(MISC305) -  ΓΕΩΡΓΙΟΣ ΧΑΛΑΜΑΝΔΑΡΗΣ

Περιγραφή Μαθήματος

The goal of this course is twofold: First, to describe the main financial markets and instruments and, second, to analyze corporate decisions from a financial perspective. With respect to the first subject, the course focuses on money-market, capital and debt markets. With respect to the second, the course concentrates on investment and financing decisions, valuation, and the treatment of risk.  Topics to be studied are the time-value of money, exchanges and Over-The-Counter Markets, law of one price, net present value rule, capital budgeting techniques and the estimation of the cost of capital. It also studies the valuation of stocks and bonds, the risk-return trade-off, the capital structure and its relationship with the value of the firm as well as the dividend policy of corporations.

 

EDUCATIONAL OBJECTIVES

 

• Describe the main financial markets such as the money market, capital, debt and derivative markets.
• Familiarize students with the basic financial instruments, including loans, stocks, bonds and derivative contracts.
• Introduce students to investment and financing decisions made by corporations.
• Explain to them how to reach such decisions using the theory of financial management.

 

The course will make it possible for participants:

• To grasp the main principles behind the pricing of financial securities.
• To be able to analyze and compare different securities in terms of their risk/return profile.
• To acquire a clear understanding of investment and financing decision making, valuation of investment projects through various capital budgeting techniques, estimation of the cost of capital and its relation to risk, the role of capital structure and dividend policy and the management of short-term assets and liabilities.
• To be able to seek positions in the treasury department of corporations.

 

LEARNING OUTCOMES

 

On completing the course participants will:

• Be familiar with the different types of financial markets
• Know the main principles for pricing financial securities and use them for analyzing and hedging financial risks
• Understand how projects are valued, and will be able to use the key capital budgeting techniques (NPV and IRR)
• Know how firms raise capital from the market, and how stocks and bonds are priced
• Understand how risk affects the value of the asset in equilibrium, and how this affects, in turn, the company cost of capital
• Understand the trade-off firms face between tax advantages of debt and various costs of debt
• Be able to explain and use the capital structure theory in order to determine the optimal capital structure
• Understand and explain the relevance, facts and role of the dividend policy

 

 

THEMATIC AREAS

 

• Thematic area 1: Introduction to Financial Management

            Investment and financing decisions

               The financial goal of a corporation

            Reading: Notes, Brealey (ch. 1), Damodaran (ch.1, 2)

 

• Thematic area 2: The Present Value Rule

Introduction to present value and future value

Efficient Markets and the related principles (Value additivity, Law of one price, Stochastic Dominance)

Risk and present value

Perpetuities and Annuities

Reading: Notes, Brealey (ch. 2), Damodaran (ch. 3)

 

• Thematic area 3: Overview of the Main Financial Markets

Exchanges vs Dealer-to-Customer Markets

Money market instruments and their use

Types of Stocks and Bonds

Primary and Secondary Markets

The Foreign-Exchange (FX) Market

Derivative Markets

Reading: Notes, Fabozzi (ch.1), Brealey (ch. 14, 27)

 

• Thematic area 4: The Value of Common Stock and Bonds

Present value rule and shareholders’ preferences

Zero-coupon and fixed-rate coupon bonds

Yield metrics

Spot curves

Explaining the term-structure

Corporate bonds and the risk of default

Reading: Notes, Brealey (ch. 3 and 4)

 

• Thematic area 5: Introduction to Risk and Return

Expected Risk/Return

Measuring Portfolio Risk and Return

Portfolio Theory / Mean-Variance Efficient Portfolios

The Capital-Asset Pricing Model

Reading: Notes, Brealey (ch. 7 and 8)

 

• Thematic area 6: Cash flows for investment analysis

Accounting earnings vs cash flows

Cash flows for the firm and the equity investors

Reading: Notes, Brealey (ch. 6), Damodaran (ch. 9)

 

• Thematic area 7: Investment decision rules

Accounting-income based decision rules

Payback period

Internal rate of return (IRR)

