Master 2020/2021

Economics and finance for project management

Type: Compulsory course (Global Business)

Area of studies: Management

Delivered by: Faculty of Management (Nizhny Novgorod)

Where: Faculty of Management (Nizhny Novgorod)

When: 1 year, 1 module

Mode of studies: offline

Instructors: Anna Novak

Master’s programme: Global Business

Language: English

ECTS credits: 3

Contact hours: 32

Course Syllabus

Abstract

“Economics and Corporate Finance” is a two-month intensive course in financial management. The course builds basic conceptual and analytical framework focused on the financial analysis. It is specially designed for the 1st year Master Program “Management” students who need to study or to revise the basic concepts in order to take advanced courses on Finance and Management. The objective of this course is to introduce the students to the world of finance. This course will introduce students to frameworks and tools to measure value; both for corporate and personal assets. It will also help students in decision-making, again at both the corporate and personal levels. This course is intended to provide a framework for analyzing the major types of financial decisions made by economic agents. It is devoted to the fundamental principles of valuation and financial management. Students will learn and apply the concepts of time value of money and risk to understand the major determinants of value creation. This course consists of both theory and real world examples to demonstrate how to value any asset.

Learning Objectives

• • To teach and review the fundamental methods and skills of finance vital for understanding valuation of any asset, personal or corporate • To prepare students to make sound personal and professional decisions • To provide students with a basic level of knowledge to enable them better understand the role of finance in debates over corporate and public policy • To prepare students to take more advanced courses in finance

Expected Learning Outcomes

• Understand the concept of financial system, it's functions and instruments. Can analyze current trends in the financial system.Understand methods of financial management
• Understand fundamentals of the theory of interest rates: the expectations hypothesis, market segmentation hypothesis, the hypothesis of liquidity preference. Know the concept of discounted cash flows. Can calculate discounted cash flows
• Know the concept of uncertainty and risk in the modern theory of finance. Understand capital asset pricing model. Understand arbitrage theory of asset pricing. Can compare call and put options
• Know the basic of investment policy. Understand indicators in the evaluation of investment decisions. Understand methods of project analysis: internal rate of return (IRR), profitability index (PI), payback period (PBP) and the discounted payback period of the project (DPBP). Can calculate net present value of the investment. Can compare and choose investment project
• Can analyze business risks of the corporation. Compare operational and financial risk. Understand company's capital structure and the characteristics of financial claims. Know the correlation between financial and investment decisions of the firm. Understand method of weighted average cost of capital WACC
• Can analyze distributions to shareholders: dividends and repurchases. Know the Modigliani-Miller dividend irrelevance theorem. Understand the effect of market imperfections (taxes and transaction costs) on dividend policy.
• Know methods of corporate restructuring: mergers and acquisitions (M&A), leveraged buyouts (LBOs), divestitures. Can compare different types of mergers; government control and regulation of M&A.

