Corporate Finance

Course Number: BUSADMIN 3620
Course Name: Corporate Finance (Online)
Course Description:    An introduction to the finance function and financial management of the firm, including techniques of financial analysis, working capital management, capital budgeting, the acquisition and management of corporate capital, and dividend policy. Analysis of how the financial manager influences the decision-making process within the firm.
Prerequisites:    A C- or better in ACCTING 2010 and completion of university math requirement.
Level: Undergraduate
Credits: 3
Format: Online  (This course is also offered in print.)
Program: Bachelor of Science in Business Administration
Bachelor of Science in Criminal Justice

Registration Instructions

NOTE: The information below is representative of the course and is subject to change.  The specific details of the course will be available in the Desire2Learn course instance for the course in which a student registers.

Additional Information

Learning Outcomes
Upon completion of this course, you will be able to

  • Understand basic terminology of finance.
  • Calculate time value of money problems.
  • Identify the determinants of interest rates.
  • Analyze a firm using ratio analysis.
  • Calculate the intrinsic value of a stock and a bond.
  • Explain the risk/return relationship.
  • Calculate the cost of capital for a firm.
  • Analyze a project's cash flows using five capital budgeting tools and identify the strengths and weaknesses of each tool.
  • Estimate the cash flows associated with a new project.
  • Estimate the amount of external funds required given a sales growth forecast.

Unit Descriptions
Course Organization and Assignment Descriptions

Unit 1
Financial management involves the acquisition and utilization of funds and assets such that long-term shareholder wealth is maximized. As we have seen in the recent past, poor financial management can have severe adverse effects not only for shareholders but for other stakeholders such as employees, retirees, suppliers, customers, and in some cases, it can impact the entire industry and economy. There is a boom in entrepreneurship as talented employees realize that they would rather be self-employed. Whether you are a stakeholder or self-employed, having a basic knowledge of financial management is important. Lastly, some of the financial management tools and techniques we will be learning about in this course can also be applied to personal financial planning.

Upon completion of this unit, you should be able to

  • Differentiate between financial managers' appropriate and inappropriate goals.
  • Discriminate between a stock’s current market price and its intrinsic value.
  • Identify the firm's primary agency relationship and discuss why agency relationships can create conflicts.
  • Identify the different types of financial markets and financial institutions, and explain how these markets and institutions enhance capital allocation.
  • Explain how the stock market operates, and list the distinctions between the different types of stock markets.
  • Distinguish between a capital market and a money market instrument.
  • Distinguish between a primary market and a secondary market instrument.
  • Calculate and interpret major liquidity ratios.
  • Calculate and interpret major asset management ratios.
  • Calculate and interpret major debt ratios.
  • Calculate and interpret major profitability ratios.
  • Calculate and interpret major market value ratios.
  • Appreciate how various ratios relate to one another.
  • Assess a firm’s performance by comparing its ratios with those of other firm’s or industry average (benchmarking) and across time (trend analysis).
  • Explain how ratios can be influenced by accounting practices as well as other factors and why they should be used with care.
  • Explain how the time value of money works and discuss why it is such an important concept in finance.
  • Calculate the present value and future value of lump sums.
  • Identify the different types of annuities; calculate the present value and future value of ordinary annuities. (Note: you are not responsible for annuities due.)
  • Calculate the present value and future of an uneven cash flow stream.
  • Explain and calculate the effective interest rate.
  • Develop a loan amortization schedule.

Unit 2

Financial managers raise money in capital markets by issuing common stock, preferred stock or bonds. In this unit, we will learn how to value these financial assets, about the financial markets in which these assets are traded and how to select stocks based on their risk-return tradeoff. The current level of interest rates can affect the decision of the corporation to either raise money by issuing bonds or selling stock. Interest rates have been very low for an unprecedented amount of time and it is important to realize that this is an anomaly and is unlikely to continue in upcoming years.

