Course Outline

Introduction to Finance:

Course Description:

This course focuses on a firm's financial goals and decisions to maximize shareholders' wealth. It examines financial concepts and analytical techniques, financial performance, time value of money, measurement of risk and return, capital budgeting, capital structure, short-term financial planning, working capital management, and international finance.

Student Learning Outcomes:

Students will:

1. Identify the primary goal of finance to maximize shareholder wealth and not profits and its relationship to decision-making within the firm.

2. Identify key components of the U.S. financial market system and the role of different market players, costs, vehicles, efficient markets, interest rate determinants and risk-return tradeoffs.

3. Evaluate a company's financial performance, using a comprehensive set of financial tools.

4. Analyze the use of time value of money in present value and future value models for investment/project decision-making purposes.

5. Define and measure the expected rate of return and risk for an individual investment, to explain the relationship between risk and return, and how diversification affects risk and return.

6. Describe a firm's financing process, including concepts underlying a firm's cost of capital, the difference between internally and externally generated funds, a firm's financing needs, working capital, and optimum financing mix.

Course Outline:

1. An Introduction to the Foundations of Financial Management

2. The Financial Markets and Interest Rates

3. Understanding Financial Statements and Cash Flows

4. Evaluating a Firm's Financial Performance

5. The Time Value of Money

6. The Meaning and Measurement of Risk and Return

7. Valuation and Characteristics of Bonds

8. Valuation and Characteristics of Stock

9. Capital Budgeting Techniques and Practice

10. Cash Flows and Other Topics in Capital Budgeting

11. Cost of Capital

12. Determining the Financing Mix

13. Dividend Policy and Internal Financing

14. Short-Term Financial Planning

15. Working Capital Management

16. Current Asset Management

17. International Business Finance

 

Corporate Finance II: Financing Investments and Managing Risks:

Course Description:

In this course you will learn how companies decide on how much debt to take, and whether to raise capital from markets or from banks. You will also learn how to measure and manage credit risk and how to deal with financial distress. You will discuss the mechanics of dividends and share repurchases, and how to choose the best way to return cash to investors. You will also learn how to use derivatives and liquidity management to offset specific sources of financial risk, including currency risks. Finally, you will learn how companies finance merger and acquisition decisions, including leveraged buyouts, and how to incorporate large changes in leverage in standard valuation models.

Student Learning Outcomes:

Upon successful completion of this course, you will be able to:

• Understand how companies make financing, payout and risk management decisions that create value

• Measure the effects of leverage on profitability, risk, and valuation

• Manage credit risk and financial distress using appropriate financial tools

• Understand the links between payout policies and company performance

• Use derivatives and liquidity management to offset financial risks

• Pick an appropriate financing package for an M&A or leveraged buyout deal

Course Outline:

1. Module 1: Raising Financing: The Capital Structure Decision

In Module 1, we will discuss the differences between debt and equity financing for corporations. We will then learn how to avoid usual mistakes that people make when analyzing the choice between debt and equity. We will work with financial statements to understand the impact of higher debt on corporate profits, and we will learn how debt and risk are fundamentally related. Finally, we will use our knowledge to understand how companies choose how much debt to have.

1. Module 2: Understanding Debt Financing and Payout Policy

In Module 2 we will dig deeper into the mechanics and the institutional details that are important to understand debt financing. We will learn models that allow us to link default probabilities to yields on a company’s debt. We will discuss the roles of credit ratings and credit default swaps for debt markets. We will learn the importance of non-price contractual terms such as debt covenants, collateral, and seniority. We will use this knowledge to understand how companies choose between bank debt and bond financing. Finally, we will discuss how payout decisions (dividends and share repurchases) affect firm value and how companies choose their optimal payout policy.

1. Module 3: Risk Management

In Module 3 we will identify good and bad reasons why companies engage in risk management, or hedging. We will learn the mechanics of how to use derivatives such as forwards and futures to eliminate specific risks. We will also discuss how to manage risks that cannot be hedged with derivatives. In particular, we will learn that appropriate liquidity management can work as a substitute for hedging strategies. We will also discuss how and why to hedge currency risk, and how to think about a company’s cost of capital when making cross-border investments.

1. Module 4: Financial Management of Acquisitions and R&D

In Module 4, we will apply the financial management tools that we developed in this course to M&A decisions and R&D programs. We will learn how to finance an M&A deal, and how companies choose between cash and stock payments to acquire target companies. We will also discuss the financing of LBOs (leveraged buyouts) and learn how to model a leveraged buyout using Excel. We will then discuss the financial management of R&D programs, with an emphasis on risk management. Specifically, we will learn how to think about the financing of R&D in a dynamic framework that considers the need to make uncertain follow up investments.