Syllabus Corporate Finance
Content
1
SYLLABUS
Corporate Finance
(2 SKS)
GF 22 GSMB Academic Affairs,
Jl. HR. Rasuna Said Kav. C 22, Kuningan, Jakarta Selatan 12920
Phone: 021 – 526 1448
1
1
1.
Course Description
This course focuses on the development and application of decision models in
the core concepts that underlie corporate finance. With this point in mind, we
present finance as one unified whole based on two simple, powerful ideas: (1)
valuation drives decision making—the firm should take projects for which the
value of the benefits exceeds the value of the costs, and (2) in a competitive
market, market prices determine values. We combine these two ideas with what
we call the Valuation Principle, and from it we establish all of the key ideas in
corporate finance
2.
Course Objectives
The Objectives of this course are as follows :
a) To introduce the valuation principle and time value of money techniques for
single-period investments.
b) To present how interest rates are quoted and compounding for all
frequencies.
c) To introduce stocks and presents the dividend discount model as an
application of the time value of money.
d) To Introduce the NPV rule as the “golden rule” against which we evaluate
other investment decision rules.
e) To provides a clear focus on the distinction between earnings and free cash
flow.
f) To build on capital budgeting material by valuing the ownership claim to the
firm’s free cash flows and addresses market efficiency and behavioral finance.
g) To calculate and uses the firm’s overall costs of capital with the WACC
method.
h) To make the critical distinction between sustainable and value-increasing
growth in determining the firm’s value
3.
Required Texts
Berk Jonathan, DeMarzo Peter, and Harford Jarrad. Fundamentals of Corporate
Finance, 2nd Edition., Prentice Hall, 2012.
4.
Recommended Texts
Brigham Eugene, F., and Ehrhardt Michael C. Corporate Finance: A Focused
Aproach, 4th Ed., South-Western Cengage Learning, 2011.
Ross, Westerfield, and Jaffe Blanchard, Corporate Finance, McGraw-Hill, 2003
GF 22 GSMB Academic Affairs,
Jl. HR. Rasuna Said Kav. C 22, Kuningan, Jakarta Selatan 12920
Phone: 021 – 526 1448
1
1
5. Evaluation
Quizzes
Assignments
Mid Term Exam
Final Exam
Total
6.
10%
20%
30%
40%
100%
Course Outline
Session 1 : Corporate Finance and the Financial Manager
This session introduces the importance of financial information in both a
personal and business lives, understands the important features of the four
main types of firms and see why the advantages of the corporate form have led
it to dominate economic activity, explains the goal of the financial manager and
the reasoning behind that goal, as well as understand the three main types of
decisions a financial manager makes, know how a corporation is managed and
controlled, the financial manager’s place in it, and some of the ethical issues
financial managers face, understands the importance of financial markets, such
as stock markets, to a corporation and the financial manager’s role as liaison to
those markets, recognizes the role that financial institutions play in the financial
cycle of the economy.
Reference (Berk): Chapter 1.
Session 2 : Introduction to Financial Statements Analysis
This session sets the knowledge of why the disclosure of financial information
through financial statements is critical to investors, understands the function of
the balance sheet, uses the balance sheet to analyze a firm, understands how
the income statement is used, analyzes a firm through its income statement,
including using the DuPont Identity, interprets a statement of cash flows,
understands what management’s discussion and analysis and the statement of
stockholders’ equity are, understands the main purpose and aspects of the
Sarbanes-Oxley reforms following Enron and other financial scandals.
Reference (Berk): Chapter 2.
Session 3 : Time Value of Money - An Introduction and Valuing Cash Flow
Streams
This session discusses the logistical and cross-functional drivers of supply chain
Identify the roles of financial managers and competitive markets in decision
making, understand the valuation principle, and how it can be used to identify
decisions that increase the value of the firm, assess the effect of interest rates
on today’s value of future cash flows, calculates the value of distant cash flows
in the present and of current cash flows in the future, values a series of many
cash flows, a perpetual series of regular cash flows, called a perpetuity, a
GF 22 GSMB Academic Affairs,
Jl. HR. Rasuna Said Kav. C 22, Kuningan, Jakarta Selatan 12920
Phone: 021 – 526 1448
1
1
common set of regular cash flows called an annuity, both perpetuities and
annuities when the cash flows grow at a constant rate, computes the number of
periods, cash flow, or rate of return of a loan or investment
Reference (Berk): Chapter 3.
