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Level 6 • Accounting & Finance

Fundamentals of Corporate Finance

BAF 233 — Semester V
Course CodeBAF 233
TypeB
ECTS5
SemesterV

Course Description

BAF 233 - Fundamentals of Corporate Finance: Finance function and role of financial manager, financial statements and analysis, cash flow concept, time value of money, risk versus return with a consideration of liquidity, financial forecasting, planning and control, working capital policy, current asset management, capital budgeting and related techniques.

Course Objectives

The primary objective of this course is to familiarize the student with basic concepts of corporate finance which is the life blood of any business and its various decision variables in the areas of financing, investment and dividend decisions. This course will introduce you to the theories and techniques of managing capital resources and uses within the framework of shareholder wealth maximization. A substantial part of the course is devoted to the proper methods of computing cash flows and determining market values. In addition, we will examine the sources of capital available to businesses and learn how to allocate assets efficiently

Key Concepts

  1. Capital Budgeting: The process of planning and managing a firm’s long-term investments.
  2. Capital Structure: The mixture of debt and equity maintained by a firm.
  3. Working Capital: A firm’s short-term assets and liabilities.
  4. Liquidity: The speed and ease with which an asset can be converted to cash.
  5. Future Value (FV): The amount an investment is worth after one or more periods. Also compound value.
  6. Present Value (PV): The current value of future cash flows discounted at the appropriate discount rate.
  7. Discounted Cash Flow (DCF) valuation: (a) Calculating the present value of a future cash flow to determine its value today. (b) The process of valuing an investment by discounting its future cash flows.
  8. Net Present Value (NPV): The financial metric that calculates the difference between the present value of cash inflows and the present value of cash outflows over a specific time period.
  9. Internal Rate of Return (IRR): The discount rate at which the net present value of an investment’s cash inflows equals the net present value of its cash outflows.
  10. Payback Period: The amount of time it takes for an investment to generate cash flows sufficient to recover the initial investment cost.

Course Outline

WeekTopics
1Review of Syllabus and Introduction to the Course (Chapter 1): This is an introductory lecture presenting students with the general rules, course assessment criteria, specific requirements, textbook and other learning materials, and the main chapters to be taught in this course. In addition it gives an overview of financial management. This chapter focuses on: 1.1 Finance: A Quick Look 2, 1.2 Business Finance and the Financial Manager 4, 1.3 Forms of Business Organization 7, 1.4 The Goal of Financial Management 9, 1.5 The Agency Problem and Control of the Corporation 12, and 1.6 Financial Markets and the Corporation 15) (Pages 2-21)
2Chapter 2: Financial Statements, Taxes and Cash Flow (This chapter focuses on: 2.1 The Balance Sheet 23, 2.2 The Income Statement 27, 2.3 Taxes 31, and 2.4 Cash Flow 33) (Pages 22-49).
3Chapter 3: Working with Financial Statements (This chapter focuses on: 3.1 Standardized Financial Statements 51, 3.2 Ratio Analysis 54, 3.3 The DUPont Identity 64, 3.4 Internal and Sustainable Growth 68, and 3.5 Using Financial Statement Information 72) (Pages 50-95).
4Chapter 4: Introduction to Valuation- The Time Value of Money (This chapter focuses on: 4.1 Future Value and Compounding 98, 4.2 Present Value and Discounting 104, and 4.3 More on Present and Future Values 108) (Pages 97-121).
5Review of Chapters (1-4) and Quiz
6Chapter 5: Discounted Cash Flow Valuation - Part I (This chapter focuses on: 5.1 Future and Present Values of Multiple Cash Flows 123, 5.2 Valuing Level Cash Flows: Annuities and Perpetuities 131, 5.3 Comparing Rates: The Effect of Compounding Periods 140, and 5.4 Loan Types and Loan Amortization 145) (Pages 122-164).
7Chapter 5: Discounted Cash Flow Valuation - Part II (This chapter focuses on: 5.1 Future and Present Values of Multiple Cash Flows 123, 5.2 Valuing Level Cash Flows: Annuities and Perpetuities 131, 5.3 Comparing Rates: The Effect of Compounding Periods 140, and 5.4 Loan Types and Loan Amortization 145) (Pages 122-164) + Exercises.
8Review Session for Midterm Exam
9Midterm Exam
10Chapter 6: Interest Rate and Bond Valuation (This chapter is focused on: 6.1 Bonds and Bond Valuation 166, 6.2 More on Bond Features 175, 6.3 Bond Ratings 180, 6.4 Some Different Types of Bonds 182, 6.5 Bond Markets 186, 6.6 Inflation and Interest Rates 190, and 6.7 Determinants of Bond Yields 192) (Pages 165-204).
11Chapter 7: Equity Markets and Stock Valuation (This chapter is focused on: 7.1 Common Stock Valuation 206, 7.2 Some Features of Common and Preferred Stock 216, and 7.3 The Stock Markets 220) (Pages 205-236).
12Chapter 8: NPV and Other Investment Criteria (This chapter is focused on: 8.1 Net Present Value 238, 8.2 The Payback Rule 242, 8.3 The Average Accounting Return 246, 8.4 The Internal Rate of Return 248, 8.5 The Profitability Index 257, and 8.6 The Practice of Capital Budgeting 258) (Pages 237-274).
13Chapter 9: Introduction to Capital Investment Decisions (This chapter is focused on: 9.1 Project Cash Flows: A First Look 276, 9.2 Incremental Cash Flows 277, 9.3 Pro Forma Financial Statements and Project Cash Flows 279, 9.4 More on Project Cash Flow 283, 9.5 Evaluating NPV Estimates 291, 9.6 Scenario and Other What-If Analyses 293, and 9.7 Additional Considerations in Capital Budgeting 297) (Pages 275-299).
14Review Before Final Exam

Learning Outcomes

  1. Recall key concepts of corporate finance, including time value of money, risk and return, and capital budgeting techniques.
  2. Explain the importance of financial markets and institutions in the corporate finance landscape and Summarize the principles of financial analysis, including ratio analysis and cash flow analysis.
  3. Apply the time value of money concept to evaluate investment opportunities and make informed financial decisions.
  4. Demonstrate the ability to construct and interpret financial statements for assessing a company's performance.
  5. Analyze various capital budgeting techniques (e.g., NPV, IRR) to assess the viability of potential projects.
  6. Differentiate between different sources of finance and their implications for a firm’s capital structure.
  7. Design a comprehensive financial plan that incorporates capital budgeting, financing decisions, and dividend policies.
  8. Formulate strategic recommendations based on financial analysis and market conditions.
  9. Critique the financial strategies of real-world companies using theoretical frameworks and empirical data.
  10. Assess the impact of external factors (e.g., economic conditions, regulatory changes) on corporate financial decisions.
Assessment
MethodQty% Each
Midterm Exam(s)130
Quiz110
Final Exam150
Attendance10
Textbooks

Essentials of Corporate Finance, Stephan A. Ross, Randolph W. Westerfield and Bradford D. Jordan, McGraw-Hill 10th edition.

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