Corporate Finance: Part II - Budgetting, Financing & Valuation

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1. Capital budgeting
1.1 Cost of capital with preferred stocks
1.2 Cost of capital for new projects
1.3 Alternative methods to adjust for risk
1.4 Capital budgeting in practise
1.4.1 What to discount?
1.4.2 Calculating free cash flows
1.4.3 Valuing businesses
1.5 Why projects have positive NPV

2. Market efficiency
2.1 Tests of the efficient market hypothesis
2.1.1 Weak form
2.1.2 Semi-strong form
2.1.3 Strong form
2.1.4 Classical stock market anomalies
2.2 Behavioural finance

3. Corporate financing and valuation
3.1 Debt characteristics
3.2 Equity characteristics
3.3 Debt policy
3.3.1 Does the firm’s debt policy affect firm value?
3.3.2 Debt policy in a perfect capital market
3.4 How capital structure affects the beta measure of risk
3.5 How capital structure affects company cost of capital
3.6 Capital structure theory when markets are imperfect
3.7 Introducing corporate taxes and cost of financial distress
3.8 The Trade-off theory of capital structure
3.9 The pecking order theory of capital structure
3.10 A final word on Weighted Average Cost of Capital
3.11 Dividend policy
3.11.1 Dividend payments in practise
3.11.2 Stock repurchases in practise
3.11.3 How companies decide on the dividend policy
3.11.4 Does the firm’s dividend policy affect firm value?
3.11.5 Why dividend policy may increase firm value
3.11.6 Why dividend policy may decrease firm value

4. Options
4.1 Option value
4.2 What determines option value?
4.3 Option pricing
4.3.1 Binominal method of option pricing
4.3.2 Black-Scholes’ Model of option pricing

5. Real options
5.1 Expansion option
5.2 Timing option
5.3 Abandonment option
5.4 Flexible production option
5.5 Practical problems in valuing real options

6. Appendix: Overview of formulas

Index