Corporate Finance

 

Instructor:

Yulia Ilina, Associate Professor, Department of Finance and Accounting, Graduate School of Management, St.Petersburg University
E-mail: jilina@gsom.pu.ru

Workload:

6 ECTS,

45 contact hours

Prerequisites:

Introduction to Finance, Introduction to Accounting

Course Description:

Corporate Finance is required finance course, designed to cover those areas of finance that are important to all managers whether or not they specialize in finance. The objective of this course is to provide a rigorous introduction to the fundamental principles of asset valuation and financing, to provide students with understanding of basic theoretical concepts of finance and practical tools of financial decision-making.
The topics we will cover are aimed at:

  • Choosing among alternative sources of external funding for company operations 
  • Identifying costs of funds from various sources and choosing capital structure
  • Assessing company’s dividend policy
  • Analyzing and valuing securities 
  • Assessing company’s performance and measuring company’s value
  • Evaluating investment opportunities in the context of a capital budgeting system

Course Content (Topics and subtopics):

Topic 1. Introduction to Corporate Finance. Overview of Financial Decisions.
— Financial management: goals, primary issues, investment and financing decisions
— Introduction to the course
— Company’s value and cash flows
— Accounting and market-based performance results
— Fundamental concepts in finance
— Corporate governance and agency problem

Topic 2. Interest Rates and Debt Securities. Bonds Valuation.
— Capital allocation process and financial markets
— Securitization and financial crisis – discussion
— Bond markets, factors that impact bond prices and yields
— Types of bonds. Pure discount bonds. Coupon bonds
— Interest rates. The structure of interest rates.
— Impact of the discount rate and timing of payments on bond valuation
— Term structure of interest rates
— Bond prices and yields. Current yield and yield to maturity
— Relationships between coupon rate, required return, and bond price
— Factors that impact bond value and yield

Topic 3. Stocks Valuation.
— Voting and non-voting shares
— Stock valuation methods. Dividend growth model
— Multiples approach to stocks valuation.

Topic 4. Equity Valuation and Risk. Capital Asset Pricing Model.
— Tradeoff between risk and return
— Risk and diversification
— Risk measures
— Stand-alone and portfolio risk
— Systematic and unsystematic risk
— CAPM and security market line
— Calculating beta coefficients
— Using CAPM for equity return estimation
— Capital raising case study: the role facilitators play within the business area, the links with investment bank and capital raising alternatives; loans, bonds, equity as instruments of company’s bridge financing; Block-trade exercise

Topic 5. Financing Decisions and Cost of Capital.
— Cost of equity capital
— Cost of debt
— Weighted average cost of capital (WACC)
— Approaches to cost of capital estimation
— Factors affecting WACC
— Initial Public Offering (IPO) and equity financing

Topic 6. Long-term Financial Decisions: Investment Valuation.
— Overview of capital budgeting decisions
— Forecasting investment projects cash flows
— Relevant cash flows. Inflation and cash flows
— Investment decision criteria: Net present value, Internal rate of return, Profitability index, Payback periods
— Risk factors in capital budgeting

Topic 7. Financial Statements Analysis and Corporate Valuation.
— Fundamentals of financial statements analysis: key financial ratios
— Limitations of ratio analysis
— Using financial statements information for analysis of company’s performance
— Free cash flow and company’s value
— Corporate valuation model
— Market value added (MVA)

Topic 8. Capital Structure and Dividend Policy.
— Capital structure theories and practice
— Capital structure and company’s value
— Financial leverage and financial risk
— Cash distributions and dividend policy
— Stock splits and stock dividends

Course Organization:

Lectures and seminars, case study, tests, in-class discussions, group project

Course Reading (the full list):

Core reading:
E. Brigham, M. Ehrhardt. Financial Management: Theory & Practice. Thomson-South Western. 14th ed. 2014 or 13th ed., 2010.

Supplementary reading:
S. A. Ross, R. W. Westerfield, B. D. Jordan. Essentials of Corporate Finance. 8-th ed. McGraw Hill. 2013.

Exam format:

In-class open-book
Duration: 90 minutes

Grading Policy (% or points):

Course progress – 40%, exam – 60%.
Assessment of academic progress

Assignment

Weight in the course grade

Assignment description

In-class test (3)

18%

in-class open-book test that includes open questions and problems (calculus).

Group assignment, based on in-class case discussion

2%

based on the case discussed in class

Group project

20%

group project, report parts 1 and 2 +

presentation

Totally:

40%

 

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