Finance
Code
1203
Academic unit
null
Department
null
Credits
7,5
Teacher in charge
Gilberto Loureiro e Igor Cunha
Teaching language
English
Objectives
The main objective of this course is to present the main concepts and tools of the modern theory of Finance that are required to analyse corporate financial decisions. The approach used in the course combines the presentation of the theory with introductory applications of the concepts. By the end of the course, students are expected to be familiar with fundamental concepts and to be able to use them in problems.
Prerequisites
-Principles of Management
-Financial Accounting
Subject matter
1. Introduction to Corporate Finance
-What is corporate finance
-The role of financial markets
2. Value and capital budgeting
-Time value of money
-Present value and future value
-Compounding periods and effective annual interest rate
-Perpetuities and annuities
-Bond valuation
-Bond markets
-Bond valuation and yield to maturity
-Term structures of interest rates
-Common stock valuation
-Dividend growth model
-Estimates of parameters
-Capital budgeting
-Operating cash flow, working capital and capital expenditures
-Net Present Value
-Dealing with inflation
-Alternative criteria: Internal Rate of Return and Payback
-Mutually exclusive projects
-Projects with unequal lives
-Sensitivity and break-even analysis
3. Risk and return
-Portfolio theory
-Expected return, variance and covariance
-Return and risk of portfolios
-Diversification, systematic risk and idiosyncratic risk
-Efficient frontier and tangency portfolio
-Capital asset pricing model (CAPM)
-Capital market line
-Beta
-Security market line
4. Capital structure and payout policy
-Corporate financing decisions
-Efficient capital markets
-Long-term financing: equity and debt
-Issuing securities in financial markets
-Capital structure
-Modigliani and Miller without taxes
-Modigliani and Miller with taxes
-Limits to the use of debt
-Bankruptcy
-Agency costs, asymmetries of information, pecking order theory
-Valuation and capital budgeting with debt
-Adjusted present value (APV)
-Weighted average cost of capital (WACC)
-Flow to equity (FTE)
-Payout policy
-Dividends irrelevance
-Stock repurchases
Bibliography
Hillier, Ross, Westerfield, Jaffe, and Jordan, Corporate Finance, European Edition, McGraw-Hill, 2010.
Teaching method
Evaluation method
Quizzes will be assigned through Moodle. Students will also be required to analyse and solve a case in groups with five members. Mid-term and final exam are closed book with exception of a double side A4 sheet. Passing grades in the course require a minimum grade of 9.5 in the final exam.
The final grade is calculated using the following weights:
-Quizzes: 10%
-Case analysis: 20%
-Mid-term: 20%
-Final exam: 50%