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CORPORATE FINANCE (Vilnius University Faculty of Economics Finance Master Programme)

 VILNIUS UNIVERSITY

Faculty of Economics

 

CORPORATE FINANCE

The course is dedicated to students of Finance Master Programme

Prepared by prof. dr. Arvydas Paškevičius

The aim of the course is to form theoretical and practical finance management skills that would enable one to successfully plan, organise, analyse, and assess the financial performance of a company and the projects of its development. The competences trained in the course include:

- the knowledge of theoretical and practical finance management principles;

- the ability to assess the financial condition of a company and to prepare and apply financial accountability reports;

- the ability to prepare projects of a company‘s financial activity and to plan its development.

 The course consists of 24 hours, 5 credits.

SUBJECT (MODULE) DESCRIPTION

SYLLABUS

1.    Introduction to Corporate Finance

1.1. Corporate Finance and the Financial Manager
1.2. The Forms of Business Organization

1.3. The Goal of Financial Management
1.4. The Agency Problem and Control of the Corporation

1.5. Financial Markets and the Corporation

       Lecture Notes               Test Questions

2. Financial Statements and Cash Flow

2.1. The Balance Sheet
2.2. The Income Statement
2.3. Cash flow

               Lecture Notes             Test Questions 

3. Working with Financial Statements

3.1. Cash Flow and Financial Statements: A Closer Look
3.2. Standardized Financial Statements
3.3. Ratio Analysis
3.4. The Du Pont Identity
3.5. Using Financial Statement information

                  Lecture Notes       Q&P       Test Questions 

4. Long-term Financial Planning and Growth

4.1. What is Financial Planning?
4.2. Financial Planning Models: A First Look
4.3. The Percentage of Sales Approach
4.4. External Financing and Growth

                  Lecture Notes     Q&P        Test Questions 

5. The Time Value of Money

5.1. Future Value and Compounding
5.2. Present Value and Discounting
5.3. More on Present and Future Values

                Lecture Notes      Q&P       Test Questions 

6. Discounted Cash Flow Valuation

6.1. Present and Future Values of Multiple Cash Flows
6.2. Valuing Level Cash Flows: Annuities and Perpetuities
6.3. Comparing Rates: The Effect of Compounding

6.4. Loan Types and Loan Amortization

                   Lecture Notes       Q&P        Test Questions 

7. Interest Rates and Bond Valuation

7.1. Bonds and Bond Valuation

7.2. More on Bond Features

7.3. Bond Ratings

7.4. Some Different Types of Bonds

7.5. Bond Markets

7.6. Inflation and Interest Rates

7.7. Determinants of Bond Rates

                     Lecture Notes     Q&P       Test Questions 

8. Stock Valuation

8.1. Common Stock Valuation

8.2. Some Features of Common and Preferred Stock

8.3. Stock Markets

                   Lecture Notes       Q&P        Test Questions 

9. Net Present Value and Other Investment Criteria

9.1. Net present value

9.2. The Payback Rule

9.3. The Discounted Payback

9.4. The Average Accounting Return

9.5. The Internal Rate Of Return

9.6. The Profitability Index

                  Lecture Notes         Q&P           Test Questions

10. Making Capital Investment Decisions

10.1. Project Cash Flows: A First Look

10.2. Incremental Cash Flows

10.3. Pro Forma Financial Statements and Project Cash Flows

10.4. More on Project Cash Flow

10.5. Alternative Definitions of Operating Cash Flow

10.6. Some Special Cases of Cash Flow Analysis

               Lecture Notes         Q&P           Test Questions

CASE ANALYSIS AND PRESENTATION

Student’sregistration of case studies

Send requests and presentations: arvydas@paskevicius.com

The example of presentation: Butler Lumber Company   Presentation     Excel

Slide presentations limited to a duration of 10-15 minutes. (desirable in the University form of presentations). Presentations file name must be shortened name of the case. Calculation tables, as additional material illustrating the decision is contained in the Excel form. The presentation you have to send no later than 24 hours before the presentation. The first slide specify: the theme and the author (s) surname (s).

Case studies do not have a straight answer. Different people shall bring a unified solution, so the analysis of the case must present YOUR decision and justify it argumentative. The analysis of the test should be kept in mind that the latest information about the problem and the company can be find on the internet.

