AIMS AND LEARNING OUTCOMES

Understand and analyze the techniques for selecting business investments

Understanding and modeling the opportunity cost of investment as a function of risk

Understanding the relationship between risk and return in a financial market

Analyze the financing tools available to companies and assess their order of preference

TEACHING METHODS

Frontal lessons and execises

SYLLABUS/CONTENT

The Corporate Finance module focuses on two main topics:
1. evaluation and choice of company investments;
2. evaluation and choice of financing mechanisms for corporate investments.

In the first part of the course, the concept of present value of the expected cash flows of a corporate investment is presented. The present value is then compared with other investment valuation methodologies, such as the internal rate of return and the payback period, highlighting the applicability limits of the latter. The problem of choosing between alternative investments in the presence or absence of capital rationing is then discussed. The concept of present value is also enriched with the concepts of uncertainty and risk and its application to the valuation of shares and bonds issued by a company is discussed.

Furthermore, some concepts relating to stock markets and in particular to the statistical properties of financial time series are discussed. The Capital Asset Pricing Model is then presented in order to provide a quantitative model that links the cost / return of corporate equity to risk, conceived as systematic or market risk.

In the second part of the course, the financing decisions of a company are presented, with particular attention to its financial structure, i.e. the relationship between debt and equity. In particular, the fundamental results of the Modigliani-Miller Theorem are presented and demonstrated, in relation to the irrelevance of the financial structure and the independence of the weighted average cost of capital in conditions of perfect financial markets and in relation to the irrelevance of the financing mechanisms for investment decisions. The empirical evidence and the theory of the order of choice are then discussed in relation to the concepts of information asymmetry.

RECOMMENDED READING/BIBLIOGRAPHY

Brealey R., Myers S., Allen F. (2020) Principles of Corporate Finance. 13ed Mc Grwa Hill

https://www.mheducation.com/highered/product/principles-corporate-finance-brealey-myers/M9781260013900.html

Berck, DeMarzo (2017). Corporate Finance, 4/ed. Pearson

https://www.pearson.com/us/higher-education/product/Berk-Corporate-Fina…

Teaching material and scientific papers provided by the teacher