ROSS, S.; WESTERFIELD, R. y JAFFE, J. (2005), Corporate Finance, McGraw-Hill Irwin, Chicago.

Transcription

1 Degree: Licenciatura en Administración y Dirección de Empresas Department: Economía Financiera y Contabilidad III Academic Year: 2008/2009 Plan: 2000 Subject: Corporate Finance (Economía Financiera de la Empresa) Code: 624 Year: 3rd Duration: Annual Type of subject: ECTS Credits: 9 Compulsory Weekly hours: 3 Theory: 2 Practice: 1 Name of lecturer: Prof. Dr. José MARTÍ PELLÓN Objectives: Provide a deep view of the concepts, techniques and institutions required to perform long term competencies of financial managers, namely those related to investment and financing decisions. Specific knowledge to be taught: Capital budgeting decisions under uncertainty, implications of capital structure decisions and portfolio management. Required skills to follow the subject: Introduction to Business; Mathematics and Financial Mathematics; Statistics, Micro economy and General Accounting. Contents: Scope and goals of Corporate Finance, Principles of valuation, Capital Budgeting, Uncertainty in investment decision, Corporate financing and the six Lessons of market efficiency, Risk and return in securities, Portfolio selection and asset pricing, Sources of long term of financing and the cost of capital, Capital structure and value of the firm, Dividend policy, Basic concepts of advanced topics in financial management. Basic bibliography: BREALEY, R; MYERS, S. y ALLEN, F. (2006), Principles of Corporate Finance, 8th edition., McGraw-Hill, New York. ROSS, S.; WESTERFIELD, R. y JAFFE, J. (2005), Corporate Finance, McGraw-Hill Irwin, Chicago. Teaching methods: Lectures, seminars and case studies with tutorial assistance. Assessment: Students are expected to attend all lectures and seminars and submit required exercises and case studies on schedule. On these grounds, the continuous assessment of student performance in class, based on active participation in class related to readings and exercises, will represent 65% of the final mark in June. There will also be a final examination that will represent 35% of the final grade. Nevertheless, the average will only be calculated if the mark in the written examination is at least 4 points (on a maximum of 10). Students that fail to pass the subject in June will be required to repeat the written examination in September. Students that fail to attend all lectures and seminars or to submit/read the required materials will only be assessed through a final written exam in June and/or September. Language of tuition: English Remarks: Detailed information: 1

2 PILOT SUBJETCT. FACULTAD DE CCEE. Y EE. COURSE ORGANIZATION Subject: Corporate Finance (Economía Financiera de la Empresa), 9 Degree: LADE FULL YEAR Activities to be developed in class: 1. Lectures: Lecturer s presentation of key ideas of the core subjects. 2. Students presentations of developments related to core subjects or information gathered from Internet. 3. Discussion of selected readings and results of exercises. 4. Oral assessment of students performance (Drawn from items. Activities to be developed out of class: 1. Preparation of classes and students presentations: Reading of selected chapters/articles. 2. Basic learning of Microsoft Excel spreadsheet. 3. Preparation of solutions to proposed exercises, problems and case studies. All of them must be handed in electronic format. 4. Web-based search of information regarding topics taught in class. 5. Selected visits to a financial and stock markets. 2

3 Evaluation method 1. Students are expected to attend all lectures and seminars and submit required exercises and case studies on schedule. On these grounds, the continuous assessment of student performance in class, based on active participation in class related to readings and exercises, will represent 65% of the final mark in June. 2. There will also be a final examination that will represent 35% of the final grade. Nevertheless, the average will only be calculated if the mark in the written examination is at least 4 points (on a maximum of 10). 3. Students that fail to pass the subject in June will be required to repeat the written examination in September 4. Students that fail to attend all lectures and seminars or to submit/read the required materials will only be assessed through a final written exam in June and/or September. 3

