Finance
Study Board of Business Economics
Teaching language: English
EKA: B100119X12, B100119X02, B100119412, B100119112, B100119402, B100119102
Censorship: Second examiner: None, Second examiner: External
Grading: Pass/Fail, 7-point grading scale
Offered in: Soenderborg, Odense
Offered in: Autumn
Level: Bachelor
Course ID: B100119X01, B100119401, B100119101
ECTS value: 10
Date of Approval: 10-04-2018
Duration: 1 semester
Course ID
Course Title
Teaching language
ECTS value
Responsible study board
Date of Approval
Course Responsible
Offered in
Level
Offered in
Duration
Mandatory prerequisites
Recommended prerequisites
The course is based on the skills and competencies achieved in the subjects Microeconomics as well as in the subject Mathematics and Statistics.
Aim and purpose
The subject is a central subject within business economics. The purpose of the course is that the student gains knowledge about the financial issues of investors and companies accounting for uncertainty regarding the future financial consequences of financial decisions. The student obtains competencies to handle certain financial investment problems and to be a part of the company's financial function at an assistant and analytical level. The purpose of the course is also to provide methods for assessing the economic benefit of given economic decisions. It is thus the aim of the subject that the student acquires skills in application of the course's methods in the analysis and assessment of investment and financial aspects within all types of business economics problems. The course also addresses that economic decisions must consider possible ethical dilemmas in the prioritization of economic attractiveness relative to other, non-economic goals.
In addition to giving the student knowledge about investors and companies' issues in finance and investment, the subject also provides knowledge about the characteristics and functioning of the capital markets. In addition, the course provides skills enabling the student to choose between specific sources of funding and investment projects accounting for risk and other frictions such as tax and inflation. The course will give the student skills to, from an investor perspective, put together an optimal portfolio of financial assets based on an assessment of the relationship between risk and return and investor preferences.
Content
The subject covers three main areas:
1) Interest rates and time value of money,
2) Financial markets, financial instruments and pricing of these and
3) Valuation of real assets, companies' investment choices and capital structure.
Main themes are as follows:
1. Interest rates and time value of money:
a) Discounting, annuities and perpetuities.
b) Internal rate of return and effective yield.
c) Accrual of interest and interest compounding.
d) Discrete and continuous rates.
2. Financial markets, financial instruments and their pricing:
a) Capital market efficiency.
b) Optimal portfolio choice (risk vs. return: choosing an efficient portfolio of securities) under uncertainty.
c) Mean-variance analysis.
d) Pricing of financial assets (securities eg. stocks, bonds and options) under uncertainty.
e) Pricing of derivatives using the binomial model and the Black-Scholes model.
3. Valuation of real assets, firm’s choice of investment (capital budgeting), and capital structure:
a) Valuation of risk free assets and projects.
b) Valuation of risky assets and projects including simple real option techniques.
c) Choice of real investment and (simple) tax effects in valuation.
d) Capital structure theory and costs of capital; understanding of agency conflicts. eg. between, shareholders and debt holders (creditors).
e) Raising equity capital and payout policy.
Please notice that the content of the subject predominantly takes its point of departure in an international context. This is evident from the literature foundation of the subject.
Learning goals
The student must be able to account for theory and carry out analyzes in relation to the subject content, see below list. When accounting for theory and doing the analysis, the student must be able to explain very clearly the preconditions and the individual elements of the analysis by means of explanatory text and by specifying the formulas used and explaining how they are used to solve the problems.
Specifically, the student should be able to:
1. Interest rates and time value of money:
• Explain the concept time value of money.
• Calculate value of cash flows (e.g. PV and NPV of cash flows)
• Calculate internal rate of return and effective yield.
• Carry out calculations relating to interest rate in cases of non-annual terms of payments, e.g., with continuous compounding.
2. Financial markets, financial instruments and their pricing:
• Explain, apply and assess the importance of the Law of One Price.
• Explain the functioning of the capital market and its importance to the pricing of financial assets, including making simple analyzes based on the Law of One Price.
• Can perform simple bond analyses, valuation and term structure analyses.
• Valuing stocks taking into account, inter alia, systematic and non-systematic risk and various risk factors.
• Can describe, relate, and calculate the value of options, futures, and other basic derivatives including Binominal Pricing and pricing using Black-Scholes.
• Can analyze an investor’s portfolio choice under uncertainty in simple settings (eg. mean-variance analysis) including CAPM and Multifactor Models of Risk.
• Can explain the relationship between investor behavior and capital market efficiency.
3. Valuation of real assets, corporations’ choice of investment (capital budgeting), and capital structure:
• Identify and analyze cash flows for real investments based on an incremental perspective.
• Identify, calculate and analyze the optimal capital structure of a firm, both without and including taxes and tax shields, costs of bankruptcy (financial distress costs) and agency costs.
• Determine, calculate and analyze the cost of capital of a firm by including, inter alia, capital structure and systematic risk (beta).
• Carry out valuation of real investments both without and including tax and debt including, inter alia, using the Binomial Option Pricing Model.
• Describe and analyze incentive problems related to a firm; i.a., agency conflicts between stock holders and bond holders and analyze and assess the implications of agency conflicts on firm value and the firm’s choice of capital structure and choice of real investments.
• Describe different types of dividend policy (payout policy) and general criteria for the firm's choice of dividend policy.
• Describe the characteristics of different types of equity financing.
