Master
2020/2021
Corporate Finance
Type:
Bridging course (Strategic Corporate Finance)
Area of studies:
Finance and Credit
Delivered by:
School of Finance
Where:
Faculty of Economic Sciences
When:
1 year, 1 module
Mode of studies:
distance learning
Instructors:
Nikita Pirogov
Master’s programme:
Strategic Corporate Finance
Language:
English
ECTS credits:
3
Contact hours:
16
Course Syllabus
Abstract
The course develops theoretical framework for understanding and analysing major financial problems of modern company in market environment. The course covers basic models of valuation of corporate capital, including pricing models for primary financial assets, real assets valuation and investment projects analysis, capital structure and various types of corporate capital employed, derivative assets and contingent claims on assets. It provides necessary knowledge in evaluating different management decisions and its influence on corporate performance and value. The course requires the knowledge in micro and macroeconomics, accounting and banking. The course is based on lectures, seminars and self-study. Ссылка на онлайн-программу: https://ru.coursera.org/learn/wharton-finance
Learning Objectives
- To provide the conceptual background for corporate financial analysis from the point of corporate value creation
- To develop theoretical framework for understanding and analyzing major financial problems of modern firm in the market environment
- To cover basic models of corporate capital valuation, including pricing models for primary financial assets, real assets valuation and investment projects analysis, capital structure, derivative assets and contingent claims on assets
- Developing skills in analyzing corporate behavior in capital markets and the relationship of agent and principal in raising funds, allocating capital, distributing returns
- To provide necessary knowledge in evaluating different management decisions and their influence on corporate performance and value
Expected Learning Outcomes
- A student is willing to work with information from a variety of sources (CК- 6) – cases, analytical tasks devoted to business valuation based on the data from financial statements and financial data from open access
- A student is able to generalize and discuss the results of theoretical and empirical studies and to reveal the possible directions for further research in examined area (ПК-1) – work with academic papers
- A student is willing to present the results of team work devoted to a particular theme (ПК-8) –cases, problem solving
- A student is able to reveal and analyse factors affecting company value (ПК-14) – exercises
- A student is able to apply different models to value company’s assets and capital (ПК-17) – exercises
- A student is able to justify the efficiency of company’s strategic decisions (investment decisions, financing decisions, payout decisions) and make recommendations (ПК-20; ПК-25) – analytical tasks.
Course Contents
- Corporate finance: IntroductionFrom accounting to financial approach. Market capitalization and enterprise value. Maximizing the value of the business as a key shareholders’ goal: financing decisions, investment decisions, payout policy. Financial decisions: changes across the lifecycle. Company’s stakeholders: their goals and agency conflicts. Theory of the firm: ownership versus control of corporations. Corporations in emerging and developed markets: does business environment matter?
- Calculation and interpretation of accounting ratios and trends.The broad categories of ratios. Profitability and return on capital. Liquidity, gearing and working capital. Shareholders' investment ratios. Presentation of financial performance. Limitation of financial statements. Accounting policies and the limitation of ratio analysis.
- Risk and return: from asset pricing models to cost of capital.Sources of firm financing. Debt vs Equity. Cost of equity. Shareholders, rational expectations and expected return estimation. Capital asset pricing model as a basis for expected return estimation. Fama-French model as an example of a multifactor model. Cost of debt. Return required by debtholders: bank loans & bond issues. Market view on cost of debt estimation: YTM and credit ratings. Weighted average cost of capital: opportunity cost of capital and a hurdle rate for investment projects.
- Fundamentals of Equity and Debt valuationIntrinsic value of capital. The replicating portfolio concept as a method of intrinsic value identification. The yield curve. Spot rates and forward rates. The role of term structure of interest rates in constructing tracking (replicating) portfolio for Corporate Bonds. Intrinsic value of stand-alone bond. Discounted cash flow valuation of corporate bonds. Corporate bond's types. Bond’s covenants: assets covenants, dividend covenants, financing covenants. Types of preferred stock by voting rights, dividend rates and dividend payments. Discounted dividend model (DDM) for preferred (preference) shares. Discounted dividend model for common stock (ordinary shares): the criteria for stable growing company, Gordon constant growth dividend rate model. Multistage DDM: 2 stages dividend growth, negative rate of dividend growth. Growth opportunities value. The limitations of DCF valuation.
- Capital structure choice and corporate valueModigliani and Miller theorem (MM) on capital structure, perfect capital market assumptions and basic MM irrelevance propositions. Shareholder reaction to changes in capital structure. MM propositions with corporate income taxes. Income tax shield as motivation to take debt. The effect of personal taxes on capital structure. Miller equilibrium model. Tradeoff theory as a model of optimal capital structure: tax shield vs financial distress costs. The pecking order of financing theory. The information conveyed by capital structure decisions. A debtholder - equity holder conflict: debt overhang problem, asset substitution problem, debt covenants and monitoring opportunities as means to agency costs. An equity holder-manager conflict: overinvestment problem, deficient management efforts, aligning the conflicting interests with capital structure. Minimizing the total cost of two agency conflicts with capital structure choice.
- Interrelation of financing and investment decisionsAdjustments to capital budgeting techniques when evaluating a project under certain financing plan. Adjusted present value (APV), weighted average cost of capital (WACC) approach and free cash flow to equity (FCFE): three classic approaches.
- Payout policy and corporate valueTypes of dividends: cash dividend, stock dividend, share repurchase. Payout policy as a financing problem. Lintner’s stylized empirical facts. The Modigliani&Miller payout irrelevance theorem. The effect of investor taxes: a preference for capital gains compared to cash distributions. The dividend puzzle. Static clientele theory. Signaling role of dividends. Payout decisions as means to align the interests of managers and shareholders.
