BE-410 Corporate Finance

This course presents the cutting edge of what today´s top scholars and practioners know about corporate finance. The underlying philosophy of the course is that finance is not a set of topics or a set of formulas. Rather, it is the consistent application of a few sensible rules and themes.

One common theme is that capital assets must be valued in a way that rules out the possibility of riskless arbitrage. This powerful assumption can be used to price financial securities and to value real investment projects. To identify whether the pricing of a real investment allows one to create wealth, it is generally necessary to construct a portfolio of financial assets that tracks the investment. The course demonstrates how real investments may be analyzed using tracking portfolios.

Another common theme is that financial decisions are interconnected and, therefore, must be incorporated into the overall corporate strategy of the firm. For example, a firm´s ability to generate positive net present value projects today depends on its past investment choices as well as its financing choices.

Presenting common themes and rules whenever possible, the course attempts to present a variety of corporate finance topics in an integrated manner: Valuation of financial and real assets, capital financial structure, incentives, information and corporate control, and corporate risk management.

• be able to demonstrate how the no-arbitrage principle governs prices in financial markets
• be able to discuss how information from financial markets may be used to value real assets
• be able to demonstrate how taxes influence firms´ financing and payout choices
• be able to identify how conflicts between shareholders and debt holders arise and how they can be minimized
• have insight into how managerial incentives affect financial decisions
• have insight into financial decisions affect stock prices
• be able to recognize how taxes, operation synergies, and management incentive conflicts provide motives for mergers and acquisitions

Upon completion of this course students should be able to understand how:

• the no-arbitrage principle governs prices in financial markets
• information from financial markets may be used to value real assets
• taxes influence firms´ financing and payout choices
• firms sometimes can benefit from risk management programmes
• to use derivatives to manage a firm´s risk exposures
• conflicts between shareholders and debt holders arise and how they can be minimized
• managerial incentives affect financial decisions
• financial decisions affect stock prices
• taxes, operation synergies, and management incentive conflicts provide motives for mergers and acquisitions

This course builds on BE-405 Investments.

English.

4-hour written examination with letter grades.

1. Examination requirements: Approved compulsory assignment.

2. Examination: 4-hour written examination.

Theoretical.

Trygve Bjerkås

Normally fourth year.