Session 4 : Interest Rates
This session describes the different ways interest rates are quoted, uses
quoted rates to calculate loan payments and balances, knows how inflation,
expectations, and risk combine to determine interest rates, understands the link
between interest rates in the market and a firm’s opportunity cost of capital.
Reference (Berk): Chapter 4.
Session 5 : Bonds
This session focuses the understanding of bond terminology, computes the price
and yield to maturity of a zero-coupon bond, computes the price and yield to
maturity of a coupon bond, analyzes why bond prices change over time, knows
how credit risk affects the expected return from holding.
Reference (Berk): Chapter 5.
Session 6 : Stock Valuation and Stock Valuation : A Second Look
This session describes the basics of common stock, preferred stock, and stock
quotes, compares how trades are executed on the NYSE and NASDAQ, values
a stock as the present value of its expected future dividends, understands the
tradeoff between dividends and growth in stock valuation, appreciate the
limitations of valuing a stock based on expected dividends, values a stock as the
present value of the company’s total payout.
Reference (Berk): Chapter 6.
Session 7 : Investment Decision Rules and Fundamentals of Capital
Budgeting
This session calculates Net Present Value, uses the NPV rule to make
investment decisions, understands alternative decision rules and their
drawbacks, chooses between mutually exclusive alternatives, evaluates projects
with different lives, ranks projects when a company’s resources are limited so
that it cannot take all positive-NPV projects, identifies the types of cash flows
needed in the capital budgeting process, forecasts incremental earnings in a pro
forma earnings statement for a project, converts forecasted earnings to free
cash flows and compute a project’s NPV, recognizes common pitfalls that arise
in identifying a project’s incremental free cash flows, assess the sensitivity of a
project’s NPV to changes in your assumptions, identifies the most common
options available to managers in projects and understands why these options
can be valuable.
GF 22 GSMB Academic Affairs,
Jl. HR. Rasuna Said Kav. C 22, Kuningan, Jakarta Selatan 12920
Phone: 021 – 526 1448
1
1
Reference (Berk): Chapter 7.
Session 8 : Risk and Return in Capital Markets and Systematic Risk and
the Equity Risk Premium
This identifies which types of securities have historically had the highest returns
and which have been the most volatile, computes the average return and
volatility of returns from a set of historical asset prices, understands the tradeoff
between risk and return for large portfolios versus individual stocks, describes
the difference between common and independent risk, explains how diversified
portfolios remove independent risk, leaving common risk as the only risk
requiring a risk premium, calculates the expected return and volatility (standard
deviation) of a portfolio, understands the relation between systematic risk and
the market portfolio, measures systematic risk, uses the Capital Asset Pricing
Model (CAPM) to compute the cost of equity capital for a stock.
Reference (Berk): Chapter 11 and Chapter 12.
Session 9 : The Cost of Capital
This session focuses on understanding the drivers of the firm’s overall cost of
capital, measures the costs of debt, preferred stock, and common stock,
computes a firm’s overall, or weighted average, cost of capital, applies the
weighted average cost of capital to value projects, adjusts the cost of capital for
the risk associated with the project, accounts for the direct costs of raising
external capital.
Reference (Berk): Chapter 13.
Session 10 : Raising Equity Capital
This session gets students to contrast the different ways to raise equity capital
for a private company, understands the process of taking a company public,
gains insight into puzzles associated with initial public offerings, explains how to
raise additional equity capital once the company is public.
Reference (Chopra): Chapter 14.
Session 11 : Debt Financing
This session identifies different types of debt financing available to a firm,
understands limits within bond contracts that protect the interests of
bondholders, describes the various options available to firms
for the early repayment of debt.
Reference (Berk): Chapter 11.
Session 12 : Capital Structure and Payout Policy
GF 22 GSMB Academic Affairs,
Jl. HR. Rasuna Said Kav. C 22, Kuningan, Jakarta Selatan 12920
Phone: 021 – 526 1448
1
1
This session examines how capital structures vary across industries and
companies, understands why investment decisions, rather than financing
decisions, fundamentally determine the value and cost of capital of the firm,
describes how leverage increases the risk of the firm’s equity, demonstrates how
debt can affect a firm’s value through taxes and bankruptcy costs, shows how
the optimal mix of debt and equity trades off the costs (including financial
distress costs) and benefits (including the tax advantage) of debt, analyze how
debt can alter the incentives of managers to choose different projects and can
be used as a signal to investors, weighs the many costs and benefits to debt that
a manager must balance when deciding how to finance the firm’s investments.
