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Business Finance: Course outline (FIN-301)

Course description

Business Finance course aims at imparting knowledge about the very basic concepts and tools of Business Finance. It emphasizes the importance of Business Finance skills to individuals and enterprises. You are expected to gain an initial understanding of the finance function in an organization, the role of the finance manager and the financial environment in which the firm operates. The financial environment covers the understanding of financial and capital markets along with the broad orientation of macro economic factors affecting the business. The emphasis will remain on developing the skills for planning, appraising and evaluating the investment, financing and operating decisions.

Course content

  • An Overview of Business Finance
  • Finance a quick look.
  • Business finance and financial manager.
  • Forms of business organization.
  • Goals of business finance.
  • Agency problem.
  • Understanding financial statements and cash flows.
  • The balance sheet.
  • The income statement.
  • Taxes.
  • Cash flow.
  • Working with financial statements
  • Standardized financial statements.
  • Ratio analysis.
  • The Du-pont identity.
  • Internal and sustainable growth.
  • Using financial statement information.
  • Time Value of Money
  • The role and perspectives of the TVM concept
  • Future values
  • Present values
  • The relationship between future and present values
  • Annuities
  • Future and present values of cash flows under high compounding frequency
  • Impact of higher compounding frequency
  • Inflation and the Time Value of Money
  • Bond and Their Valuation
  • Definition, types and features of bonds
  • Valuation of bonds (the basic process)
  • Basic relationships in bond valuation
  • Bondholder’s expected rate of return
  • Risks associated with bond returns
  • Stocks and Their Valuation
  • Shares and their basic features
  • Benefits from a share investments
  • Price of ordinary shares
  • Behavior of expected dividend growth and share price
  • Price of shares based on earnings
  • Expected rate of return

Course content

  • Preferred shares and their characteristics
  • Price of preferred shared and the expected rate of return
  • Valuing the entire business
  • Net present value and other investment Criteria
  • Net present value.
  • The payback rule.
  • The average accounting return.
  • The internal rate of return.
  • The profitability index.
  • The practice of capital budgeting.
  • Some lessons from capital market history.
  • Returns
  • The historical record
  • Average returns
  • The variability of returns
  • More on average returns
  • Capital market efficiency
  • Risk and Return    
  • Expected returns and risk defined
  • Calculating expected return
  • Calculating risk (Variance and Standard deviation)
  • Portfolio expected returns
  • Portfolio variance and standard deviation
  • Systematic and unsystematic risk
  • Diversification and portfolio risk
  • The Cost of Capital
  • The cost of capital concepts
  • Individual and weighted average costs of capital
  • Costs of capital and valuation
  • Capital structure
  • Capital structure decision (No taxes or other capital market imperfections)
  • Taxation and capital structure decision
  • Debt equity ratio, cost of capital and the value of the firm
  • Optimal capital structure
  • Costs of financial distress and bankruptcy
  • The static trade-off theory
  • The pecking order theory
  • Personal taxes
  • Evidence on capital structure determinants

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