Literature
Examples:
1) Package including acces to MyFinanceLab and eText: ISBN-13: 9781292163031
The package includes the following:
1. Corporate Finance, Global Edition, 4/E Berk & DeMarzo ISBN-10: 1292160160 • ISBN-13: 9781292160160 ©2017 • Paper, 1152 pp.
2. Corporate Finance, Pearson eText, Global Edition, 4/E Berk & DeMarzo ISBN-10: 1292160217 • ISBN-13: 9781292160214 ©2017 • Online.
3. MyFinanceLab - Instant Access - for Corporate Finance, Global Edition, 4/E, Berk & DeMarzo ISBN-10: 1292160233 • ISBN-13: 9781292160238.
Teaching Method
The purpose of the lectures is to provide an overview of the subject's theory and method and to provide knowledge about the key concepts and contexts. Furthermore, the lectures are organized and conducted to support a suitable academic progression during the semester. This ensures that the student is given a solid academic foundation for his studies. In the exercise lessons, students will be helped to solve the exercises. The students will be helped to identify and use the correct methods when solving the exercise problems and the problems related to the known problems in part 1 of the exam. The students' own efforts will be an essential foundation for the teaching in exercise classes. It is therefore expected that the students, before attending the exercises, have attempted to solve all the required exercises. This prerequisite is a central part of the calculation of the total ECTS of the course.
Workload
Scheduled classes:
2 + 2 lecture hours for 11 weeks and 3 lecture hours (2+1) for 4 weeks. 2 class exercises per week for 10 weeks and 1 class exercises for 4 weeks.
In 4 of the teaching weeks, 2 exercises will be conducted online to all campuses at the same time via Adobe Connect (Webinar). The specific weeks will be stated in the lecture plan uploaded on Blackboard. In the weeks with online Webinar there will be conducted 3 lecture hours and 1 ordinary attendance exercise, cf. above.
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The ECTS is 10 equaling 270 SAT, broken down as follows:
Lectures including preparation: 110
Exercises including preparation: 100
Exam including preparation: 60.
Examination regulations
Exam - part 1 - Multiple choice tests
Name
Exam - part 1 - Multiple choice tests
Timing
Exam: Across the semester. Dates and time of the test will be stated in the exam plan.
Reexam: December.
The form of reexam is subject to change. The students are informed about the change in format after the students have signed for the reexam.
Tests
Exam - part 1 - Multiple choice tests
Name
Exam - part 1 - Multiple choice tests
Form of examination
Multiple choice
Censorship
Second examiner: None
Grading
Pass/Fail
Identification
Student Identification Card - Exam number
Language
English
Duration
5 multiple choice tests.
Duration of multiple choice test: 60 minutes per test.
Length
Not relevant.
Examination aids
All aids allowed except for communication with others.
Assignment handover
Via the course page in Blackboard.
Assignment handin
On Blackboard. The student must submit the test when finished.
ECTS value
1
Additional information
The problems for each multiple-choice test consist of 1) Problems disclosed at least one week before the test is carried on Blackboard and 2) Problems not known in advance.
Home assignment. Online on Blackboard.
Internet Access: Necessary.
Part 1 is passed, when 4 out of 5 tests are passed. To pass a test minimum 50% of the answers must be correct.
Reexam in same exam term:
Part 1: Multiple choice.
Duration of multiple choice test: 120 minutes.
Date and time of the test will be stated in the exam plan.
The problems are not known in advance.
A passed exam or part-exam cannot be re-taken. A passed part-exam will be transferred to the next exam period.
The exam tests the achievement of the goals for all the goals mentioned (cf. the goal description) by random check.
(Weight 0%)
EKA
B100119X12
B100119412
B100119112
B100119412
B100119112
Exam - part 2 - Written in situ exam
Name
Exam - part 2 - Written in situ exam
Timing
Exam: January.
Reexam: February.
Tests
Exam - part 2 - Written in situ exam
Name
Exam - part 2 - Written in situ exam
Form of examination
Written examination on premises
Censorship
Second examiner: External
Grading
7-point grading scale
Identification
Student Identification Card - Exam number
Language
English
Duration
4 hours written in situ exam.
Length
No limit.
Examination aids
All aids allowed except for use of the internet. Communication with others inside or outside the examination room are not allowed.
Assignment handover
Handed out in the exam room.
Assignment handin
SDU Assignment on Blackboard.
ECTS value
9
Additional information
The exam is carried out using own PC which must be able to access the university's wireless network.
Internet Access: The Internet may only be used to access the SDU Assignment upon submission.
A passed exam or part-exam cannot be re-taken. A passed part-exam will be transferred to the next exam period.
The exam tests the achievement of the goals for all the goals mentioned (cf. the goal description) by random check.
(Weight 100%).
EKA
B100119X02
B100119402
B100119102
B100119402
B100119102
External comment
NOTE - This course is identical with the former course:
Campus Sønderborg 9069801 Corporate Finance
Campus Odense 9845501 Financial Investments and Corporate Finance.
Used examination attempts in the former identical course will be transferred.
Courses that are identical with former courses that are passed according to applied rules cannot be retaken.
The student is automatically registered for the first examination attempt when the student is registered for a course or course element with which one or more examinations are associated. Withdrawal of registration is not possible, and students who fail to participate in an examination have used one examination attempt, unless the University has made an exemption due to special circumstances.