At the end of the course the student is able to:
- Compound and discount streams of cash flows.
- Calculate the net present value (NPV) of an asset.
- Value financial assets: stocks, bonds and options.
- Describe the functioning of financial markets.
- Interpret the relation between risk and return.
- Calculate a project’s cash flows and the cost of capital.
- Select investment projects.
- Determine the optimal capital structure
- Analyze a firm's performance based on its financial statements.
- Understand several strategies a firm can use to manage risk.
Analytical Skills:
The course contributes to the following academic skills development:
- Being able to solve problems (identifying the problem, devising a path towards the solution, follow this path, verify the outcome)
- Being able to identify, interpret and critically evaluate the main line of reasoning
- Being able to evaluate evidence in text and presentations
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This course offers a framework to systematically analyze the financial problems of corporations and individuals. It introduces you to the financial issues faced by corporations, like investing in real assets and acquiring the funds to pay for these investments. In addition, it gives you a broad introduction to how financial markets work and how financial assets like bonds and equity are valued by investors. Using financial theory, you will learn to analyze and solve the basic problems of corporate finance.
Corporate finance studies two broad questions of the corporation:
First: In which assets should the corporation invest (capital budgeting decision)?
From a wide array of possible investment projects, a corporation needs to select projects that increase shareholders wealth. Naturally, the available projects differ in timing and size of the expected cash flows. You will learn how to compare and select investment projects.
Second: How is the corporation going to pay for these assets (financing decision)?
A firm can use internally available funds, or it can issue new equity or debt capital.
The overall mix of capital is often referred to as the firm’s capital structure, which is a crucial firm characteristic.
The capital used by the firm is provided by investors: you will learn how investors determine the value of equity and bonds, and how to tackle the relationship between risk and returns.
Format:
There will be lectures and tutorials. The main focus of the lectures is on knowledge transfer and creating an understanding for the subject. In the tutorials, assignments and typical exam questions will be worked out together to prepare the student for the weekly quizzes and the final exam. On top of this, the student is also expected to work extensively on the virtual learning platform Connect that accompanies the textbook.
The lectures are on Mondays from 11:00 – 12:45 hrs. ON LINE and the tutorials are on Wednesdays from 11:00 – 12:45 hrs. ON LINE. On Fridays you need to complete an online quiz.
Course conflicts within the same timeslot are the student’s own responsibility: the days and times of meetings and exams for this course cannot be modified.
Assessment method:
The final course grade will be the weighted average of your weekly quiz grades (together 15% weight) and a final exam (85% weight). There will be seven weekly quizzes.
Quizzes:
The weekly quizzes will be open book online assignments on 'Connect'. 'Connect' is an online learning and testing environment of the publisher of the textbook, McGraw-Hill. To access Connect you need the unique login code from your textbook. It is your responsibility to have access to the online environment on which the weekly quiz will be offered and that you have a reliable and working internet connection for the weekly quiz. You do not need to pass the weekly quizzes in order to pass the course.
Repeaters:
Repeaters will have the same curriculum as a regular student, this includes the weekly connect quizzes. If you already have a Fundamentals of Corporate Finance book, you have to buy a Connect code separately, in order to complete the online quizzes and practice assignments.
Extra Notes:
1) You will have to attend at least 1 connect quiz in order to get an end-grade! Otherwise you will end up with a ND (= no participation)
2) At the retake exam for EC2PCF the results of quizzes and/or effort requirement are NO LONGER applicable. The retake exam is in that case the final and only grade taken into consideration.
Final exam:
The final exam is a closed-book exam which consists for 100% of multiple-choice questions. There will be approximately 30 multiple choice questions.
The final exam will cover all topics of the course, including the topics of the weekly quizzes. This is not an online exam and you are not allowed to bring any books or notes to the final exam. Only non-programmable calculators are allowed. A sheet with the most important formulas will be provided (and posted in advance of the exam on Blackboard).
Effort requirements:
The effort requirement for this course is attendance and active participation in the tutorials. To be eligible for the retake you need to attend at least 5 out of 7 tutorials for which you’re demonstrably prepared. At the beginning of the tutorial you need to register with your name, student number and your student e-mail via the Mentimeter request at the start of the tutorial.
Prerequisites:
Students are expected to have knowledge of:
- Mathematics (ECB1WIS)
- Financial Accounting (ECB1IBE)
- Statistics (ECB1STAT)
- Microsoft Excel
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