This course applies finance theory and principles to the analysis of important business problems. Specific topics will include capital budgeting, cost of capital, real options, capital structure, payout policy, and enterprise valuation. The course is structured around the Enlightened Shareholder Model or Enlightened Stakeholder Theory. Students are assumed to have basic knowledge of the concepts of time value of money, valuation, capital budgeting, and cost of capital. Specifically, students should be able to:
1. Identify and critique normative theories of management’s role in the firm.
2. Conduct cash-flow and option-based valuation of real assets focusing on the long-term impact for all stakeholders.
3. Understand how capital structure, payout, and compensation policies, as well as the market for corporate control affect firm value and managerial actions.
4. Recognize the impact of agency conflicts and information asymmetries on firm performance and devise effective controls.
Additional social components include:
1. Market failures and assumptions such as the absence of externalities
2. Comparisons of the stakeholder vs shareholder view of the firm
3. “Internalize externalities” via the capital budgeting decision
4. How financial structure decisions affect stakeholders
5. Governance systems and the role of ethics
6. CSR within the market for corporate control