Assessment of case analysis and presentation:

1. Presentations submission timeliness, slide quality, oratorical art, audience involvement in the case study 0-3.

2. The complexity of the analyzed problem 0-3

3. Case studies breadth, i.e. quite a lot of work done 0-4

4. Depth of the case analysis, i.e. use sophisticated analytical techniques 0-4

5. It was collected an additional, interesting and valuable material on the Internet. For example., how the company is now doing, what the consequences, modern innovations. 0-2

6. A summary of the findings, what is memorable, the most valuable of the case presented, where you can apply the acquired knowledge 0-2

7. Working as opponent of the peer presentations or active participation in the cases analysis 0-1.  Good questions or comments prized pluses, 3-4 pluses equal to 1 point.

Introductory Exercises

1-1Assessing a Firm's Future. Financial Health

                            Financial Health (1-16 psl.) (Financial Ratio analysis)

                            Tire City, Inc. (17-18 psl.) (Forecasting Pro Forma Financial statements)

Estimating Funds Requirements - Short-Term sources of Funds

1-2 Estimating Funds Requirements - Short-Term sources of Funds

                            Butler Lumber Company (21-24 psl.) (Funding Growth)

                           Note on Bank Loans (25-37 psl. ) (Funding Growth)

39-64 psl.

                           Toy World inc. (39-44 psl.) (Funding Seasonal Needs)

                            SureCut Shears, Inc. (45-52 psl.) (Funding Cyclical Needs)

                            Dell's Working Capital (53-57 psl.) (Managing working capital)

                           Hampton Machine Tool Company (59-64 psl.) (Cash budgeting)

Debt Policy and Long-Term Financing

 65-93 psl. 

                           E.I. du Pont de Nemours and Company (1983) ( 67-78 psl.) (Target Debt Policy)

                            Williams, 2002 ( 79-92 psl.) (Costs of Financial Distress)

93-105 psl.

                           The Loewen Group, Inc (Abridged) (93-105 psl.) (Costs of Financial Distress)

107-143 psl.

                            American Home Products Corporation (107-112 psl.) (Capital Structure Decisions)

                            Debt policy at UST Inc. (113-127 psl.) (Capital Structure Decisions)

                            Diageo plc (129,130-142 psl.) (Capital Structure Decisions)

143-149 psl.

                            Continental Carriers, Inc. ( 143-149 psl. ) (Earnings impact of Leverage)

151-165 psl.

                            Hospital Corporation of America (A) (151-164 psl.) (Credit Ratings and Access to Debt Markets) 

165-179 psl.

                            Stone Container Corporation (A) (165-179 psl.) (Equity Financing)

179-191 psl.

                             MCI Communications Corporation (1983) (179-185 psl.) (Equity-Linked Securities)

     193-209 psl.

                            Cox Commucations, Inc. (1999) (193-209 psl.) (Equity-Linked Securities)

211-225 psl.

                            Compania de Telefonos de Chile (211-224 psl.) (Cross-Border Financing)

       225-241 psl.      

                           Divident Policy at FLP Group, Inc. (A) (225-241 psl.) (Cash distribution)

243-259 psl.

                            Ford Motor Company's Value Enhancement Plan (A) (243-259 psl.) (Recapitalization)

261-277 psl.

                            Marriott Corporation (A) (261-276 psl.) (Event risk)

277-297 psl.

                            Introduction to Derivative Instruments (277-296 psl.) (Basic Derivative Instruments)

                            

297-317 psl.

                            Sally Jameson: Valuing Stock Options in a Compensation Package (Abridged) (297-299 psl.) (Valuing Derivatives)

                           Student Educational Loan Fund, Inc. (Abridged) (301-309 psl.) (Interest Rate Derivatives)

                            Arley Merchandise Corporation ( 311-317 psl. ) (Options and Security Design)

319-347 psl.

                           The Pension Plan of Bethlehem steel (2001) (319-336 psl.) (Pension Fund Risk Management)

                            Tiffany & Company (1993) (337-346 psl.) (Risk Identification and Selection of Risk-Management Techniques)

347-361 psl.

                            United Grain Growers Limited (A) (347-361 psl.) (Risk Identification and Selection of Risk-Management Techniques)

Valuation and Investment

365-395 psl.

                            Valuing Capital investment Projects (365-369 psl.) (Discounted Cash Flow Analysis)

                            Merck & Company: Evaluating a Drug Licensing Opportunity (371-376 psl.) (Introduction to Decision Trees)

                            Tree Values (377-379 psl.) (Basic Value Creation) .

                            The Super Project (381-394 psl.) (Identifying Incremental Cash Flow)

 395-445 psl.