4 FIRST HALF 5. OCTOBER: First (1 to 5) 1. Scope and goals of Corporate Finance 1.1 Introduction 1.2 Value maximisation of shareholders 1.3 Corporate Governance issue 1.4 The finance function and the firm s objectives 1.5 Role of financial managers (8 to 11) 2. Principles of valuation 2.1 What is value? 2.2 Value of bonds and ordinary stocks 2.3 Value creation for shareholders (15 to 19) 2.4 Discounted Cash Flow What is cash flow? Basics of cash flow analysis Terminal values (22 to26) 3. Capital Budgeting 3.1 Cash flow estimation Opportunity costs of existing assets Sunk costs Depreciation Teaching method (1) Readings: BMA *, 2006: Chapters 1 & 2 and RWJ **, 2005:: Chapter 1 Readings: BMA, 2006: Chapters 3 & 4 Exercises: BMA, 2006: Chapter 3 Readings: BMA, 2006: Chapter 6: Sections 1 & 2 Exercises: BMA, 2006: Chapter 4 Readings: BMA, 2006: Chapter 5 Exercises: BMA, 2006: Chapter 6 Case study 1 on cash-flow projections Fifth (29 to 2) 3.2 Capital rationing 3.3 Investment decision criteria Payback rules Discounted payback period method Readings: RWJ, 2005: Chapter 6 Exercises: BMA, 2006: Chapter 5 Case study 2 on cash-flow projections * BREALEY, R; MYERS, S. y ALLEN, F. (2006), Principles of Corporate Finance, 8th edition., McGraw-Hill, New York. (BMA, 2006, henceforth). ** ROSS, S.; WESTERFIELD, R. y JAFFE, J. (2005), Corporate Finance, McGraw-Hill Irwin, Chicago. (RWJ, 2005, henceforth). 4

5 NOVEMBER: (5 to 9) 3.3 Investment decision criteria Lecture (2) Exercises: RWJ, 2005: Chapter NPV IRR (12 to 16) 3.4 Benchmarking investment proposals (19 to 23) 4. Some ways to cope with uncertainty in investment decisions 4.1 The definition of scenarios 4.2 The definition of certainty equivalents Fifth (26 to 30) 4.4 Probability of achieving a positive NPV Lecture (2) Exercises (1) Exercises: RWJ, 2005: Chapter 6 Readings: BMA, 2006: Chapter 10: Section 1; RWJ: Chapter 8: Section 3 Readings: BMA, 2006: Chapter 6: Sections 1 & 2; Chapter 9: Section 3 Exercises: BMA, 2006: Chapter 4; RWJ: Chapter 8 Mathematic extraction of expected value and variance of NPV Variance calculation using matrixes Readings: BMA, 2006: Chapter 10: Section 2 5

6 DECEMBER: (3 to 7) 4.5 Monte Carlo simulation (10 to 14) 4.6 Decision trees Lecture (2) Exercises (1) (17 to 21) 4.7 Real options Exercises: BMA, 2006: Chapter 10 Readings: BMA, 2006: Chapter 10: Section 3 Exercises: RWJ, 2005: Chapter 8 Readings: RWJ: Chapter 8: Sections 2 & 3 Exercises: RWJ, 2005: Chapter 8 6

7 JANUARY: (7 to 11) 5. Corporate financing and the six Lessons of market efficiency 5.1 We always come back to NPV 5.2 What is an Efficient Market? Random Walk Efficient Market Theory The Evidence on Market Efficiency 5.3 Puzzles and Anomalies 5.6 Six Lessons of Market Efficiency Readings: BMA, 2006: Chapter 13 Article: TBA (14 to 18) 5.4 Fundamental analysis (21 to 25) 5.5 Technical analysis Readings: RWJ, 2005: Chapter 5 Exercises: RWJ, 2005: Chapter 5 Download information about share prices Draw and interpret basic charts Reading: TBA 7

