ADVANCED CORPORATE FINANCE
Instructional goals
The course enables students to build operative, Excel-based, models for:
Capital budgeting decisions;
Bond and Stock valuation;
Cost of Capital calculations (WACC);
Business valuation (Enterprise value and Market Equity value).
To reach this objective, the course will initially strengthen the theoretical
and methodological bases of students and then present data cases and study cases to apply theories and methods to real world problems.
Intended learning outcomes
1) Knowledge and understanding
The course will offer key theoretical tools to assess the value of investment projects and of an entire business concern. The course provides advanced knowledge and analytical resources that will enable students to understand the processes, content and consequences of different financial strategies across different financial markets, their similarities and differences in the context of a highly integrated economic landscape.
2) Applying knowledge and understanding
Students will be able to:
•apply valuation models to the assessment of investment project and firms’ acquisitions;
• examine the impact of major public policies - such as the QE of the ECB - on interest rates and financial markets across European countries;
• understand how institutions shape, constrain and enable the firm’s financial strategy.
3) Making judgements
We expect students to be able to analyze valuation/selection of competing investment projects and to assess the value of an enterprise they are planning to acquire; they will be able to demonstrate an in depth, critical understanding, of the scope and challenges of different financial strategies.
4) Communications Skills
During the course, students will acquire a professional financial jargon that will significantly increase their communications skills; i.e. their ability to communicate ideas, proposals, analysis and critical reasoning in the fields of business valuation and financial markets monitoring.
5) Learning skills
This course will contribute to empower learners and their ability to read the evolution of the financial market environment. It will give them the tools to properly assess the value of investment projects and also that of an entire business concern, through the use of business valuation models commonly used in operational practice.
Course Contents
ADVANCED CAPITAL BUDGETING
1) Free cash flow models
2) Sensitivity analysis
VALUING BONDS and STOCKS
1) Bond valuation model
2) Stock valuation model (DDM)
3) Equity valuation: multiples of comparable companies.
RISK AND THE COST OF CAPITAL
1) Estimation of Cost of Equity Capital (CAPM)
2) Cost of Debt
CAPITAL STRUCTURE AND VALUATION METHODS
1) The WACC method
2) The Adjusted Present Value method
3) The Flow to Equity method
4) Business Valuation: IPOS and M&As in operational practice
Reference Books
* Required Textbook
Berk J., DeMarzo P. – Corporate Finance - 5th Edition - PEARSON Editor, 2020
* Recommended Textbook
Brealey R. ,Myers S., Allen F. - Principles of Corporate Finance – 13th Edition - McGraw-Hill, 2019 .
Supplementary Teaching Material
DAMODARAN,Video-pill: Corporate Finance - what is it?
Harvard Business Review - Should Dual- Share Scheme be banned?
IVEY Publishing - FACEBOOK: The Initial public Offering (IPO - A/B);
DARDEN Business publishing - Sanofi-Aventis’s Tender Offer for GENZYME.
Preliminary Reading from Berk-DeMarzo, 5th Ed. (available on LUISS Learn):
o Introduction to Financial Statement Analysis (Chap. 2; PPT presentation);
o The Time Value of Money (Chap. 4; PPT presentation);
o Valuing Bonds (Chap. 6; PPT presentation);
o Investment Decision Rules (Chap. 7; PPT presentation);
o Capital Markets and the Pricing of Risk (Chap. 10; PPT presentation available on LUISS LEARN);
Preliminary Reading from Brealey R., Myers S., Allen F. (available on LUISS Learn):
o How to Calculate Present Values (Ch. 2);
Valuing Bonds (Ch. 3);
Net present Value and Other Investment Criteria (Ch. 5);
Making Investment Decisions with the NPV Rule (Ch. 6);
Financial Analysis (Chap. 28);
Teaching Methods
* Lectures
* Computer Lab Sessions
* Harvard Study Cases
Assessment Method
For ATTENDING STUDENTS (Option 1A)
* Written exam: mandatory (30%)
* Advancement Test (20%; 7th week)
* Group work presentation (in presence) on a Case Study (50%; From the 10th to the 12th week); Deadline for FINAL submission of Case Presentation in PPT: May 16th
For NON-ATTENDING STUDENTS (or students who reject the final grade of Option 1A) - Option 1B)
* Written exam: mandatory (100%)
* The exam will have questions on ALL MATERIAL covered in the course, including some of the following cases: Facebook; Sanofi/Genzyme; WhatsApp; LaRoche/Genentech
Thesis assignment criteria
Presentation of a project
Does the syllabus cover sustainability topics?
Yes, it does when we treat the study cases of FCA and TESLA.
