Corporate Finance
Release Date: 2017-09-21Basic Information
1. Course Type: Academic Distributional Electives
2. Class Hour: 36 (45 minutes each class hour)
3. Credit: 2 credits
4. Suitable for: Graduate Students of Finance
Course Introduction
This course is about the basic theory of modern corporate finance and financial environment. The course includes the analysis of the financial environment, the application of time value of money, the measure of benefits and risks. It introduce students to modern company financial management content and management decision-making analysis tools, which includes investment management, financing management, dividend distribution management and working capital management. The course also introduces students to special problems in modern company financial management including merger and acquisition related financial management issues, and financial management issues under the condition of international operation.
Course Objectives
By the end of this course, a student should be able to: Master basic concepts of corporate finance; Define cash flow and spells out the differences between cash flow and earnings clearly; Examine the advantages and disadvantages of various investment criteria; Understand asset pricing theories and the risk-return trade-off; Illustrate cost of capital for a real company; Describe the basic trade-offs leading to an optimal capital structure; Describe dividend payments and the factors favoring higher and lower payout policies.
Outline of Course Content
Chapter 1 Introduction to corporate finance
Overall Objective: the goal here is to know
1. The basic types of financial management decisions and the role of the financial manager.
2. The goal of financial management.
3. The financial implications of the different forms of business organization.
4. The conflicts of interest that can arise between managers and owners.
Contents:
Section1. What is corporate finance?
Section2. Forms of business organization
Section3. The goal of financial management
Chapter 2 Financial statement analysis
Overall Objective: the goal here is to know
1. How to standardize financial statements for comparison purposes.
2. How to compute and, more importantly, interpret some common ratios.
3. The determinants of a firm's profitability.
Contents:
Section1. Financial statements
Section2. Ratio analysis
Section3. The Du Pont Identity
Chapter 3 Long-Term Financial Planning
Overall Objective: the goal here is to know
1. How to apply the percentage of sales method.
2. How to compute the external financing needed to fund a firm's growth.
3. The determinants of a firm's growth.
Contents:
Section1. Financial planning models
Section2. The percentage of sales approach
Section3. External financing and growth
Chapter 4 Valuation of future cash flows
Overall Objective: the goal here is to know
1. How to determine the future and present value of investments with multiple cash flows.
2. Bond values and yields and why they fluctuate.
3. How stock prices depend on future dividends and dividend growth.
Contents:
Section1. Cash flows, discounting, and compounding
Section2. Bond valuation
Section3. Stock valuation
Chapter 5 Capital budgeting
Overall Objective: the goal here is to know
1. The reasons why the net present value criterion is the best way to evaluate proposed investments.
2. How to determine the relevant cash flows for a proposed project.
3. How to determine if a project is acceptable.
4. How to perform and interpret a sensitivity analysis or a scenario analysis for a proposed investment.
5. How to determine and interpret cash, accounting, and financial break-even points.
Contents:
Section1. Investment criteria
Section2. Incremental cash flows
Section3. Application of net present value
Section4. Scenario analysis, sensitivity analysis, and break-even analysis
Chapter 6 Risk and return
Overall Objective: the goal here is to know
1. How to calculate the portfolio expected returns and risk.
2. How to determine the optimal portfolio among the efficient set of risky assets
2. The systematic risk principle.
Contents:
Section1. Measure of risk and return
Section2. The mean-variance model
Section3. Systematic and unsystematic risk
Chapter 7 Asset pricing theories
Overall Objective: the goal here is to know
1. The security market line and the risk-return trade-off.
2. The relationship between security's expected return and the security's factor betas.
2. How to consider the differences between CAPM and APT.
Contents:
Section1. The Capital Asset Pricing Model
Section2. The Arbitrage Pricing Theory
Section3. Comparison of CAPM and APT
Chapter 8 Cost of capital
Overall Objective: the goal here is to know
1. How to determine a firm's cost of equity capital.
2. How to determine a firm's cost of debt.
3. How to determine a firm's overall cost of capital.
4. Some of the pitfalls associated with a firm's overall cost of capital and what to do about them.
Contents:
Section1. Estimation of Beta
Section2. The weighted average cost of capital
Section3. Corporate and project costs of capital
Chapter 9 Efficient Markets Hypothesis
Overall Objective: the goal here is to know
1. How prices adjust to new information in an efficient market.
2. How efficient capital markets is a matter of debate.
Contents:
Section1. The concept of Efficient Capital Markets
Section2. The Forms of Market Efficiency
Section3. Efficiency Markets and Corporate Finance
Chapter 10 Capital structure and firm value
Overall Objective: the goal here is to know
1. The effect of financial leverage.
2. The impact of taxes and bankruptcy on capital structure choice.
3. The essentials of the bankruptcy process.
Contents:
Section1. Debt financing and equity financing
Section2. The effect of financial leverage
Section3. M & M Propositions
Chapter 11 Valuation of leverage firms
Overall Objective: the goal here is to know
1. How to valuate leverage firms with three standard approaches to valuation under leverage: the adjusted-present-value (APV) method, the flow-to-equity (FTE) method, and the weighted-average-cost-of-capital (WACC) method.
2. How to show all three approaches provide the same value estimate if applied correctly.
Contents:
Section1. Adjusted present value
Section2. Flows to equity
Section3. Weight average cost of capital
Section4.Comparison of APV, FTE and WACC
Chapter 12 Dividends and payout policy
Overall Objective: the goal here is to know
1. Dividend types and how dividends are paid.
2. The issues surrounding dividend policy decisions.
3. The difference between cash and stock dividends.
4. Why share repurchases are an alternative to dividends.
Contents:
Section1. Cash dividends and dividend payment
Section2. Dividend policy and investment decisions
Section3. Real-world factors favoring a low dividend payout or favoring a high dividend payout
Class Hour Distribution
Week 1 Chapter 1
Week 2 and 3 Chapter 2
Week 4 Chapter3
Week 5 Exercise
Week 6 and 7 Chapter4
Week 8 Chapter5
Week 9 Midterm
Week 10 Chapter6
Week 11 Chapter7
Week 12 and 13 Chapter8
Week 14 Chapter9
Week 15 Chapter10
Week 16 Chapter11
Week 17 Case Study
Week 18 Chapter12
The total course hour is 36(45 minutes each class hour), which will be evenly distributed in 18weeks, that is every week will have 2 course hours.
Text book
Corporate Finance (8th Edition), Stephen A. Ross, Randolph W. Westerfield & Bradford D. Jordan, China Machine Press, 2009
Course requirements and grading
Grading Policy: Your grade for the course will be calculated as follows:
Regular Homework and Class Participation 15%
Midterm 15%
Final Exam 70%
Attendance: Regular attendance is an important requirement for successful performance in this course. If a student repeatedly misses classes, question will be raised with the administration and suggest the student withdraws from the course.
Homework problems: problem sets will be assigned regularly. All of the students will get a chance to present your homework solutions in class. At this point, it is not as important to have a correct solution as it is to demonstrate that you have worked on your homework seriously. Please, start looking at problems on right away so that you can ask for help if you need it. In addition to my office hours and email, you can use the homework discussion board on Blackboard for homework help. Your homework problems will help you to understand the material and to systematically prepare for exams. Class participation and homework will count for 15% of your grade.