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COURSE OBJECTIVE The course is aimed at to develop in-depth understanding of Finance function of a corporation and build capacity to apply theory in real world situations. The course will present the ‘Big Picture’ of Corporate Finance so that students understand how things fit together. After successfully completing the course, students should be able to take optimal decisions in a corporate setting, when working as professionals in the field. COURSE OUTLINE Introduction to Corporate Finance: Financial Management; Corporate Finance; Corporate Finance vs.
Financial Management; Differences between ‘Finance’ and ‘Accounting’; Investment, Financing, and Dividend decisions Role of Financial Management: Goals of a Firm; Profit Maximization Approach vs. Shareholders’ Wealth Maximization Approach; Time Value of Money and Uncertainty; Agency Problem; Social Responsibility Business Environment, Taxes, and Financial Environment: Forms of Business Organizations; Financial Instruments; Money Market and Capital Market Instruments; Financial Intermediaries; Financial Risk and Return
Concepts in Valuation / Time Value of Money: Present Value vs. Future Value; Simple Interest vs. Compound Interest; Annuities vs. Simple Compounding and Discounting; Future Value of an Ordinary Annuity and Annuity Due Concepts in Valuation: (Continued) Present value of an ordinary annuity and annuity due; Amortization and perpetuity; Concept of nominal rate of interest and effective rate of interest; Problem solving Valuation of Long-term Securities: Bonds; types of bonds; characteristics of bonds; Zero coupon bond vs. on-zero coupon bond; Perpetual bond; Perpetuity vs. Perpetual bonds Valuation of Long-term Securities: (Continued) Preferred stock; Features of Preferred Stock; Valuation of Preferred Stock; Common Stock; Features of Common Stock; Dividend Discount Models; No-growth Model; Continuous (constant) Growth Model Valuation of Long-term Securities: (Continued) Supernormal growth to constant growth model; Concept of yield to maturity (YTM); Difference between yield to maturity and yield to call; YTM of bonds, Preferred Stock, and Common Stock
Risk and Return: Defining risk and return; using probability distribution to measure risk, expected risk and standard deviation Risk and Return: (Continued) Coefficient of Variation; Risk and Return in a portfolio context; Questions and problems from chapter Financial Ratio Analysis and Financial Planning: Financial Statements; Why analysis of financial statements; Different methods of doing the analysis; Ratio analysis – liquidity ratios, debt or leverage ratios; Questions and problems
Financial Ratio Analysis and Financial Planning: (Continued) Profitability Ratios; Activity ratios; Questions and Problems Financial Ratio Analysis and Financial Planning: (Continued) Working Capital Management; Questions and problems relating to Working Capital Management Financial Ratio Analysis and Financial Planning: (Continued) Common Size Analysis; Index Analysis; Questions and Problems Financial Ratio Analysis and Financial Planning: (Continued) Problems relating to ratios, index, and common size analysis Funds Analysis, Cash Flow Analysis and Financial Planning:
Flow of funds; Sources and uses of funds; Cash Flow Statement; Sources and uses of funds; Cash flow statement by using the indirect method Funds Analysis, Cash Flow Analysis and Financial Planning: (Continued) Cash flow statement by using direct method; Difference between the direct method and the indirect method of cash flow statements Funds Analysis, Cash Flow Analysis and Financial Planning: (Continued) How to adjust the non-cash entries in the cash flow statement; Adjustment of depreciation; Questions and problems Making Capital Investment Decisions:
What is capital budgeting; Cash budgeting vs. Capital budgeting; Capital budgeting techniques; Payback period method, Accounting Rate of Return (ARR), Advantages and Disadvantages of Payback and ARR method for capital budgeting Making Capital Investment Decisions: (Continued) Discounted capital budgeting techniques; Net present value method vs. Internal Rate of return method of capital budgeting; Questions and problems Making Capital Investment Decisions: (Continued) Profitability Index (PI); PI advantages and disadvantages; Mutually exclusive and independent projects; Questions and problems
Risk and Real Options in Capital Budgeting: Capital budgeting decisions; Calculations of expected and standard return when projects are dependent; independent, firm portfolio approach; managerial options; options to expand; abandon; postponed Theory of Capital Structure: What is Capital Structure? Capital structure determination; Theories to capital structure; Net Income Approach; Net Operating Income Approach Theory of Capital Structure: (Continued) Modigliani Miller approach to Capital Structure Theory; Traditional approach to Capital Structure Theory. Questions and problems
Dividends and Share Repurchase Decisions: Procedural Aspects of Paying Dividends; Theories of Dividend Payment; MM Approach, etc. ; Dividend Payout Irrelevance; Arguments for Dividend payout mattering Cash and Marketable Securities Management: Motives for Holding Cash; Speeding-up Cash Receipts; Outsourcing; Cash Balance to Maintain; Investment in Marketable Securities; Slowing Down Cash Payment; Questions and Problems Lease financing and Financial Markets: Features of a Lease; Accounting and Tax treatment of Leases; Returns to the Lessors, After Tax Analysis of Lease vs. Buying Option