8 SECOND HALF FEBRUARY: (18 to 22) 6. Risk and return in securities 6.1 Risk and return of securities 6.2 Risk and return of portfolios (25 to 29) 6.3 Sharpe s market model 6.4 Systematic and specific risk 6.5 Diversification Discussion (2) Readings: BMA, 2006: Chapter 7: Sections 1-3; RWJ, 2005: Chapter 10. Sections 1-3 Risk and return of selected securities included in the IBEX35 Index Calculation of the expected return and variance of a portfolio Readings: Linear regression; BMA, 2006: Chapter 7: Sections 4-5 Betas of selected securities included in the IBEX35 Index Exercises on a market with 3 securities 8

9 MARCH: (3 to 7) 7. Portfolio selection and asset pricing 7.1 The curve of efficient portfolios 7.2 The Markowitz portfolio selection model (10 to 14) 7.3 The introduction of a risk free asset 7.4 The capital market line Discussion (2) Lecture (2) Readings: RWJ, 2005: Chapter 10: Sections 4-6; BMA, 2006: Chapter 8: Section 1 Exercises on a market with 3 securities (2) Readings: RWJ, 2005: Chapter 10: Sections 7-8 Exercises on a market with 3 securities (3) (17 to 21) EASTER BREAK Fifth (24 to 28) 7.5 Valuation individual securities: The CAPM Lecture (2) Readings: RWJ, 2005: Chapter 10: Section 9; BMA, 2006: Chapter 8: Sections 2-3 Exercises: RWJ, 2005: Chapter 10 9

10 APRIL: First (31 to 4) 7.6 Factor Models 7.7 Ex-post valuation of performance (7 to 11) 8. Sources of long term of financing and the cost of capital 8.1 Cost of equity: The role of CAPM 8.2 Cost of debt (14 to 18) 8.3 Opportunity cost of capital 8.4 Weighted average cost of capital 8.5 Interaction of investment and financing decisions (21 to 25) 9. Capital structure and value of the firm 9.1 Leverage and the value of the firm Lecture (2) Readings: BMA, 2006: Chapter 8: Section 4 Visit: Madrid Stock Exchange Performance of selected Spanish Mutual Funds Readings: BMA, 2006: Chapter 9 Visit a bank and calculate the cost of a loan Readings: RWJ: Chapter 12 Case study Readings: BMA, 2006: Chapter 17 Section 1 Fifth (28 to 2) 9.2 Financial risk and probability of default Lecture (2) Exercises (1) Exercises on probability of default 10

11 MAY: (5 to 9) 9.3 Modigliani & Miller s propositions under ideal conditions (12 to 16) 9.4 The effect of corporate taxes on the value of the firm Readings: RWJ: Chapter 15: Sections 1-4; BMA, 2006: Chapter 17 Section 1 Exercises: RWJ, 2005: Chapter 15 Readings: RWJ: Chapter 15: Sections 5-6; BMA, 2006: Chapter 18 Sections 1-2 Exercises: RWJ, 2005: Chapter 15 (19 to 23) 9.5. The effect of bankruptcy costs Readings: RWJ: Chapter 16: Sections 1-5; BMA, 2006: Chapter 18 Section 3 Exercises: RWJ, 2005: Chapter 16 Examples from the press regarding the effect of capital structure decisions Fifth (24 to 28) 10. Dividend policy 10.1 Types of dividend (cash dividend, stock dividend, and splits) 10.2 Repurchase of stock 10.3 The informative content of dividends 10.4 Irrelevance Theorem 10.5 Clientele effect 10.6 Signalling model Lecture (2) Readings: BMA, 2006: Chapter 16: Examples from the press regarding the effect of dividend policy 11

12 JUNE: (2 to 6) 11. Basic concepts of advanced topics 10.1 Forward and future markets 10.2 Options and other derivatives 10.3 Leveraged acquisitions 10.4 Venture capital and private equity 10.5 Securitization Students presentations (3) Group preparation of topics based on select readings and other material gathered from the Web 12