Corporate Finance (FIE 402)
Syllabus, Fall 2023
(This version July 20,2023)
Uwe Walz
[email protected]
Course Description:
The course is built around the following three main topics:
(i) Financial strategy: capital structure, dividend policy, issuing of securities
(ii) Valuation and value creation: Discounted cash flow techniques, Interaction of financing
and investment decisions.
(iii) Options in corporate finance: real options, equity and debt as options, convertible debt
The first part of the course covers various theories that trade off the costs and benefits for a
firm of choosing between debt and equity financing. We will come up with a framework of
an optimal capital structure and payout policy. In addition, students will gain an
understanding of and institutional knowledge in the area of equity and debt issues. The
second part of the course will look at the interaction between capital structure and
valuation. We will cover valuation techniques that incorporate financial side-effects, such as
Adjusted Present Value (APV), Weighted Average Cost of Capital (WACC), and the Flow-to-
Equity. The third part of the course focuses on the role of options for corporate finance. We
will consider the consequences of viewing debt and equity as options. In addition, we will
consider the valuation of investment projects with embedded real options.
General Info
Teaching: The lectures will neither be streamed or recorded. In addition to the lectures, we
will have several exercise sessions held by me.
Class Hours:
- Wednesday: 16:15 – 18:00
- Thursday: 8:15 – 10:00
- Friday: 8:15 – 10:00
- The course starts on August 30rd. A detailed time table is listed below.
Office hours: I’ll hang around after the lectures. Furthermore, I have regular office hours in
the weeks in which I am in Bergen, Thursday 16.00-17.30 (room: TBA).
Language: This course will be taught in English and the exam will be in English too.
Reading List
Note: Most of these links will not work unless you are at NHH (or have a FT subscription). As
an NHH student you should be able to get a free FT subscription. Most of these readings have
been added to Leganto as well.
Main Textbook: Berk DeMarzo (BDM), Corporate Finance. Pretty much every edition should
be fine, though my references will be to the 5th.
For Options: Hull, Options, Futures & Other Derivatives, 10th ed. All old editions are also ok.
Lectures 1 & 2: Introduction & NPV Review
Lecture Notes: Lecture 1: Introduction & NPV Review & Lecture 2: Practical Forecasting
Textbook Reading: BDM, Chapters 1-9
Extra Readings:
- Milton Friedman: The social responsibility of business, NYT, 1970 (See Leganto)
- Joan Magretta: The power of virtual integration: an interview with Dell Computer's
Michael Dell, HBR, 1998 (See Leganto).
- Koller et al., Valuation, 6th ed., Chapters 7 & 11 (See Leganto)
Lecture 3: Multiples
Lecture Notes: Lecture 3: Multiples
Textbook Reading: BDM, Chapter 9.4
Extra Readings:
- Multiples: A Primer, UBS Warburg, 2007 (on Canvas)
Lecture 4: Risk & Return
Lecture Notes: Lecture 4: Risk & Return
Textbook Reading: BDM, Chapter 11 & 12
Extra Readings:
- Busting the myths of investment: Do equities outperform bonds? FT, 7.11.2018. Link
Lecture 5: Capital Structure: Modigliani Miller & Trade-off Theory
Lecture Notes: Lecture 5: MM & Taxes
Textbook Reading: BDM, Chapter 14 & 15
Extra Readings:
- The Problems at Deutsche Bank, John Kay, 2016. Link
- The bankruptcy of General Motors: A giant falls. Economist, 6.6.2009. Link
- Using APV: A better tool for Valuing Operations. HBR May-June 1997. Link
Articles
- Modigliani & Miller: The Cost of Capital, Corporation Finance and the Theory of
- Investment, AER, 1958. (on Leganto)
- Franks & Sussman, Financial Distress and Bank Restructuring of Small to Medium Size
UK Companies, RoF, 2005 (on Leganto)
Lecture 6: Capital Structure: Agency Issues
Lecture Notes: Lecture 6: Capital Structure & Agency Costs
Textbook Reading: BDM, Chapter 16
Extra Readings:
- The debt bubble legacy of economists Modigliani and Miller, FT, 19.10.2020. Link
Lecture 7: Payout Policy
Lecture Notes: Lecture 7: Payout Policy
Textbook Reading: BDM, Chapter 17
Lecture 8: Options
Lecture Notes: Lecture 8: Options
Textbook Reading: BDM, Chapter 20, 21, & 22, Hull, 10th ed., chapter 13 &15
- Bienz, Thorburn, & Walz, Fund Ownership, wealth, risk-taking: Evidence from Private
Equity Managers. Journal of Financial Intermediation, 2022 (on Leganto)
Please note that our notation differs from BDM as we follow Hull’s notation (Options, Futures
and derivaties). Hull uses continuous discounting rather than discrete. Nonetheless BDM is
still the main reading for us here.
Time Table
