APPLIES TO ACADEMIC YEAR 2013/2014
FIN 3512 Corporate Finance
Responsible for the course
Department of Financial Economics
According to study plan
Language of instruction
Main topic of interest is stock exchange listed firms capital structure decisions, ie. choice between debt and equity, as well as their redistribution of free cash flow to shareholders. These decisions both affect, and are affected by, general economic conditions such as the level of interest rates, the current phase of the business cycle, etc.
Upon completion of the course, students are required to master tasks such as:
- Restructuring corporate balance sheets following firms' capital structure decisions, i.e. their mix of debt and equity.
- Conditions that must be satisfied for capital markets to be perfect.
- Why capital structure decisions cannot impact valuation in perfect markets.
- Compute how taxes and other impediments to perfect markets influence firms' cost of capital.
- Compute option-derived valuations of corporate debt and equity.
- Compute gains and costs from corporate financial management.
Students having completed the course are required to satisfactorily conduct analytical exercises such as:
- Explaining the impact of corporate capital restructurings in terms of operational choices and strategies.
- Explaining the impact of corporate capital restructurings in terms of signalling private information on future business prospects
- to capital markets.
- Explaining why debt and equity finance may initiate, even escalate, conflicts of interest between major corporate stakeholders.
- Explaining why financial risk management activity may enhance the corporate sector's overall stability and thus profitability.
Topics covered enable students to critically challenge some of the main paradigms of free capital markets such as: Should salaries and bonuses in the corporate sector be set according to marginal productivity? What are the potential harms to the investing public from investment banks' sweetened price-estimates in order to obtain new underwriting business? Or - why do firms hesitate to release unpleasant news (surprises to the market) regarding future earnings and profits?
Foundation courses from year one: BØK 3411 Finance and Managerial Accounting I, BØK 3421 Finance and Managerial Accounting II, MET 2910 Mathematics, and MET 2920 Statistics. Or equivalent courses.
Hillier, David ... [et al.]. 2013. Corporate finance. Second European ed. McGraw-Hill Higher Education
Berk, Jonathan, Peter DeMarzo. 2013. Corporate finance : the core. 3rd ed., Global ed. Pearson. 270
The course is comprised of three integrated modules:
Module 1: Capital Structure Decisions
- Capital Structure in Perfect Markets: The Irrelevancy theorems
- Impediments to Perfect Markets: Taxes and Agency costs
Corporate Payout Policy
- Capital Budgeting and Valuation with Leverage
- Debt and Equity Valued as Financial Options
Module 3: Valuation and Corporate Risk Management
- Corporate Risk Management
Excel spreadsheet models are highly recommended for problem-solving. It's learning is used for submitting answers to three mandatory work assignments.
Learning process and workload
The course builds around lectures, four home assignment problem sets (reviewed in-class by instructor as the course progresses), individual reading of assigned chapters from the text, and independent work on the end-of-chapter problems. Conduct of class and teaching style assumes students attending class are familiar with rhe material being lectured on. Allocation of studying-hours as follows is recommended:
|Attendance in class||
|Home assignment problem-solving in class||
|Independent reading/preparation for class||
|Mandatory three work assignments||
|Final exam preparation||
Coursework requirements (Mandatory)
During the course, three mandatory 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 the mandatory work assignments 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 during the first class-meet following each assignment.
In order to sit for the final exam, students must get approved minimum two of three assignments during the course. Se Learning process and workload.
A five (5) hour individual written, closed-book exam concludes the course.
FIN 35121 - Written exam counts for 100% of course grade in FIN 3512 Corporate Finance; 7,5 ECTS credits.
Examination support materials
Interest tables and the BI-defined exam calculator. TEXAS INSTRUMENTS BA II Plus™
For more information, please visit our web-based Student Handbook at http://www.bi.edu/studenthandbook/examaids
A re-sit examination is offered the next time course is offered.
Students not having obtained a passing score on the mandatory home assignments are required to submit a new series of three work assignments during the next ordinary lectures series. Students failing the exam, or wishing to improve previous grades, may retake the exam conditional upon having approval of the semester's work assignments.