M. Sc. in BANKING AND FINANCIAL MARKETS, Corporate Finance

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Corporate Finance


Course Description:

Corporate Finance is the subject of study that includes all the business decisions involving money. This multitude of financial decisions could be decomposed in three basic variably interrelated strands. The Investment Decision is about acquiring assets that will produce profits. This must be done optimally, increasing firm revenue and reducing costs. It is about the effective management of the investment portfolio for any kind or size of business firm. Management is termed efficient, when investment returns are higher than a minimum acceptable hurdle rate.
The Financing Decision is ultimately about the optimal mix the firm will use to fund its investments. Borrowing funds from the banking system, issuing bonds or new shares are among an ever widening set of alternative funding options. The analysis involves delineating the optimal mix and mapping the way for the firm to get from its existing capital structure to the desired one.
The Dividend Decision analyzes the distribution of profits to shareholders versus retaining them for recapitalization. Firms may decide to repurchase shares instead of paying earnings out as dividends. Rather than a residual financial decision, the decision to pay dividends revolves around the fundamental problem of trust between shareholders and managers.
Corporate Finance is founded on the firm value maximization principle which underlies the optimality criteria. The course is introduced via a thorough discussion of possible conflicts of interest among firm stakeholders as well as other market  frictions and inefficiencies  that may interfere with value maximization.

Topics Covered:

I. Foundations of Corporate Finance Decisions
 The Objective in Decision Making
 Corporate Governance and Conflicts of Interest
 Efficient Markets

II. Risk and Return
 The Capital Asset Pricing Model and its Alternatives

III. The Cost of Capital
 Cost of Debt
 Warrants and Convertible Debt
 IPOs and SEOs
  
IV. Capital Structure: The Optimal Financial Mix
 From Modigliani-Miller to Modern Theories

V.  Dividend Policy
 Signaling
Share Repurchases

VI. Firm and Investment Valuation
 Financial and Accounting Valuation Models
 Financial Options and Real Options