Financial Economics: Corporate Finance

2022/2023

Academic Year

ENG

Instruction in English

5

ECTS credits

Delivered at:

International College of Economics and Finance

Course type:

Compulsory course

When:

2 year, 1, 2 module

Instructors

Zolina, Anna

Иванова Кристина Сергеевна

Stepanov, Sergey

Course Syllabus

Abstract

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 cover initial public offerings, mergers and acquisitions, and corporate governance. Prerequisites: Financial Economics I (Asset Pricing), Microeconomics

Learning Objectives

• 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.

Expected Learning Outcomes

• Able to compute tax advantage of debt, explain the trade-off theory of capital structure
• Able to evaluate payout policies
• Apply the main techniques of project evaluation
• Assess the overall risk profile of a firm which operates in multiple lines of businesses
• Compare various approaches to assess the value of a company
• Employ financial data to create valuation models
• Evaluate the effect of leverage on the cost of equity
• Evaluate the effects of asymmetric information on capital structure choices of companies
• Explain firms’ motives to go public, IPO mechanisms, IPO pricing and performance
• Explain the basic principles and concepts of accounting
• Explain the motives, sources of value creation, and negotiation aspects of M&A transactions
• Outline the key corporate governance mechanisms and their effect on the cost of external capital and value of companies
• Outline the relations between capital structure and agency problems in a firm
• Use real options valuation techniques
• Use techniques of real option valuation

Course Contents

• Introduction. Financial Statements
• Fundamentals of capital budgeting
• Basics on financial options and real options
• Capital structure. Perfect world
• Capital structure. Effects of taxes and costs of financial distress
• Business risk and bottom-up beta
• Discounted cash flows model (DCF) versus multiples valuation
• Real options under uncertainty
• Mergers and acquisitions (M&As)
• Initial public offerings (IPOs)
• Capital structure. Effects of agency problems
• Capital structure. Effects of asymmetric information
• Payout policy
• Corporate governance

Assessment Elements

• Home Assignments
• Cases (including evaluation of presentations)
• Midterm exam
• Final exam

Interim Assessment

• 2022/2023 2nd module
  0.2 * Home Assignments + 0.2 * Cases (including evaluation of presentations) + 0.4 * Final exam + 0.2 * Midterm exam

Bibliography

Recommended Core Bibliography

• Corporate finance, Berk, J., 2014

Recommended Additional Bibliography

• Financial markets and corporate strategy, Hillier, D., 2012
• Financial theory and corporate policy, Copeland, T. E., 2005
• The theory of corporate finance, Tirole, J., 2006