The module “Corporate Finance” analyses financial decision-making in companies with a special focus on the uncertainty of the consequences. This includes capital investment decisions and the question to what extend equity or debt should be used to finance the firm’s investment projects. The discussion builds on a thorough understanding of the functioning of financial markets and the valuation of securities and corporations. Learning about asset pricing models will concurrently improve the student’s ability to make smart financial decisions. The course lays the groundwork for the elective finance module in the 6th semester which will address the topic “investments” in greater detail.
The course introduces students to portfolio theory and develops an understanding of basic principles of asset pricing in financial markets (CAPM). Furthermore, capital structure issues are discussed and the Modigliani-Miller irrelevance theorem is put into perspective. Students will learn how companies should optimally satisfy their financial needs and how investment projects and securities can be valued. Additionally, the students will learn to use and select between different concepts of multi-period business valuation.
Topics and Learning Outcomes:
- Valuation Under Uncertainty: To learn about different methods for evaluating alternatives with uncertain consequences and their appropriateness for financial decision making.
- Portfolio Theory: To understand the risk and return characteristics of combinations of financial securities and the effects of diversification.
- Capital Asset Pricing Model: To learn about the valuation of securities in capital markets and the standard model of market equilibrium.
- Cost of Capital and Capital Structure: To identify the pivotal factors in determiningthe optimal capital structure. To assess a company's cost of capital.
- Business Valuation: To use discounted cash flow methods in business valuation.
- Advanced Business Valuation: To understand multiple period valuation models which allow for changing capital structures and the influence of taxation.
Academic: After completing this module the students have fundamental knowledge about asset pricing concepts in capital markets. They are able to explain relationships between risk, return and cost of capital. They can analyze the effects of a change in the capital structure of a company on the value and the risk of this company. The students can choose and employ suitable valuation approaches for the respective task.
Soft Skills: The self-preparation of the students for the lecture facilitates the ability of the students to manage themselves and their time in a more effective and efficient way. The analysis of complex financial problems helps them to solve problems in a structured way. The interactive character of the lectures and tutorials strengthens the student’s discussion skills in the academic context.
The credit points will be granted when the module has been successfully completed, i.e. when the final exam has been passed.
Prerequisite for the course is the comprehension of valuation under certainty.