This session also identifies the different ways in which corporations can make
distributions to shareholders, understands why the way in which they distribute
cash flow does not affect value absent market imperfections, demonstrates how
taxes can create an advantage for share repurchases versus dividends, explains
how increased payouts can reduce agency problems but potentially reduce
financial flexibility, understand the role of payout policy in signaling information to
the market, describes alternate non-cash methods for payouts
Reference (Berk): Chapter 12.
Session 13 : Financial Modeling and Pro Forma Analysis
This focuses on determining the optimal level of product availability and how the
Understand the goals of long-term financial planning, creates pro forma income
statements and balance sheets using the percent of sales method, develops
financial models of the firm by directly forecasting capital expenditures, working
capital needs, and financing events, distinguishes between the concepts of
sustainable growth and value-increasing growth, uses pro-forma analysis to
model the value of the firm under different scenarios, such as expansion
Reference (Berk): Chapter 13.
Session 14 : Working Capital Management and Short-Term Financial
Planning
This session understands the cash cycle of the firm and why managing working
capital is important, uses trade credit to the firm’s advantage, makes decisions
on extending credit and adjusting credit terms, manages accounts payable,
knows the costs and benefits of holding additional inventory, contrasts the
different instruments available to a financial manager for investing cash
balances. This session also forecasts cash flows and short-term financing
needs, understands the principle of matching short term needs to short-term
funding sources, knows the types of different bank loans and their tradeoffs,
understands the use of commercial paper as an alternative to bank financing,
uses financing secured by accounts receivable or inventory and knows how to
create a short-term financial plan. Reference (Berk): Chapter 19 and Chapter
20.
GF 22 GSMB Academic Affairs,
Jl. HR. Rasuna Said Kav. C 22, Kuningan, Jakarta Selatan 12920
Phone: 021 – 526 1448
1
SYLLABUS
Corporate Finance
(2 SKS)
GF 22 GSMB Academic Affairs,
Jl. HR. Rasuna Said Kav. C 22, Kuningan, Jakarta Selatan 12920
Phone: 021 – 526 1448
1
1
1.
Course Description
This course focuses on the development and application of decision models in
the core concepts that underlie corporate finance. With this point in mind, we
present finance as one unified whole based on two simple, powerful ideas: (1)
valuation drives decision making—the firm should take projects for which the
value of the benefits exceeds the value of the costs, and (2) in a competitive
market, market prices determine values. We combine these two ideas with what
we call the Valuation Principle, and from it we establish all of the key ideas in
corporate finance
2.
Course Objectives
The Objectives of this course are as follows :
a) To introduce the valuation principle and time value of money techniques for
single-period investments.
b) To present how interest rates are quoted and compounding for all
frequencies.
c) To introduce stocks and presents the dividend discount model as an
application of the time value of money.
d) To Introduce the NPV rule as the “golden rule” against which we evaluate
other investment decision rules.
e) To provides a clear focus on the distinction between earnings and free cash
flow.
f) To build on capital budgeting material by valuing the ownership claim to the
firm’s free cash flows and addresses market efficiency and behavioral finance.
g) To calculate and uses the firm’s overall costs of capital with the WACC
method.
h) To make the critical distinction between sustainable and value-increasing
growth in determining the firm’s value
3.
Required Texts
Berk Jonathan, DeMarzo Peter, and Harford Jarrad. Fundamentals of Corporate
Finance, 2nd Edition., Prentice Hall, 2012.
4.
Recommended Texts
Brigham Eugene, F., and Ehrhardt Michael C. Corporate Finance: A Focused
Aproach, 4th Ed., South-Western Cengage Learning, 2011.
Ross, Westerfield, and Jaffe Blanchard, Corporate Finance, McGraw-Hill, 2003
GF 22 GSMB Academic Affairs,
Jl. HR. Rasuna Said Kav. C 22, Kuningan, Jakarta Selatan 12920
Phone: 021 – 526 1448
1
1
5. Evaluation
Quizzes
Assignments
Mid Term Exam
Final Exam
Total
6.
