Course content
This course covers firms' financial decisions, as in most cases they are at least as important as the operational decisions, for the success of these firms.
The first part of the course focuses on evaluating projects and estimating value of firms using the DCF method, along with understanding the differences between economic (or incremental) value and accounting value.
In the second part we explore the discount rate, used in the evaluation of firms: how it is calculated and its link to firms' risk.
The third part deals with capital structure, the tension between equity and debt. Specifically, we learn about raising money, payout policy, bankruptcy, and agency problems such as under investing and risk shifting.
Pre-course Activity:
1. Read PCF part 1 chapter 2 (or any alternative review and practice of NPV and discounting methods).
2. The pre-course activity file, including a few short articles to read before the course starts, is published at the end of May.
Class 1:Firm structure, objectives and historical overview. The value calculation: discounting and timing; PCF part 1.
Class 2&3: Valuating: firm value using the DCF method. The incremental value. Analysts' recommendations: theory and practice; PCF part 1.
Class 4&5:Interest, Risk and Return. Expected return, realized return and YTM. The CAPM model and market efficiency; PCF part 2,4.
Class 6. Capital structure without taxes; PCF part 5.
Feedback activity: an optional "take home mini exam".
Class 7. The different holders: raising money; PCF part 5,6,7.
Class 8&9. Bankruptcy, payout policy, agency problems and CEO's objective; PCF part 3,5,8.
Class 10. Capital structure with taxes, the advantage of issuing debt. Performance based compensation: an overview, fundamentals, advantages and disadvantages; PCF part 5,6.
See course description in course catalogue