2207 Course III - Corporate Finance
Natalija Kostic, MSc (WU), Univ.Prof. Alexander Mürmann, Ph.D.
Contact details
Weekly hours
Language of instruction
09/15/21 to 10/05/21
Registration via LPIS
Notes to the course
Day Date Time Room
Thursday 10/14/21 05:00 PM - 07:15 PM Online-Einheit
Wednesday 10/20/21 12:00 PM - 02:15 PM Online-Einheit
Thursday 10/21/21 05:00 PM - 07:15 PM Online-Einheit
Wednesday 10/27/21 12:00 PM - 02:15 PM Online-Einheit
Thursday 10/28/21 05:00 PM - 07:15 PM Online-Einheit
Wednesday 11/03/21 12:00 PM - 02:15 PM Online-Einheit
Thursday 11/04/21 05:00 PM - 07:15 PM Online-Einheit
Wednesday 11/10/21 12:00 PM - 02:15 PM Online-Einheit
Thursday 11/11/21 05:00 PM - 07:15 PM Online-Einheit
Wednesday 11/17/21 12:00 PM - 02:15 PM Online-Einheit
Friday 11/26/21 02:00 PM - 03:30 PM Online-Einheit

Topic 1: Corporate Financing and Real Asset Valuation

o Leverage (mix of debt and equity)

o Debt tax shields

o Cost of capital

o Valuation of real assets:

o Weighted average cost of capital (WACC) method

o Adjusted present value (APV) method


Topic 2: Corporate Financing Policy

o Irrelevance of Capital Structure (Modigliani-Miller-Theorem)

o Observed patterns in corporate financing policies and the assumptions of MM


Topic 3: Capital Structure: Trade-off between Tax Shields and Financial Distress Costs

o Corporate and personal taxes

o Direct and indirect bankruptcy costs


Topic 4: Debt Holder – Equity Holder Conflicts

o Debt overhang / underinvestment

o Asset substitution / risk-shifting

o Short-sighted investments

o Reluctance to liquidate


Topic 5: Management Incentives, Information, and Corporate Control

o Free cash flow problem / overinvestment

o Pecking order theory

Learning outcomes

After completing the course, students will understand

· how real assets are valued, taking into consideration the appropriate cost of capital

· the effect of leverage and debt tax shields on a firm’s cost of capital

· the irrelevance of capital structure and payout policy under the assumptions proposed by Modigliani and Miller (MM) and how relaxing the assumptions of MM can help explain observed patterns of optimal corporate financing policies

· the trade-off between debt tax-shields and financial distress costs, such as direct and indirect bankruptcy costs

· conflicting interests of debt holders and equity holders and how they may affect corporate financing and investment decisions (underinvestment, asset substitution, short-sighted investments, reluctance to liquidate)

· the separation of ownership and control and the misalignment of incentives of management and shareholders

· that information asymmetries may cause underpricing of newly issued securities due to adverse selection (pecking order).

Attendance requirements

Participation is compulsory in the interactive part. There are grade related performance assessments in each interactive unit. There is absolutely no way to get these points if you are not present for the entire unit.

Teaching/learning method(s)

The course is composed of two parts, a lecture part (5 units) and an interactive part (5 units). The lecture part is organized in only one big class for all students of the specialization. The interactive part is organized in small groups (max. 30 students). The five lecture units take place once a week. The five interactive units also take place once a week, but start one week after the first lecture unit.

The teaching approach of the lecture part is class room teaching type. In the interactive part a mix of methods is applied that includes presentations by the lecturer, class discussions, student presentations of numerical examples (“mini-cases”), real-life case studies and a final exam.

Based on the introduction to the underlying concepts in the lecture part, students will have to prepare small numerical problems ("mini-cases") for the interactive part. E.g.: The concepts of the first lecture unit are applied and deepened in the first interactive unit, and so on. The mini-cases are presented by students and solutions are discussed with the lecturer. In addition, more involved case studies are discussed to provide more insight into industry applications.


The components for the grades are weighted as follows:

  • 40% lecture part (final exam)
  • 60% interactive part

The courses are held in distance mode, which means that all lecture units (lecture parts and interactive parts) take place online. The final exam will also be online.

Interactive part: Students have to prepare mini-cases for the weekly sessions and have to indicate (“check”) the mini-cases they can solve and are ready to present before each session. The solutions of the mini-cases must be uploaded to Learn before each interactive unit. Each example will be presented by a randomly selected student who checked this example. Students need to check at least 70% of all mini-cases to pass the course. The presentation of mini-cases will be evaluated. In order to pass the course, students need to be able to correctly solve the mini-cases they present. The grading of the interactive part will be based solely on the percentage of checked mini-cases if all presentations (if any) are correct. A negative assessment of a student's presentation reduces the number of mini-cases checked by 20% (the basis being 100% of all mini-cases). The same applies if a student indicates mini-cases he/she did not solve. For example: If a student checks 80% of the mini-cases and fails one presentation, the percentage of checked mini-cases will be reduced to 60% and will result in a fail. Students with two negative assessments fail the course. If a student cannot present a mini-case due to technical problems (on his/her side), the grading is the same as for a negative assessment.

Grading: Formally, the evaluation is based on the total number of credits earned (>50% of credits needed to pass). The total number of credits C will be computed by C = 0.4*Clecture + 0.6*Cinteractive. Clecture denotes the percentage of credits earned at the final exam of the lecture part. Cinteractive denotes the percentage of credits earned for the interactive part. The interactive part can only be successfully completed if at least 70% of all mini-cases have been checked by the student in advance AND at maximum only one of all presentations (if any) has been incorrect (see explanation above).

The following grading scheme is applied:

Percentage Grade
[87.5%;100%]: 1 1
[75%;87.5%): 2 2
[62.5%;75%): 3 3
[50%;62.5%): 4 4
<50%: 5 5


square bracket [ ] = percentage is still included in the quantity
round bracket ( ) = percentage is no longer included in the quantity

Prerequisites for participation and waiting lists

Students need to be admitted to the specialization Finance: Markets, Institutions & Instruments and need to have completed Course I and Course II successfully to register for the course.

1 Author: Hillier, Grinblatt, Titman

Financial Markets and Corporate Strategy

Publisher: McGraw Hill
Edition: 2nd European Edition
Content relevant for class examination: Yes
Recommendation: Strongly recommended (but no absolute necessity for purchase)
Type: Book
Recommended previous knowledge and skills

basic knowledge of Excel or R, basics in Statistics

Availability of lecturer(s)

Unit details
Unit Date Contents
Last edited: 2021-09-01