10%
20%
30%
40%
100%
Course Outline
Session 1 : Corporate Finance and the Financial Manager
This session introduces the importance of financial information in both a
personal and business lives, understands the important features of the four
main types of firms and see why the advantages of the corporate form have led
it to dominate economic activity, explains the goal of the financial manager and
the reasoning behind that goal, as well as understand the three main types of
decisions a financial manager makes, know how a corporation is managed and
controlled, the financial manager’s place in it, and some of the ethical issues
financial managers face, understands the importance of financial markets, such
as stock markets, to a corporation and the financial manager’s role as liaison to
those markets, recognizes the role that financial institutions play in the financial
cycle of the economy.
Reference (Berk): Chapter 1.
Session 2 : Introduction to Financial Statements Analysis
This session sets the knowledge of why the disclosure of financial information
through financial statements is critical to investors, understands the function of
the balance sheet, uses the balance sheet to analyze a firm, understands how
the income statement is used, analyzes a firm through its income statement,
including using the DuPont Identity, interprets a statement of cash flows,
understands what management’s discussion and analysis and the statement of
stockholders’ equity are, understands the main purpose and aspects of the
Sarbanes-Oxley reforms following Enron and other financial scandals.
Reference (Berk): Chapter 2.
Session 3 : Time Value of Money - An Introduction and Valuing Cash Flow
Streams
This session discusses the logistical and cross-functional drivers of supply chain
Identify the roles of financial managers and competitive markets in decision
making, understand the valuation principle, and how it can be used to identify
decisions that increase the value of the firm, assess the effect of interest rates
on today’s value of future cash flows, calculates the value of distant cash flows
in the present and of current cash flows in the future, values a series of many
cash flows, a perpetual series of regular cash flows, called a perpetuity, a
GF 22 GSMB Academic Affairs,
Jl. HR. Rasuna Said Kav. C 22, Kuningan, Jakarta Selatan 12920
Phone: 021 – 526 1448
1
1
common set of regular cash flows called an annuity, both perpetuities and
annuities when the cash flows grow at a constant rate, computes the number of
periods, cash flow, or rate of return of a loan or investment
Reference (Berk): Chapter 3.
Session 4 : Interest Rates
This session describes the different ways interest rates are quoted, uses
quoted rates to calculate loan payments and balances, knows how inflation,
expectations, and risk combine to determine interest rates, understands the link
between interest rates in the market and a firm’s opportunity cost of capital.
Reference (Berk): Chapter 4.
Session 5 : Bonds
This session focuses the understanding of bond terminology, computes the price
and yield to maturity of a zero-coupon bond, computes the price and yield to
maturity of a coupon bond, analyzes why bond prices change over time, knows
how credit risk affects the expected return from holding.
Reference (Berk): Chapter 5.
Session 6 : Stock Valuation and Stock Valuation : A Second Look
This session describes the basics of common stock, preferred stock, and stock
quotes, compares how trades are executed on the NYSE and NASDAQ, values
a stock as the present value of its expected future dividends, understands the
tradeoff between dividends and growth in stock valuation, appreciate the
limitations of valuing a stock based on expected dividends, values a stock as the
present value of the company’s total payout.
Reference (Berk): Chapter 6.
Session 7 : Investment Decision Rules and Fundamentals of Capital
Budgeting
This session calculates Net Present Value, uses the NPV rule to make
investment decisions, understands alternative decision rules and their
drawbacks, chooses between mutually exclusive alternatives, evaluates projects
with different lives, ranks projects when a company’s resources are limited so
that it cannot take all positive-NPV projects, identifies the types of cash flows
needed in the capital budgeting process, forecasts incremental earnings in a pro
forma earnings statement for a project, converts forecasted earnings to free
cash flows and compute a project’s NPV, recognizes common pitfalls that arise
in identifying a project’s incremental free cash flows, assess the sensitivity of a
project’s NPV to changes in your assumptions, identifies the most common
options available to managers in projects and understands why these options
can be valuable.
GF 22 GSMB Academic Affairs,
Jl. HR. Rasuna Said Kav. C 22, Kuningan, Jakarta Selatan 12920
Phone: 021 – 526 1448
1
1
Reference (Berk): Chapter 7.
