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 final aim of the course is that students understand how to value companies, by analyzing and projecting their cash flows, and discounting them at the adquate cost of capital.
The knowledge that the student has to achieve can be divided in the following objectives:
- 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.
- Be able to value companies as well as investment projects.
- Connect the different shareholders¿ compensation mechanisms with the different financial instruments that a firm uses for raising capital.
- Understand the concept of firm value.
- Be able of using comparables 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 freameworks.
- 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 in order to change a decision if new information has arrived.
- A critical view of managers in order to understand that a firm value is not always what the managers pursue.
- A collaborative attitude in order to obtain from the different agents the information required for achieving difficult objectives.
- Understand that behind any managerial decision there is an ethical code.