Week 1 Contenuto sessioni on line e on campus
1)Session ON CAMPUS for Groups A and B in sequence (2h + 2h Add-on Lecture);
L1 - Introduction to the course (Video-Pill Damo); Fundamentals of capital budgeting: Free Cash Flow Models
2) Session ONLINE (for Both Groups simultaneously - 1h)
L2 - Fundamentals of capital budgeting: Free Cash Flow Models
(BERK-DEMARZO- 5th Ed.): Chapter 8
Week 2 Contenuto sessioni on line e on campus
1)Session ON CAMPUS for Groups A and B in sequence (2h + 2h Add-on Lecture)
L1 - Computer Lab session: Practice on capital budgeting
2) Session ONLINE (for Both Groups simultaneously - 1h)
L2 - Free cash flow models and sensitivity analysis
(BERK-DEMARZO - 5th Ed.): Chapter 8
Week 3 Contenuto sessioni on line e on campus
1)Session ON CAMPUS for Groups A and B in sequence (2h + 2h Add-on Lecture);
L1 - The dividend discount model; Discounted cash flows vs Valuation Multiples (1)
2) Session ONLINE (for Both Groups simultaneously - 1h)
L2 - Sensitivity analysis and Introduction to stock Valuation
(BERK-DEMARZO - 5th Ed.): Ch.9
Week 4 Contenuto sessioni on line e on campus
1)Session ON CAMPUS for Groups A and B in sequence (2h + 2h Add-on Lecture);
L1 - Capital asset pricing model: Theory and practice I (The Model’s assumptions)
(BERK-DEMARZO - 5th Ed.): Chs 9,11
2) Session ONLINE (for Both Groups simultaneously - 1h)
L2 - Discounted cash flows vs Valuation Multiples (2)
Week 5 Contenuto sessioni on line e on campus
1)Session ON CAMPUS for Groups A and B in sequence (2h + 2h Add-on Lecture);
L1 - Computer lab session: Data case on stock valuation
2) Session ONLINE (for Both Groups simultaneously - 1h)
L2 - Introduction to Cost of Capital
(BERK-DEMARZO - 5th Ed.): Chs 9,12,13
Week 6 Contenuto sessioni on line e on campus
1)Session ON CAMPUS for Groups A and B in sequence (2h + 2h Add-on Lecture);
L1 - Estimation of CAPM parameters: risk free rate, equity risk premium and beta
2) Session ONLINE (for Both Groups simultaneously - 1h)
L2 – Advancement Test (March 16th)
(BERK-DEMARZO - 5th Ed.): Chs 12,13
Week 7 Contenuto sessioni on line e on campus
1)Session ON CAMPUS for Groups A and B in sequence (2h + 2h Add-on Lecture);
L1 – Capital structure and market imperfections; the impact on value
2) Session ONLINE (for Both Groups simultaneously - 1h)
L2 – A Hint at Multifactor Models of Risk (par. 13.7)
(BERK-DEMARZO - 5th Ed.): Chs 14,15
Week 8 Contenuto sessioni on line e on campus
1)Session ON CAMPUS for Groups A and B in sequence (2h + 2h Add-on Lecture);
L1 - Computer lab session: Estimation of the cost of capital (CAPM)
2) Session ONLINE (for Both Groups simultaneously - 1h)
L2 - Valuation with leverage: Introduction
(BERK-DEMARZO - 5th Ed.): Chs 15,18
Week 9 Contenuto sessioni on line e on campus
1)Session ON CAMPUS for Groups A and B in sequence (2h + 2h Add-on Lecture);
L1 - Computer lab session: Simulation on GENZYME Valuation Output (Market vs Management valuation)
2) Session ONLINE (for Both Groups simultaneously - 1h)
L2 - Intrinsic valuation methods: WACC; Adjusted present value (APV); Flow to Equity (FTE)
(BERK-DEMARZO - 5th Ed.): Ch.s 18/19
(Harvard Business Review Case)
Week 10 Contenuto sessioni on line e on campus
1)Session ON CAMPUS for Groups A and B in sequence (2h + 2h Add-on Lecture);
L1 – Computer Lab session: Simulation on Facebook Valuation: Closing the Gap between Estimated Value and IPO Value /Debriefing
(Harvard Business Review Case)
2) Session ONLINE (for Both Groups simultaneously - 1h)
L2 - Valuation Models’ Anatomy
DCFs (Valuation Output) versus Multiples; the Football Field;
(BERK-DEMARZO - 5th Ed.): Ch. 19
(PEARL&ROSENBAUM, Investment Banking, 2nd Ed. – Ch.7)
Week 11 Contenuto sessioni on line e on campus
1)Session ON CAMPUS for Groups A and B in sequence (2h + 2h Add-on Lecture);
L1 - Group work presentations on IPOs (Cases you can choose: Airbnb; Alibaba; Facebook; Ferrari; Tesla);
Groups of 6 students for 30 minutes presentations
(Harvard Business Review Cases)
2) Session ONLINE (for Both Groups simultaneously - 1h)
L2 - A sample of Case Presentation Content (Snapchat)
Week 12 Contenuto sessioni on line e on campus
1)Session ON CAMPUS for Groups A and B in sequence (2h + 2h Add-on Lecture);
L1 - Group work presentations on M&As (Cases you can choose: FCA; LaRoche/Genentech; Sanofi/Genzyme; WatsApp);
Groups of 6 students for 30 minutes presentations
(Harvard Business Review Cases)
2) Session ONLINE (for Both Groups simultaneously - 1h)
L2 - Conclusions: What we do and what we don’t know about Finance
(Brealey R. ,Myers S., Allen F. - Principles of Corporate Finance – 13th Edition - McGraw-Hill, 2019 - Ch. 34)