The central aim of this subject is to present the different financial instruments that a firm may use to raise capital. Once these financial instruments are introduced, the concept of cost of capital is defined as a necessary parameter for defining a firm´s value.
The knowledge that the student must achieve can be divided in the following objectives:
¿ Compute a firm value
¿ Compute the cost of capital of a firm.
¿ Understand that a firm is a portfolio of financial instruments which is closely connected to a portfolio of investment projects.
¿ Distinguish a firm's cost of capital from a project cost of capital.
¿ Being able to value companies as well as investment projects.
¿ Connect the different shareholder´s compensation mechanisms with the different financial instruments that a firm uses for raising capital.
¿ Understand the concept of firm value.
¿ Be able of using comparable as well as different ways to compute a firm value.
¿ Define a flexible methodology for computing the cost of capital of firms and projects.
¿ Define a criterium for distinguishing the situation in which is optimal to use dividends instead of share repurchases for compensating shareholders.
¿ The capacity to use reasonable approximations for achieving a financial objective
¿ The ability to tackle uncertainty issues, while making sensibility analyses in such uncertain frameworks.
¿ The relevance of approaching a financial objective through different ways in order to have more sound financial results.
The attitudes that a student should acquire:
¿ A flexible view to change a decision if new information has arrived.
¿ A critical view of managers to understand that a firm value is not always what the managers pursue.
¿ A collaborative attitude to obtain from the different agents the information required for achieving difficult objectives.
¿ Understand that behind any managerial decision there is an ethical code.