Interim assessment (4 module)
    0.16 * Cases + 0.45 * Final test + 0.23 * Midterm test + 0.16 * Problem sets
Bibliography

Bibliography

Recommended Core Bibliography

  • Corporate finance, Berk J., DeMarzo P., 2014

Recommended Additional Bibliography

  • Financial markets and corporate strategy, Hillier D., Grinblatt M., 2012
  • Financial theory and corporate policy, Copeland T. E., Weston J. F., 2005