Corporate Finance

 

The objective of the firm is to maximize shareholder value by increasing the value of the company's stock. Although other potential objectives (survive, maximize market share, maximize profit, etc) exists these are consistent with maximizing shareholder value.

 

Most large corporations are characterized by separation of ownership and control. Separation of ownership and control occurs when shareholders nt actively are involved in the management. The separation of ownership and control has the advantage that it allows share ownership to change without influencing with the day-to-day business.

 

The course outline for this course is as outlined below.

 

                      CORPORATE FINANCE

   TOPIC                 SUB - TOPIC
The Objective of a Firm.

Present Value and Opportunity cost of capital ; Compounded versus Simple Interest.

Future value ; Principle of value additivity ; Perpetuities and Annuities.

Nominal and Real rates of Interest ; Valuing bonds using Present value formulas ; Valuing Stocks using Present Value Formulas.

The Net Present Value Investment Rule.

Risk, Return and Opportunity cost of capital ; The effect of Diversification on Risk.

Measuring Market Risks ; Portfolio risks and Return ; Portfolio Variance

Portfolio's Market Risk ; Capital Assets Pricing model ; Alternative Asset Pricing Models ; Arbitrage Pricing Theory ; Consumption Beta ; Three Factor Model.

Capital Budgeting

Cost of Capital with Preferred Stocks  ; Cost of Capital for new Projects.

Alternative Methods to adjust for risks ; Capital Budgeting in Practice ; What to discount.

Calculating free Cash flows ; Valuing Businesses ; Why Projects have positive NPV.

Market Efficiency

Test of Market Efficient Hypothesis ; Weak Form ; Semi - Strong Form

Strong Form ; Classical Stock Market Anomalies.

Behavioural Finance.

Corporate Financing and Valuation.

Debt Characteristics ; Equity Characteristics ; Does the firm's debt policy affect firm value ; Debt policy in a perfect capital market.

Capital Structure theory when Markets are Imperfect ; Introducing Corporate Taxes and Costs of Financial Distress.

The Trade-off theory of Capital structure ; How Companies decide on the Dividend Policy ; Dividend Payments in Practice ; Stock Repurchase in Practise.

Do the firm's dividend policy affect firm value ; Why dividend policy may Increase Firm Value ; Introducing Corporate taxes and cost of Financial Distress.

Options.

Option Value ; What determines Option Value ; Option Pricing.

Binominal Method of Option Pricing ; Black-Scholes' Model of Option Pricing.

Real Options ; Expansion Option ; Timing Options ; Abandonment Option

Flexible Production Option ; Practical Problems in Valuing Real Options.

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