Syllabus

Title
6067 Course III - Corporate Finance
Instructors
Thi Thuy Dung Phung, Univ.Prof. Alexander Mürmann, Ph.D.
Contact details
sbwl.finance@wu.ac.at (admin questions). Please indicate your course number!
Type
VUE
Weekly hours
2
Language of instruction
Englisch
Registration
02/21/24 to 02/29/24
Registration via LPIS
Notes to the course
Dates
Day Date Time Room
Monday 03/04/24 05:30 PM - 08:30 PM TC.0.03 WIENER STÄDTISCHE
Monday 03/11/24 12:30 PM - 03:00 PM TC.0.02
Tuesday 03/12/24 10:15 AM - 12:30 PM TC.4.02
Monday 04/08/24 12:30 PM - 03:00 PM TC.0.02
Tuesday 04/09/24 10:15 AM - 12:30 PM TC.4.02
Monday 04/15/24 12:30 PM - 03:00 PM TC.0.02
Tuesday 04/16/24 10:15 AM - 12:30 PM TC.4.02
Monday 04/22/24 03:00 PM - 05:30 PM TC.0.01
Tuesday 04/23/24 10:15 AM - 12:30 PM TC.4.02
Tuesday 04/30/24 10:15 AM - 12:30 PM TC.4.02
Tuesday 05/07/24 11:30 AM - 01:00 PM Präsenz-Prüfung
Contents

Topic 1: Corporate financing and real asset valuation
     
Key Concepts:
     o Balance Sheet - Market Values
     o Leverage (mix of debt and equity)
     o Cost of capital
     o Free Cash Flow to the Firm
     o Valuation of Cash Flows

     Corporate Financing Policy:
     o Irrelevance of capital structure (Modigliani-Miller-Theorem)
     o Leverage and Cost of Equity

Topic 2: Trade-Off Theory: Tax Shields versus Financial Distress Costs
     o Debt tax shields
     o Valuation of cash flows with tax shields
              Weighted average cost of capital (WACC) method
              Adjusted present value (APV) method
     o Personal taxes
     o Direct and indirect bankruptcy costs

Topic 3: Conflicts between Debt Holders and Equity Holders
     o Debt overhang / underinvestment
     o Asset substitution / risk-shifting
     o Short-sighted investments
     o Reluctance to liquidate

Topic 4: Managerial Incentives, Information, and Corporate Financing
     o Corporate ownership and control
     o Conflicts between management and equity holders
     o Free cash flow problem / overinvestment
     o Pecking order theory

Topic 5: Risk Management and Corporate Financing

Learning outcomes

After completing the course, students will understand

  • how real assets are valued, taking into consideration the appropriate 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 effect of leverage and debt tax shields on a firm’s cost of capital
  • 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)
  • how risk management at the firm level can add value.
Attendance requirements

Participation is compulsory in the interactive part. There are grade related performance assessments in each interactive unit. It is not possible to get points for those assessments if you are not present. Note that students may still pass the course if they are absent in the interactive sessions once only. However, students will fail the course if they are absent in the interactive sessions twice or more.

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 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 the traditional class room teaching. In the interactive part a mix of methods is applied that includes student presentations of numerical examples (“mini-cases”), class discussions, presentations by the lecturer and real-life case studies. There will be a final exam which covers the content of the lecture part, the interactive part, as well as the specified textbook chapters.

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. 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 additional insight into industry applications.

The courses are held on campus. The final exam will also be on campus.

Please note the following policy regarding the hybrid mode of this course:
Streaming of the lecture units will only take place if the number of students in the room exceeds the room capacity. Seats in the lecture room are available on a first come  - first serve basis. The interactive classes will never be streamed.

Assessment

The components for the grades are weighted as follows:

  • 40% final exam
  • 60% interactive part

Interactive part:Students have to prepare mini-cases for the weekly sessions. Before a specific deadline for each interactive unit, students have to complete an assignment by answering true-false questions that indicate which problems they have solved and by uploading their solutions. Each example will be presented by a randomly selected student who checked this problem. Students need to solve a minimum number of mini-cases to pass the course. The baseline number of mini-cases and the minimum number to pass will be communicated before the start of the interactive part, e.g., a baseline of 27 mini-cases with a minimum of 19 mini-cases to pass. Note, the baseline number serves as a reference, there can be more but never less mini-cases than indicated by this number.

The presentation of mini-cases will be evaluated. Students need to be able to solve the mini-cases they present and explain their reasoning. A negative assessment of a student's presentation reduces the number of checked mini-cases. The precise deduction for such a fail will again be communicated before the start of the interactive part, e.g., a deduction of 6 mini-cases. The same deduction applies if a student indicates mini-cases he/she did not solve.

For example: If a student checks 27 mini-cases overall and fails one presentation, the number of checked mini-cases is reduced to 21. Note that two failed presentations will always lead to a number of checked mini-cases that is below the necessary minimum number and, thus, the student fails the course.

Grading: Formally, the evaluation is based on the percentage of credits earned (minimum of 50% of credits needed to pass). This percentage of credits C will be computed by C = 0.4*Clecture + 0.6*CinteractiveClecture denotes the percentage of credits earned at the final exam (between 0% and 100%). Cinteractive denotes the percentage of credits earned for the interactive part. The interactive part credits are calculated by dividing the checked mini-cases (after potential reductions for fails) by the baseline number of mini-cases, e.g., 21 checked mini-cases / 27 = 77.78%. If the checked number of mini-cases is below the minimum number, the resulting credit for the interactive part is 0% and the student fails the course. If the checked number of mini-cases is below the minimum number, the resulting credit for the interactive part is 0% and the student fails the course. If the checked number of mini-cases is above the baseline number of mini-cases, the resulting credit for the interactive part is 100%, i.e., Cinteractive is capped at 100%.

For example: The student scores 90% in the final exam and 77.78% in the interactive part, then C = 0.4 * 90% + 0.6 * 77.78% = 82.8%.

The following grading scheme based on C is applied:

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

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

Please note that you will receive a grade for this course as soon as you upload and indicate exercises for an interactive unit.

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.

Readings

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Recommended previous knowledge and skills

Basic knowledge of Excel or R, basics in Statistics

Availability of lecturer(s)

alexander.muermann@wu.ac.at

Last edited: 2024-02-11



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