FIN 3521 Corporate Finance
Corporate finance is the study of how firms finance their activities by the use of debt and equity, ie. 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 coures, 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 frictionsless 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.
After completing the course, students are expected to:
- Understand how the debt-equity ratio affects owners' risk and required rates of return.
- Understanding the implications of perfect capital markets, ie. why financial decisions are irrelevant in terms of valuation under such market conditions.
- Understand how taxation at only the firm level, and then also how taxation of bondholders and shareholders, affect owners' required rates of return.
- Understand how taxation influences firms' dividend decisions.
- Understand the mechanisms behind merger and acquisition activity.
- Understand how various financial derivatives may be used to manage firms' exposure toward different types of risk.
Students having completed the course are expected to master:
- Computation of the effect of the debt-equity ratio on the risk of equity (shareholder risk)
- Computation of firm value with and without debt (leverage)
- Estimation of the impact of tax and other frictions on firm value
- Estimation of the impact of taxes on the conduct of firms' dividend policy
- Estimate potential gains from mergers and acquisitions
- Estimate potential risk-reducing effects resulting from use of financial derivatives
The main focus of the course is firms' financial decisions in competitive markets. Students are therefore required to be able to indicate the potential implications of such decisions for the main stakeholders, ie. owners, bondholders, employees, and for society at large. With respect to the latter, also to understand how the corporate sector may be expected to operate in order to make positive contributions to society.
- 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
The course offers 45 lecture hours, three mandatory work assignments, individual reading of assigned chapters in the textbook, and individual work on home assignment problems. Attendance in class is voluntary. It is students' responsibility to stay informed on class progress and other information presented in class - in addition to what is distributed on It's Learning by the lecturer.
Coursework requirements (Mandatory)
During the course, three work assignments are given. The assignments are distributed electronically on It's learning. Aswers to the assignments problems are to be submitted electronically. Two out of the three assignments must be passed in order to sit for the final exam given at the end of the lectures series. Administrative details regarding mandatory work assignments and required perfomace for acceptance, will be provided in class.
Feedback on the assignment problems is provided in two ways:
- It's Learning sums up and automatically returns to students their overall score upon submission of the answers.
- A review of the assignment problems is given in class following each assignment. Solutions to the problems are distributed on Its' Learning.
It is required that two out of three work assignments are accepted in order to be eligible to sit for the final exam.
Students having failed the ordinary exam, or student trying to improve their grade, may take a new exam at some later point in time where the exam is arranged.
Higher Education Entrance Qualification
Due to the Covid-19 pandemic, there may be deviations in teaching and learning activities as well as exams, compared with what is described in this course description.
BØK 3423 Finance or equivalent.
|Mandatory coursework||Courseworks given||Courseworks required||Comment coursework|
|Mandatory||3||2||In order to sit for the final exam, students must obtain approval of minimum two of three assignments during the course. See Learning process and workload.|
|Comment coursework:||In order to sit for the final exam, students must obtain approval of minimum two of three assignments during the course. See Learning process and workload.|
|Exam category||Weight||Invigilation||Duration||Support materials||Grouping||Comment exam|
Form of assessment:
Internal and external examiner
Examination every semester
|Form of assessment:||Written submission|
|Support materials:|| |
|Resit:||Examination every semester|
Teaching on Campus
Prepare for teaching
A course of 1 ECTS credit corresponds to a workload of 26-30 hours. Therefore a course of 7,5 ECTS credit corresponds to a workload of at least 200 hours.