Pass Marks: 35
Lecture Hours: 150
Course Objective:
The objective of this course is to provide students an understanding of the basic concepts and theories of
corporate finance and develop skills to analyze issues in corporate finance for sound financing decisions in
businesses.
Course Description:
This course familiarizes students the fundamentals of corporate finance and provides them required skills to
analyze and manage financing aspects of business decisions. This course deals with introduction to corporate
finance, financial markets and institutions, interest rates, short-term financing, common stock and investment
banking process, long-term debt and preferred stock financing, capital structure and leverage, financial planning
and forecasting, derivatives and risk management, multinational corporation and merger and acquisition.
Course Details:
Unit 1: Introduction to Corporate Finance LH 10
Corporate finance and financial manager; Financial manager’s responsibilities; Managerial actions to
maximize shareholder wealth; Corporate finance and other functional areas; The agency problem:
stockholders versus managers and stockholders versus creditors; Corporate social responsibilities; and
Corporate governance.
Unit 2: Financial Markets and Institutions LH 5
The capital allocation process; Financial markets; Types of financial markets; Financial institutions; The
stock market; Stock market and returns; and Stock market efficiency.
Unit 3: Interest Rate LH 10
The cost of money; Interest rates levels; Determinants of market interest rates; Term structure of interest
rates; Shape of yield curve; Using the yield curve to estimate future interest rates; Macro-economic
factors influencing interest rates; and Interest rate and business decision.
Unit 4: Short-Term Financing LH 20
Nature of short-term financing; Advantages and disadvantages; Sources of short-term financing: accruals,
accounts payable (trade credit), commercial paper, short-term bank loans – line of credit, revolving credit
arrangement, transaction loans; The cost of bank loan; Choosing a bank; Comparison of cost of trade
credit, commercial paper and short-term bank loan; Use of security in short-term financing: inventory
financing and accounts receivable financing.
Unit 5: Common Stock and Investment Banking Process LH 15
Features of common stock; Legal rights and privileges of common stockholders; Advantages and
disadvantages; The market for common stock; Methods of selling securities: public offering, rights
offering and private placement; Analysis of rights offering and effect of rights offering on shareholders’
wealth; and The investment banking process.
Unit 6: Long-Term Debt and Preferred Stock Financing LH 10
Debt instruments: term loan and bonds; Debt contract features; Loan repayment schedules; Types of
bonds; Bond innovations; Advantages and disadvantages; Preferred stock: features, types, advantages and
disadvantages.
Unit 7: Capital Structure and Leverage LH 10
Capital structure and financial structure; Determining the optimal capital structure: EBIT−EPS analysis of
the effect of financial leverage, EPS indifference analysis; The effect of capital structure on stock prices
and the cost of capital; Capital structure and value of the firm; Operating leverage, financial leverage and
total leverage.
Unit 8: Financial Planning and Forecasting LH 15
Strategic planning; Operating plans and the financial plan; Sales forecast; The Additional Fund Needed
(AFN) Equation; Forecasted financial statements; Using regression to improve forecasts; and Analyzing
the effects of changes in ratios.
Unit 9: Derivatives and Risk Management LH 15
Reasons for managing risk; Introduction to derivatives, Options: Option types and markets; Factors
affecting the value of a call option; Exercise value versus option price; Forward and futures contracts;
Other types of derivatives: swaps, structured notes, inverse floaters; Using derivatives to reduce risk; Risk
management and risk management approaches.
Unit 10: Multinational Corporate Finance LH 20
Nature of multinational corporations; Reasons for companies going global; Multinational versus domestic
financial management; Exchange rates quotations; Cross rates; Interbank foreign currency quotations;
Trading in foreign exchange rates: spot rates and forward rates; Interest rate parity; Purchasing power parity;
Inflation, interest rates, and exchange rates; International money and capital markets; International capital
budgeting; and International capital structure.
Unit 11: Merger and Acquisition LH 10
Rationale for mergers; Types of mergers; Level of merger activity; Hostile versus friendly takeovers;
Merger analysis; Role of investment bankers; Corporate alliances; and Private equity investments.
Project Work LH 10
After the completion of fourth year concentration classes the students shall have to prepare and submit a project
work in the area they have specialized. The subject teachers have to discuss with students on possible topics of the
project work, availability and sources of literature, availability of data, data collection methods, appropriate tools
of data analysis, etc relevant to the subject within 10 lecture hours.
Basic Text:
Brigham, E. F., & Houston, J. F. Fundamentals of financial management. Delhi: Cenage Learning.
Weston, J. F., Scott B., & Brigham, E. F. Essentials of managerial finance. New York: Harcourt Brace College
Publishers.
References:
Van Horne, J. C., & Wachowicz, J. M. Fundamentals of financial management. Prentice- Hall India Ltd.
Ross, S. A., Westerfield, R. W. & Jordan, B. D. Fundamentals of corporate finance. New York: McGraw-Hill
Irwin.
Gitman, L. J. Principles of managerial finance. Delhi: Pearson Education.
Paudel, R. B., Baral K. J., Gautam R. R., & Rana S. B. Fundamentals of corporate finance. Kathmandu: Asmita
Books Publishers and Distributors.
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