Reading: Notes, Brealey (ch. 5), Damodaran (ch. 10)

 

• Thematic area 8: Capital Structure

The trade-off theory

The cost of financial distress

Agency costs

Pecking order theory

Optimal financial mix

The after-tax weighted average cost of capital (after-tax WACC)

Reading: Notes, Brealey (ch. 17-19), Damodaran (ch. 18-20)

 

• Thematic area 9: Payout Policy

Dividend payments and stock repurchases

Empirical evidence on dividend policy

The payout controversy

Reading: Notes, Brealey (ch. 16), Damodaran (ch. 21)

 

• Introduction to Financial Management

Investment decisions, financing decisions, limited liability, real assets vs financial assets, financial markets, financial goal of a corporation, maximization of shareholders’ value.

• The present value rule

The arithmetic of present value, the time value of money, opportunity cost of capital, efficient market hypothesis (EMH), value additivity, law of one price, stochastic dominance, net present value (NPV), risk and present value, constant and growing perpetuities and annuities, loan payments calculation, compounding.

• Overview of the financial markets

Secondary markets (exchanges and dealer markets), primary markets (IPOs, auctions). Money markets - Loans/Deposits, Libor, repo, Commercial Paper. Debt markets - domestic, foreign bonds, and Eurobonds, security and seniority, sinking funds / call provisions. Spot FX markets – triangular arbitrage. Derivatives, linear/nonlinear derivatives – exchange traded vs OTC.

• The Value of Common Stock and Bonds

Project rate of return, shareholders’ preferences and the present value rule, discounted cash flow (DCF) formula for valuing long-lived assets, sing the Present Value Formula to Value Bonds, Duration, The Term Structure of Interest Rates - Spot Rates, Bond Prices, and the Law of One Price,  Explaining the Term Structure - Expectations Theory of the Term Structure, Real and Nominal Rates of Interest , Corporate Bonds and the Risk of Default.

• Introduction to Risk and Return

Arithmetic Averages and Compound Annual Returns, Dividend Yields and the Risk Premium, Measuring Portfolio Risk - Variance and Standard Deviation, Diversification, Calculating Portfolio Risk - Beta, Diversification and Value Additivity, The Relationship between Risk and Return – Review of the Capital Asset Pricing Model, Assumptions behind the Capital Asset Pricing Model.

• Cash flows for investment analysis

Operating expenses and capital expenses, depreciation, working capital, sunk costs, opportunity costs, calculate cash flows to the firm and equity investor, free cash flow to equity discount model.

• Investment decision rules

Return on capital (ROC), return on equity (ROE), payback period, internal rate of return (IRR), the relation between IRR and NPV, advantages and disadvantages of these rules.

• Capital Structure

Definition of the capital structure, the optimal capital structure in perfect capital markets, financial leverage and the debt-to-equity ratio, the optimal capital structure given corporate and personal taxes, the role of financial distress effects, agency costs, the pecking order of financial choices, the optimal financing mix, the after-tax WACC.

• Payout Policy

Dividend payment procedure and stock repurchases, empirical evidence of dividend policy, the information content of dividends and stock repurchases the three schools of dividend policy, payout policy is irrelevant in perfect capital markets, the role of corporate taxes in dividend policy.

 

 

READING ΜΑTERIAL

 

• Class notes uploaded in the Eclass.
• Brealey, Myers and Allen, “Principles of Corporate Finance”, McGraw-Hill 11^th 2014.
• Damodaran, “Corporate Finance: Theory and Practice”, Wiley 2^nd 2001.
• Copeland, Weston and Shastri, “Financial Theory and Corporate Policy”, Addison-Wesley 4^th 2005.
• Bodie, Merton and Cleeton, “Financial Economics”, Pearson 2^nd 2011.
• Fabozzi, “Capital Markets: Institutions, Instruments, and Risk Management”, (The MIT Press), Fifth Edition, 2015.

 

Ημερομηνία δημιουργίας

Τετάρτη, 4 Δεκεμβρίου 2019