Corporate Finance

Introduction

Corporate Finance is the study of how firms finance their activities by the use of debt and equity, i.e. make capital structure decisions.  A main objective of the course is to understand how capital structure may affect both valuations of firms and the value of new investments, as well.

While in the introductory courses, we estimated firm value, or a specific project value, independent of capital structure, we are now studying how financial decisions may affect owners' (shareholders') risk and thus required rates of return. In perfect markets, we will learn that valuation and required rates of return are not affected by firms' financial decisions.

Frictions and other capital market imperfections cause capital structure decisions to influence owners' required rates of return, and thus valuations. The frictionless model represents, nevertheless, an excellent starting point from which the most important imperfections may be identified, as well as quantified, when firms are making capital structure decisions.

How firms may most effectively distribute cash to their owners, in other words, design and conduct their dividend policy, is another focus-area of this course. Towards that end, solid understanding of how various cash distributions from the firm are taxed, is essential. 

A brief review of mergers and acquisitions and financial risk management strategies round off the course.

Course content

• Capital Structure: Advantages and disadvantages of financing with debt
• Valuation of firms under different capital structure and tax regimes
• Dividend policy conducted under different tax regimes
• Motives driving mergers and acquisitions
• Risk management conducted by the use of financial derivatives