Upon completion of this unit, you should be able to

  • List the various factors that determine a debt security’s nominal rate
  • Discuss how market interest rates are affected by borrower’s need for capital, expected inflation, different securities’ risks, and securities’ liquidity.
  • Explain what the yield curve is and what determines its shape.
  • Compare and contrast interest rate risk and reinvestment rate risk
  • Identify the different features of corporate and government bonds.
  • Explain what a callable bond is and under what conditions the bond issuer would call the bonds.
  • Calculate a bond’s yield to maturity and its yield to call if it is callable.
  • Explain the different types of risk that bond investors and issuers face.
  • Compute bond prices and yield to maturities using present value concepts.
  • Explain the relationship between bond prices and interest rates.
  • Understand the rights and returns that come with common stock ownership.
  • Compute stock values.
  • Differentiate between market risk and diversifiable risk.
  • Calculate a stock’s required return using the Capital Asset Pricing Model and determine if the stock is under or over-valued.
  • Explain the difference between stand-alone risk and risk in a portfolio context.
  • Describe how risk aversion affects a stock’s required rate of return.
  • Discuss the difference between diversifiable risk and market risk, and explain how each type of risk affects well-diversified investors.
  • Describe what the CAPM is and illustrate how it can be used to estimate a stock’s required rate of return.
  • Explain the distinction between a stock’s price and its intrinsic value.
  • Estimate the intrinsic value of a stock utilizing the dividend discount model (constant growth model).
  • Estimate the value for preferred stock.

Unit 3

In this unit we learn how to perform three of the financial manager's most important responsibilities: determine what it costs to raise capital, how to allocate the capital it has raised and finally how to estimate cash flows from a potential project. In sum, these responsibilities are called capital budgeting. The weighted average cost of capital (WACC) is how we determine what it costs the firm to raise money. The capital budgeting tools (NPV, MIRR, IRR, payback and discounted payback) are the tools we use to assess whether or not projects should be accepted. Cash flow estimation is most easily learned if we subdivide the problem into three smaller problems.

Upon completion of this unit, you should be able to

  • Explain why the weighted average cost of capital (WACC) is used in capital budgeting.
  • Estimate the costs of different capital components – debt, preferred stock, and retained earnings, and common stock.
  • Combine the different component costs to determine the firm’s WACC.
  • Incorporate risk in the capital budgeting process.
  • Calculate NPV, IRR, MIRR, payback and discounted payback.
  • List the reinvestment rate assumptions for NPV, MIRR and IRR.
  • Evaluate whether or not a project should be accepted using the NPV, IRR, MIRR, payback and discounted payback.
  • Explain the advantages and disadvantages of NPV, MIRR, IRR, payback and discounted payback.
  • Explain why NPV is the best criterion.
  • Explain why we use pro forma statements to analyze project cash flows.
  • Identify which cash flows we can incrementally attribute to a proposed project and which ones we can't.
  • Calculate a project's expected cash flows using the free cash flow approach.
  • Explain how accelerated depreciation affects project cash flows.
  • Calculate cash flows associated with cost-cutting proposals.

Unit 4

Unit 4 contains dividend policy, working capital management and financial planning and forecasting. Each of these specific skills is very important. We will first learn how dividends, stock splits and stock repurchases affect investors. Working capital is simply the current assets the firm has in place. In practice, the management of working capital is time-consuming part of the financial manger's responsibilities. Holding too many current assets is drain on the profitability of the firm. However, running short of current assets can be problematic as well, potentially even catastrophic. In part, managerial conservatism or aggressiveness, among other factors, plays a part in the manager's choice of how much working capital the firm holds. Lastly, financial planning and forecasting is a very important aspect of financial management because it estimates how much capital the firm will need to raise in externally given a sales growth estimate. If the firm has limited access to capital markets, then it should limit its sales growth to that level which can be funded with internal capital. Each of these three topics focuses on a different but important aspect of financial management.

Upon completion of this unit, you should be able to

  • Explain why some investors like the firm to pay more dividends while other investors prefer reinvestment and the resulting capital gains.
  • Explain the information content or signaling hypothesis.
  • Explain the clientele effect.
  • Calculate the dividend payout ratio using the residual dividend model.
  • Calculate the effect of a stock split and a reverse stock split.
  • List the advantages and disadvantages of stock repurchases.
  • Explain how different amounts of current assets and current liabilities affect firms’ profitability and thus their stock prices.
  • Discuss how companies set their credit policies, and explain the effect of credit policy on sales and profits.
  • Compare the flexible and restrictive approaches to financing current assets.
  • Estimate the additional funds needed using the AFN equation.
  • Conduct sensitivity analysis on the additional funds needed (AFN) equation.

Grading Criteria for Activities

Assignment Possible Points
Unit Exams (1 @ 40 pts, 3 @ 100 pts. each) 340 points
Discussions (7 @ 10 pts. each) 70 points
Individual Assignments (2 @ 50 pts. each) 100 points
Group Assignment 50 points
Total: 560 points

Grading Scale
A 89% - 100%
B 80% - 88%
C 70% - 79%
D 60% - 69%
F 0% - 59%

The following resources provide additional review and practice materials for mathematical concepts:

Basic Algebra - Click here
Order of Operations - Click here
Scientific Notation -  Click here
Distributive Property - Click here

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