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Description:
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Both Financial Accounting and Finance are required Pre-Requisites for this class. The faculty will not waive these pre-reqs.
The purpose of the course is to provide an understanding of the decisions facing financial managers. In this course we will approach problems from the perspective of the Chief Financial Officer (CFO). These decisions concern raising money (debt, equity, short term credit, convertible bonds, etc.) and spending money (capital budgeting, acquisitions). We will attack the investment decision first by looking at capital budgeting using the replication approach. The middle section of the course studies the capital structure decisions of the firm (debt and equity policy). The final part of the course looks at the interplay between financing an investing. Although the perspective of the course is from the high-level (and lucrative!) CFO, the material is relevant to many management careers. For example, if you are working in corporate finance (a treasury group), the material is directly relevant. If you are in investment banking (an intermediary) you need to understand the rationale for designing and issuing securities. If you are in marketing or production or some other area, evaluating projects (capital budgeting) is important. It is also necessary to understanding how the CFO views these decisions. If you are in consulting you will find capital spending and capital structure decisions at the core of many of your assignments.
Objectives:
1. Corporate Investments (Capital Budgeting)
Understand why shareholders agree on the Net Present Value criterion for evaluating risky investments and the conditions under which they may disagree. To achieve this objective, we will investigate the arbitrage or replication approach to valuation and its consequences for capital budgeting and capital structure decisions.
2. Corporate Financing (Funding)
Understand how and why funding with equity or debt can create, destroy and modify value. To meet this goal, we will work to understand the importance of market frictions such as taxes and transaction costs.
3. Corporate Finance Strategy
Integrate the financing and investment decisions. To attain this goal, we will study how market frictions which affect funding decisions influence the investment decision.
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