Session 8 : Risk and Return in Capital Markets and Systematic Risk and
the Equity Risk Premium
This identifies which types of securities have historically had the highest returns
and which have been the most volatile, computes the average return and
volatility of returns from a set of historical asset prices, understands the tradeoff
between risk and return for large portfolios versus individual stocks, describes
the difference between common and independent risk, explains how diversified
portfolios remove independent risk, leaving common risk as the only risk
requiring a risk premium, calculates the expected return and volatility (standard
deviation) of a portfolio, understands the relation between systematic risk and
the market portfolio, measures systematic risk, uses the Capital Asset Pricing
Model (CAPM) to compute the cost of equity capital for a stock.
Reference (Berk): Chapter 11 and Chapter 12.
Session 9 : The Cost of Capital
This session focuses on understanding the drivers of the firm’s overall cost of
capital, measures the costs of debt, preferred stock, and common stock,
computes a firm’s overall, or weighted average, cost of capital, applies the
weighted average cost of capital to value projects, adjusts the cost of capital for
the risk associated with the project, accounts for the direct costs of raising
external capital.
Reference (Berk): Chapter 13.
Session 10 : Raising Equity Capital
This session gets students to contrast the different ways to raise equity capital
for a private company, understands the process of taking a company public,
gains insight into puzzles associated with initial public offerings, explains how to
raise additional equity capital once the company is public.
Reference (Chopra): Chapter 14.
Session 11 : Debt Financing
This session identifies different types of debt financing available to a firm,
understands limits within bond contracts that protect the interests of
bondholders, describes the various options available to firms
for the early repayment of debt.
Reference (Berk): Chapter 11.
Session 12 : Capital Structure and Payout Policy
GF 22 GSMB Academic Affairs,
Jl. HR. Rasuna Said Kav. C 22, Kuningan, Jakarta Selatan 12920
Phone: 021 – 526 1448
1
1
This session examines how capital structures vary across industries and
companies, understands why investment decisions, rather than financing
decisions, fundamentally determine the value and cost of capital of the firm,
describes how leverage increases the risk of the firm’s equity, demonstrates how
debt can affect a firm’s value through taxes and bankruptcy costs, shows how
the optimal mix of debt and equity trades off the costs (including financial
distress costs) and benefits (including the tax advantage) of debt, analyze how
debt can alter the incentives of managers to choose different projects and can
be used as a signal to investors, weighs the many costs and benefits to debt that
a manager must balance when deciding how to finance the firm’s investments.
This session also identifies the different ways in which corporations can make
distributions to shareholders, understands why the way in which they distribute
cash flow does not affect value absent market imperfections, demonstrates how
taxes can create an advantage for share repurchases versus dividends, explains
how increased payouts can reduce agency problems but potentially reduce
financial flexibility, understand the role of payout policy in signaling information to
the market, describes alternate non-cash methods for payouts
Reference (Berk): Chapter 12.
Session 13 : Financial Modeling and Pro Forma Analysis
This focuses on determining the optimal level of product availability and how the
Understand the goals of long-term financial planning, creates pro forma income
statements and balance sheets using the percent of sales method, develops
financial models of the firm by directly forecasting capital expenditures, working
capital needs, and financing events, distinguishes between the concepts of
sustainable growth and value-increasing growth, uses pro-forma analysis to
model the value of the firm under different scenarios, such as expansion
Reference (Berk): Chapter 13.
Session 14 : Working Capital Management and Short-Term Financial
Planning
This session understands the cash cycle of the firm and why managing working
capital is important, uses trade credit to the firm’s advantage, makes decisions
on extending credit and adjusting credit terms, manages accounts payable,
knows the costs and benefits of holding additional inventory, contrasts the
different instruments available to a financial manager for investing cash
balances. This session also forecasts cash flows and short-term financing
needs, understands the principle of matching short term needs to short-term
funding sources, knows the types of different bank loans and their tradeoffs,
understands the use of commercial paper as an alternative to bank financing,
uses financing secured by accounts receivable or inventory and knows how to
create a short-term financial plan. Reference (Berk): Chapter 19 and Chapter
20.
GF 22 GSMB Academic Affairs,
Jl. HR. Rasuna Said Kav. C 22, Kuningan, Jakarta Selatan 12920
Phone: 021 – 526 1448
1
