Fundamentals of Corporate Finance

Course Title: Fundamentals of Corporate Finance

Course No: FIN 229

Nature of the Course: THEORY

Semester: 6

Credit Hours: 3

Course Description

This course consists of the introduction to corporate finance, financial instruments, markets and institutions, financial statement analysis, time value of money, financial assets valuation, basics of capital budgeting, raising capital, capital structure and leverage, and working capital management.

Course Objectives

This course Fundamentals of Corporate Finance aims to lay the foundation for understandings fundamental concepts and principles of corporate finance. This course equips the students with fundamental tools and techniques of financial management to prepare them to resolve complex financial issues concerning corporate firms.

Course Contents

1. Introduction to Corporate Finance

4 hrs

1.1. Nature of corporate finance

1.2. Functions of financial management

1.3. The financial goal

1.4. Financial manager's responsibilities

1.5. Corporate finance and other functional areas

2. Financial Instruments, Markets and Institutions

4 hrs

2.1. Financial instruments

Money market and capital market instruments

Derivative securities

Mutual fund units

2.2. Financial markets

Functions and types of financial markets

2.3. Financial institutions

Depository and non-depository financial institutions

3. Financial Statement Analysis

6 hrs

3.1. Financial statements

Balance sheet

Profit or loss statement

Cash flow statement

Statement of change in shareholders' equity

3.2. Framework for analysis

3.3. Nature and need of financial ratio analysis

3.4. Types of financial ratios

Liquidity ratios

Asset management ratios

Debt management ratios

Profitability ratios

Market value ratios

3.5. DuPont system of financial ratio analysis

3.6. Limitations of financial ratios

4. Time Value of Money

6 hrs

4.1. Concept time value of money

4.2. Cash flow time line

4.3. Future values and present values of a single cash flow

4.4. Computing the interest rate and the number of years

4.5. Future value and present value of an ordinary annuity and annuity due

4.6. Computing annuity payments, periods and interest rates

4.7. Present value of perpetuities

4.8. Present value and future value of uneven cash flows

4.9. Semiannual and other compounding periods

4.10. Preparation of loan amortization schedule

4.11. Application of the concept of time value of money

5. Financial Assets Valuation

8 hrs

5.1. Concept of financial assets

5.2. Key characteristics of bonds, common stocks and preferred stocks

5.3. Basic financial asset valuation models

5.4. Valuation of bonds

Perpetual bonds

Zero coupon bonds

Coupon bonds with a finite maturity

Bond valuation with semiannual interest

5.5. Bond yields

Current yield

Capital gain yield

Yield to maturity

Yield to call

5.6. Dividend discount model for common stock valuation

Zero-growth model

Normal growth model

Super-normal growth model

Single period valuation

Multi-period valuation

5.7. Valuation of preferred stock

6. Basics of Capital Budgeting

6 hrs

6.1. Concept of capital budgeting decision

6.2. Capital budgeting decision process

6.3. Types of capital budgeting projects

6.4. Capital budgeting decision techniques

Payback period

Discounted payback period

Net present value

Profitability index

Internal rate of return

Modified internal rate of return

6.5. Merits and limitations of each capital budgeting decision technique

7. Raising Capital

5 hrs

7.1. Sources of long-term financing

7.2. Long-term debt

Instruments, advantages and disadvantages

7.3. Preferred stocks

Advantages and disadvantages

7.4. Common stocks

Advantages and disadvantages

7.5. Methods of selling securities

Public offering

Rights offering

Private placement

8. Capital Structure and Leverage

5 hrs

8.1. Concept of capital structure

8.2. Optimal capital structure

8.3. Determinants of capital structure

8.4. Business risk and financial risk

8.5. Degree of operating leverage, financial leverage and total leverage

9. Working Capital Management

4 hrs

9.1. Concepts of working capital

9.2. Types of working capital

9.3. Factors affecting the size of working capital

9.4. Working capital management and its significance

9.5. Computing operating cycle, cash conversion cycle and the amount of working capital requirement

Text Books

1.Ross, S. A., Westerfield, R. W. & Jordan, B. D. Fundamentals of corporate finance. New York: McGraw-Hill Irwin.
2.Brigham, E. F. & Houston, J. F. Fundamentals of financial management. Delhi: Cengage Learning.
3.Van Horne, J. C., Wachowicz, J. R. & Bhaduri, S. N. Fundamentals of financial management. New Delhi: Prentice-Hall India Ltd.

Notes:

This syllabus follows the official BIM curriculum of Tribhuvan University. In case of any doubt or revision, the university’s published syllabus shall be considered authoritative.https://www.fomecd.edu.np/syllabuses

Fundamentals of Corporate Finance

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