                           NetFlicx.com, Inc. (395-404 psl.) (Forecasting Expected Cash Flow)

                           A-Rod: Signing the Best Player in Baseball (405-418 psl.) (Forecasting Expected Cash Flow)

                           Ocean Carriers (419-424 psl.) (Capital Budgeting)

                            Whirlpool Europe (425-430 psl.) (Capital Budgeting)  

                           Health Development Corporation (431-434 psl.) (Multiples)

Cost of Capital and Valuation

                           Diversification, the Capital Asset Pricing Model and the Cost of Equity Capital (435- 445 psl. )

447-493 psl.

                           Cost of Capital at Ameritrade (447-466 psl. ) (Capital Asset Pricing Model and the Cost of Equity Capital)

                           Pioneer Petroleum Corporation (467-472 psl.) (Risk and the Opportunity Cost of Capital)

                           Leverage Betas and the Cost of Equity (473-482 psl.) (Leverage Betas)

                           Marriott Corporation:  the Cost of Capital (Abridged) (483-491 psl.) (Weighted Average Cost of the Capital)

SCHEDULE FOR THE WORK

#

S.D.

Data

Time

Room

Chapter

Notes

1

Fri

28-Oct

17:30-19:00

701

Introduction to the Course. Introduction to Corporate Finance. Financial Statements and Cash Flow.

Homework: Chapter 1 Test Questions; Chapter 2 Test Questions; Chapter 3  Questions and Problems #  1-5, 11, 13, 14, 16, 17, 26-30. Chapter 3 Test Questions. 

2

Fri

28-Oct

19:10-20:45

701

Working With Financial Statements. Long-term Financial Planning and Growth

3

Fri

4-Nov

17:30-19:00

701

 Agnė Bukavickaitė Department of Economics and Financial Stability BoL         Chapter 1 Test Questions; Chapter 2 Test Questions; Chapter 3  Questions and Problems #  1-5, 11, 13, 14, 16, 17, 26-30. Chapter 3 Test Questions

Homework:Chapter 4  Questions and Problems #  1-8. Chapter 4 Test Questions Chapter 5  Questions and Problems # 1-9. Chapter 5 Test Questions.  

4

Fri

4-Nov

19:10-20:45

701


5

Tue

8-Nov

17:30-19:00

701

The Time Value of Money Discounted Cash Flow Valuation. 

Homework:  Chapter 6  Questions and Problems # 1-15. Chapter 6 Test Questions.

6

Tue

8-Nov

19:10-20:45

701

Chapter 4  Questions and Problems #  1-8. Chapter 4 Test Questions Chapter 5  Questions and Problems # 1-9. Chapter 5 Test Questions. 

7

Tue

15-Nov

17:30-19:00

701

Interest Rates and Bond Valuation. 

Homework:  Homework:  Chapter 7  Questions and Problems # 1-12, 15, 18, 21. Chapter 7 Test Questions. 

8

Tue

15-Nov

19:10-20:45

701

Chapter 6  Questions and Problems # 1-15. Chapter 6 Test Questions.

9

Tue

22-Nov

17:30-19:00

701

Stock Valuation 

Homework: Chapter 8  Questions and Problems # 1-13. Chapter 8 Test Questions. Preparation for Case study presentations

10

Tue

22-Nov

19:10-20:45

701

Chapter 7  Questions and Problems # 1-12, 15, 18, 21. Chapter 7 Test Questions. 

11

Fri

25-Nov

17:30-19:00

701

Case study presentations

Homework: Preparation for examination. Self-test.

12

Fri

25-Nov

19:10-20:45

701

Chapter 8  Questions and Problems # 1-13. Chapter 8 Test Questions.

13

Mon

28-Nov

17:30-19:00

EC

Exam

14

Case study presentations

LITERATURE

1. Fundamentals of Corporate Finance, Ross, S. A. 2010.

2. Principles of Corporate Finance, Brealey, Myers, 2010.

3. Financial Management, Ray M. Brooks. 2010.

4. Capital Markets, Fabozzi Modigliani. 2010 .

Textbook materials (access can be granted individually)   Ch1   Ch2   Ch3   Ch4   Ch5   Ch6   Ch7   Ch8   Ch9  Ch10

EVALUATION

Assessment requirements:

Analysis and solutions of tasks and problems at seminars, case study task and examination.

Final assessment criteria:

The grade assigned for problem solution at seminars is multiplied by 0.20.

The grade assigned for case study task solution is multiplied by 0.50.

Examination shall be taken by electronic means at the Examination center. Students are required to solve tasks presented in the test. The grade of the examination is multiplied by 0.3 and shall be added to the final result.

Composition of the final accumulative grade

The final accumulative grade shall be composed of: 

Problem solutions at seminars – 20 %

Case study task solution – 50%

Examination – 30%

        TEST RESULTS

  



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