At the end of the course the student is able to:
• Analyse a firm's performance based on its financial statements.
• Compound and discount streams of cash flows.
• Calculate the net present value (NPV) of an asset.
• Value financial assets: stocks, bonds and options.
• Describe the functioning of financial markets.
• Apply the CAPM and estimate a firm’s beta;
• Interpret the relation between risk and return.
• Calculate a project’s cash flows and the cost of capital.
• Select investment projects.
• Determine the optimal capital structure.
• Understand several strategies a firm can use to manage risk.
Other economic elective.Cannot be followed by students Economics and Business Economics.Cannot be combined with ECB2FIN.
This course offers a framework to systematically tackle the financial problems of corporations and individuals. It introduces you to the financial issues faced by corporations, like investing in real assets and acquiring the funds to pay for these investments. In addition, it gives you a broad introduction to how financial markets work and how financial assets like bonds and equity are valued by investors. Using financial theory you will learn to analyse and solve the basic problems of corporate finance.
Corporate finance studies two broad questions of the corporation: First, in which assets should the corporation invest (capital budgeting decision)? From a wide array of possible investment projects, a corporation needs to select projects that increase shareholders wealth. Naturally, the available projects differ in timing and size of the expected cash flows. You will learn how to compare and select investment projects. Second, how is the corporation going to pay for these assets (financing decision)? A firm can use internally available funds, or it can issue new equity or debt capital. The overall mix of capital is often referred to as the firm’s capital structure, which is a crucial firm characteristic. The capital used by the firm is provided by investors: you will learn how investors determine the value of equity and bonds, and how to tackle the relationship between risk and returns.
Topics to be covered in the course are:
• Firm performance: financial statements and financial ratios.
• Time value of money: present value, future value and compound interest.
• Valuation of financial assets (stocks and bonds).
• Capital budgeting and investment decisions.
• Risk and return in financial markets.
• Capital Asset Pricing Model (CAPM), cost of capital and capital structure.
• Risk management and other selected topics in corporate finance.
This course focuses on the following academic skills:
• Being able to solve problems (identifying the problem, devising a path towards the solution, follow this path, verify the outcome)
• Being able to identify, interpret and critically evaluate the main line of reasoning
• Being able to evaluate evidence in text and presentations
One lecture and one tutorial per week. The main focus of the lectures is on knowledge transfer and creating an understanding for the subject. t. The tutorials, assignments and typical exam questions will be worked out together so that you are well prepared for the upcoming weekly quiz and the final exam. The main focus of the review sessions is to get you to work, to work through exercises together, and to have more time for your questions. The student is also expected to work extensively on the virtual learning platform Connect that accompanies the textbook.
The final course grade will be the weighted average of your weekly quiz grades (together 15% weight) and a final exam (85% weight). There will be seven weekly quizzes.
Participation in at least 6 out of 8 tutorials
Repeaters’ grade consists of the final exam (100%).
Students are expected to have knowledge of:
• Mathematics (ECB1WIS)
• Introduction to Finance and Accounting (ECB1IFA)
• Microsoft Excel
In case online access is required for this course and you are not in the position to buy the access code, you are advised to contact the course coordinator for an alternative solution. Please note that access codes are not re-usable meaning that codes from second hand books do not work, as well as access codes from books with a different ISBN number. Separate or spare codes are usually not available.