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.
Preliminary assignment:
1. Read PCF part 1 chapters 2,3 (or any other review and practice of NPV and discounting);
2. Read the short article, "Apple to return $130bn to shareholders", Apr 23 2014, The Telegraph, and a follow–up, “Apple hikes its dividend and boosts its buyback program”, Apr 30 2019, the Motley Fool, to be discussed in class.
Class 1:Firm structure, objectives and historical overview. The value calculation: discounting and timing; PCF part 1.
Class 2&3: Valuating: firm's value using the DCF method. The incremental value. Theory verses reality, analysts recommendations; PCF part 1.
Class 4&5:Interest, Risk and Return. Expected versus realized. 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