Corporate Finance 2600-0550211018
1. Money and banking system – functions and forms of money, central bank and monetary policy, commercial banks and money creation, interest rates, financial markets and institutions.
2. Time Value of Money – simple and compound interest, future value and present value, compounding frequency, annuities and perpetuities, effective annual rate.
3. Bonds and equities – characteristics and types of debt and equity securities, issuers and investors, primary and secondary markets, risk and return of bonds and stocks.
4. Capital Asset Pricing Model and anomalies – risk and return, diversification, systematic and specific risk, beta, Security Market Line, cost of equity; market efficiency and selected anomalies (size, value, momentum, calendar effects).
5. Valuation of bonds – bond price as the present value of cash flows, yield to maturity, current yield, premium and discount bonds, zero-coupon bonds, price–yield relationship, introduction to duration.
6. Valuation of equities – multiplier model and Gordon growth model – P/E, P/BV, EV/EBITDA multiples and comparable companies; dividend discount model and the Gordon growth model; estimating growth and the required rate of return.
7. Mergers & Acquisitions – Types of Mergers, Synergy Valuation, Merger Analysis, Leveraged Buyout, Company Valuation.
8. Project assessment – NPV – relevant cash flows, Net Present Value, Internal Rate of Return, payback period, profitability index, investment decision rules.
Course coordinators
Type of course
Learning outcomes
Upon successful completion of the course, the student will be able to:
• explain the role of money, the central bank and commercial banks in the economy and the financial system,
• apply time value of money concepts (FV, PV, annuities, perpetuities) to financial decisions,
• describe the main types and features of bonds and equities and the risks related to them,
• explain the relationship between risk and expected return using the CAPM and discuss the main market anomalies,
• value bonds, calculate their yields and explain the inverse relationship between bond prices and interest rates,
• value shares using multiplier models and the Gordon growth model,
• describe types of mergers and acquisitions, estimate synergies and assess an LBO transaction and company value,
• evaluate investment projects using NPV and other capital budgeting criteria.
Assessment criteria
Written test during the last class, consisting of two parts:
• Mathematical part – numerical problems (time value of money, bond and equity valuation, CAPM, NPV);
• Theoretical part – closed and short open questions covering all topics of the course.
Grade composition:
• Written test – 90% (mathematical part 50%, theoretical part 40%)
• Class participation – 10%
There is no final project.
Grading scale: below 50% – 2 (fail); 50–60% – 3; 60–70% – 3.5; 70–80% – 4; 80–90% – 4.5; 90–100% – 5.
Examination: Graded credit – written test (last class)
Bibliography
Basic literature:
• Berk J., DeMarzo P., Corporate Finance, 6th edition, Pearson 2023 (or earlier edition)
• Brigham E.F., Ehrhardt M.C., Financial Management: Theory and Practice, 17th edition, Cengage 2023 (or earlier edition)
Supplementary literature:
• Mishkin F.S., The Economics of Money, Banking and Financial Markets, Pearson (latest edition)
• Damodaran A., Investment Valuation: Tools and Techniques for Determining the Value of Any Asset, 3rd edition, Wiley 2012
• Selected articles from the Journal of Applied Corporate Finance, McKinsey on Finance and The Economist