There are two parts:

Part I (online): October-classes, covering theoretical concepts with a focus on reading the relevant chapters in Berk and DeMarzo (do this well in advance before we cover the topics in the lecture), online lectures during the time of the originally schedules classes, and lecture casts for specific topics.

Part II (rotation mode): November-classes, with a focus on exercises, discussion of the open questions, cases, and deepening of difficult concepts. (Depending on circumstances and experience in Part I, we might switch to online mode).

Please check your emails regularly to make sure that you receive information about changes and updates.

This course examines important issues in corporate finance from the perspective of financial managers who are responsible for making significant financing and investment decisions. You will learn how investment and financing decisions interact to affect the value of the firm and how management can evaluate operating decisions, taking into account taxes and uncertainty.

We build on topics covered in “Basics in Finance” and cover selected chapters from “Corporate Finance” by Berk and DeMarzo (see below). Please make sure that you brush up on the material you covered in the course and read the relevant chapters in Berk and DeMarzo.

An important part of the course is to apply what you learned. You have to form teams in which you tackle topics that you encounter in practice.

We cover two key topics:

1. Principles of value creation through capital structure decisions.

2. Principles of valuing a firm or project in a capital market context.

Topics

• Fundamentals of Capital Budgeting (Chapter  8)
• Valuing Stocks (Chapter  9)
• Cost of Capital (Chapter 12)
• Capital Structure in a Perfect Market (Modigliani-Miller) (Chapter 14)
• Debt and Taxes (Chapter 15)
• Financial Distress, Incentives, and Information Problems (Chapter 16)
• Capital Budgeting and Valuation with Leverage (Chapter 18)

All chapters refer to Berk/DeMarzo, Corporate Finance (3rd – 5th Global Edition, which you can all use).

Students learn to

1. Understand how financial decisions affect the market value of a firm and identify key drivers of a firm’s financial structure decision.
   1. Why can it be optimal to finance projects such as the Eurotunnel with high levels of debt?
   2. Why do pharmaceutical companies often have negative debt (i.e., more cash than debt)?
   3. Why do banks have an incentive to take on high levels of debt and take on high risk absent regulation?
2. Apply the discounted cash flow approach to value investment projects or firms.
   1. How can you use information from the income statement and balance sheet of a firm to calculate the expected cash flow underlying the discounted cash flow method?
   2. How can you use available market information to derive a firm’s cost of capital (i.e., cost of equity and weighted average cost of capital)?

The first lecture (online) is mandatory and you have to make sure that you participate in presentations of group assignments on a regular basis.

The course covers selected chapters from Corporate Finance by Berk and DeMarzo (see content) and builds on what you learned in “Basics in Finance”. We will discuss the concepts in class and I guide you through the key points. However, you have to be prepared and read the relevant chapters before class.

We discuss exercises that help you to understand and deepen the key concepts in class. You have to be prepared to explain the solution to other students or explain what you did not understand. I will call not only voluntary participants, but I may ask you to come to the board, and I may do in class quizzes to test how well you prepared the exercises.

An important part of the course is to apply what you learned through a case study. You have to form teams in which you analyze a company (more in class). Each individual of the group has to be prepared to present the findings in class.

Class participation is mandatory and important. I may call on individuals to lead a discussion or otherwise participate in the discussion.

For specific information on the individual requirements see below.

Basisc in Finance

E-mail: christian.laux@wu.ac.at

Open question: Group exercise on capital structure: I will give you a specific question related to capital structure that you answer with your group. Requirement: about 1-2 pages, bullet points, and you have to be prepared to present and defend your arguments “in class.” I will set a time window of about a week during which you can work on the assignment. You must not discuss the question with members of other groups before we discuss them in class! 

Case study: Group exercise on valuation: I will give you specific questions throughout the course, which you have to address working together with your group. Requirement: short answers to the questions; you have to be prepared to present and explain your answers “in class.” You must not discuss the questions with other groups before we discuss them in class!

A note on Group assignments: I will assign participants to groups. Each group consists of 4–5 members, depending on the number of people enrolled in class. (If you have group members that you would like to work with, you can send me an Email until October 12. However, there is no guarantee that I can accommodate the wishes.)

Final: 60 minutes, at WU, November 24, 9–11:30 (two groups, one hour each in this time window): individual exercise, closed book, you may only use a non-programmable calculator (no smartphone)! The exam will include problem-oriented quantitative questions, and theoretical questions to ensure understanding of the concepts discussed in class. The questions are conceptually similar to those we discuss in class.

Exercises: We discuss the solution to the exercises. You have to be prepared to explain the solution to other students or explain what you did not understand.

Participation has two dimensions, content and format/style. Each student is strongly encouraged to add to the content of the discussion, e.g., to present his or her alternative viewpoint, to apply concepts to the problem at hand, to find real-world examples that corroborate or refute what we discuss.

You can earn up to 5 bonus points for participation that contributes to the overall learning experience of all participants.