Master in European Business (MEB)

Course Outline

FINANCE: Basic level

Semester 1

Workload: 4 ECTS, 30 hours

Course Teachers and Contact Details:

Prof. Irina Ivashkovskaya,

Assist. Prof. Anastasia Stepanova,

Course Description

This course is based on the basics of Corporate Finance. The aim of the course is to provide the student with sufficient knowledge to understand the logic of the modern financial analysis of strategic corporate decisions and it focuses mainly on financial decision- making process in corporations including investing, financing, payout policies. The course covers basic finance topics such as principles of equity and debt valuation, cost of capital, capital structure. To follow the course Basic course in Accountingshould be the mandatory prerequisite.

Reading Material

Reading material consists of key book (1), optional books (2-3) and articles from top finance journals (the list will be provided at the first class).

Berk,DeMarzo, Harford. Fundamentals of Corporate Finance. Global Edition. 2nd Edition. Pearson Education Limited, 2012.
Investment Valuation: Tools and Techniques for Determining the Value of Any Asset (Wiley Finance)by Aswath Damodaran;
Principles of Corporate Finance, Concise (McGraw-Hill/Irwin Series in Finance, Insurance and Real Estate)byRichard Brealey, Stewart Myers and Franklin Allen.

Grading Policy

Your grade will be based on home assignments based on team work (case studies (60%)) and written final exam (40%). You should work together in teams of 3-4 on your cases, and should hand in a joint solution with all of your names on it.

Tentative Course Outline

Class 1. Introduction to Finance.What is modern financial analytical framework and how does finance contribute to corporate decision –making?

Class 2-3. Risk and Return. Capital Asset Pricing Model.

Types of risks. Systematic and specific risk. The principles of capital asset pricing theory (CAPM):how to measure expected return and required return on capital. What is risk-free rate. How to measure the systematic risk of a firm: beta coefficient. Premium for risk. Country risk premium. Global and Local CAPM. Premiums for size and liquidity.

Case study. Identifying the required return on equity in western European and emerging market firm.

Class 4-5. Principles of Debt and Equity Valuation.

Types of corporate debt financing instruments. Present value of bond’s cash flows. Valuation of fixed income security. Measuring yield –to-maturity of a bond (YTM).

How does equity valuation differs from bond’s valuation. Discounted dividends model (DDM): the cases for permanent and stable growing dividends. Corporate valuation framework: discounted cash flows. Free cash flow to firm. Free cash flow to equity.

Class 6-7. Capital Structure Overall Cost of Capital

What is capital structure of a firm and when it may become irrelevant for corporate decisions. Modigliani & Miller irrelevance propositions. The fundamental motives for capital structure choices: the Trade-off, the Pecking order explanation. How agency –principal conflicts may contribute to the capital structure choices? The weighted average cost of capital. The optimal capital structure of a firm.

Case study on capital structure of Russian firm.

Class 8-9. Investment Decisions.

Net present value rule for decision-making. Internal rate of return. Discounted payback period. Profitability index. How to assess alternative projects. Independent projects. Projects with different maturities. Equivalent annuity.

Case study on investment decision.

Class 10. Payout Policy.

The types of corporate dividends: cash dividends versus stock dividends. What is dividend clientele and how it influences payout policies? Dividend policy in case of information asymmetry between the firm and investors. Payout policies stylized facts.