Course Contents

• FUNDAMENTAL CONCEPTS OF FINANCE
  Financial system: concept, functions, elements. Financial instruments, markets and institutions: concept, types and role in the functioning of the financial system. The efficiency of the financial system and economic growth. Current trends in the financial system: globalization, securitization and financial engineering. An Overview of Financial Management: concept features. Goals, objectives and objects of financial management. Investment and financial decisions of the company. The separation of ownership and management functions. Theory of shareholder value and stakeholder influence. Financial and real assets. The financial model of the firm. Profit and cash flow. Free cash flow and shareholder value
• FIXED INCOME SECURITIES
  The time value of money. The perfect capital market assumption, the absence of arbitrage and the capital market equilibrium. Factors that determine the level of interest rates. Spot and forward interest rates. Term structure of interest rates. Shape of the curve of interest rates, the main empirical facts. Fundamentals of the theory of interest rates: the expectations hypothesis, market segmentation hypothesis, the hypothesis of liquidity preference. Risk-free asset pricing. Discounted cash flows and the present value of assets. Special cases of determining the present value of cash flows: annuity, perpetuity, increasing rents and a growing annuity. Using the concept of time value of money in the valuation of debt capital instruments. Pricing coupon and zero-coupon bonds in the absence of risk. Current yield and yield to maturity. Bonds traded with a premium and a discount. Value of the bond over time.
• STOCKS AND OPTIONS
  The concept of uncertainty and risk in the modern theory of finance. Return on investment in assets. Uncertainty and the arbitrage pricing theory. The measurement of risk. Foundations of modern portfolio theory. Diversification. Systematic and non-systematic risks. Uncertainty and capital market equilibrium. Capital asset pricing model. Assumptions of the model and the equilibrium condition. Beta as a measure of systematic risk of the asset. Line market securities. Portfolio beta. Empirical studies of CAPM consistency and its criticism. Multifactor asset pricing models as a generalization of equilibrium analysis. Arbitrage theory of asset pricing. Fama and French three-factor model FF3F: a review and empirical study. Information efficiency of capital markets: the concept, empirical studies and criticism. Using the concept of risk and return trade-off in the evaluation of the fundamental value of equity instruments. Gordon model. Features estimate the expected growth rate of dividends. Two-stage model estimates of the fundamental value of the shares. Price-to-earnings ratio (P/E) in the assessment of the fundamental value of the shares. Introduction to financial options and their application in finance. Call and put options. Hedge portfolio. One- and multi-period binomial option pricing model. The Black-Scholes option pricing model.
• PROJECTS AND THEIR VALUATION
  Investment policy. Applying the basic financial concepts to investment choice. The assumption of the independence of financial and investment decisions in the investment analysis. Free cash flow, the company's value and investment decisions of the firm. Evaluating the effectiveness of investment projects. Accounting and economic indicators in the evaluation of investment decisions: main concepts, advantages, disadvantages. The net present value of the investment: NPV. Methods of project analysis: internal rate of return (IRR), profitability index (PI), payback period (PBP) and the discounted payback period of the project (DPBP). Disadvantages and limitations of the listed above methods. Elements of real options theory. Types of real options. An option to increase or decrease in the project, the option to eliminate the project, the option to delay the project. Simulation of real options using a decision tree
• CAPITAL STRUCTURE
  Business risks of the corporation. Operational and financial risk. Financial and operational leverage. Review of the company financing sources. Equity, debt and hybrid financing instruments: concept, types, features of attraction and use. Overview of empirical observations and facts corporate finance. Company's capital structure and the characteristics of financial claims. Modigliani-Miller theorem in the absence of taxes in the economy: the maintenance and proof. Theorem role in the modern theory of corporate finance. Introduction of imperfections in financial markets: the role of corporate taxes in the management of its capital structure. The correlation between financial and investment decisions of the firm. Analysis of the company’s cost of capital. Methods for valuation the cost of its own and borrowed capital. Cost of capital and financial leverage. Correction of the company beta, using financial leverage and the Hamada equation: assumptions and limitations of the analysis. The method of weighted average cost of capital WACC. Modigliani-Miller theorem in the form of weighted average cost of capital of the company. Capital structure optimization: WACC minimizing and maximizing the company’s value
• CASH DISTRIBUTIONS
  Distributions to shareholders: dividends and repurchases. The Modigliani-Miller dividend irrelevance theorem. The effect of market imperfections (taxes and transaction costs) on dividend policy. The effect of market frictions on distribution policy. Dividend irrelevance theory. Dividend preference theory. Empirical evidence on distribution policies
• STRATEGIC AND FINANCIAL RESTRUCTURING
  The methods of corporate restructuring: mergers and acquisitions (M&A), leveraged buyouts (LBOs), divestitures. Incentives: synergy, tax optimization, diversification. Types of mergers; government control and regulation of M&A. The adjusted present value method (APV) in the investment analysis. LBOs: the effect on stock prices. Corporate divestitures and the problem of control. Bankruptcy, reorganization, liquidation and corporate control. Financial analysis of efficiency in case of restructuring

Assessment Elements

• Home assignment
• Exam
• Class work
• Case

Interim Assessment

• Interim assessment (1 module)
  0.15 * Case + 0.1 * Class work + 0.5 * Exam + 0.25 * Home assignment

Bibliography

Recommended Core Bibliography

• Corporate Finance: Theory and Practice / Pierre Vernimmen, Pascal Quiry, Maurizio Dal-locchio, Yann Le Fur, Antonio Salvi. – 5th ed. – Chichester: John Wiley & Sons Ltd, 2018. – 1010 p.

Recommended Additional Bibliography

• Handbook of Corporate Finance Eckbo, Bjørn Espen; Eckbo, B. Espen Elsevier Science & Technology 2008