Dr Maria Cecilia Bustamante OLD M2.13

This course is available on the MSc in Management and MSc in Management (CEMS MIM). This course is available with permission as an outside option to students on other programmes where regulations permit.

This course is not open to students in the MSc Accounting and Finance and in the MSc Finance and Economics.

Students must have completed Finance I (FM473).

Capital structure and the cost of capital in efficient markets. Financial options: options payoffs, option valuation, put-call parity, binomial pricing model. Real options. Dividend policy and capital structure irrelevance. Capital structure: incentives created by corporate and personal taxes, financial distress. Signalling with dividends and capital structure. Complex securities: warrants, callable bonds, convertible bonds. Going public. This is a second course in financial analysis for students with a knowledge of the topics covered in Finance I. The course starts with the determination of the cost of capital for a firm in an efficient market. It then introduces the principles of financial options and shows how puts and calls can be priced. These tools are applied to the valuation of real options, that is, real investments where payoffs are affected by the options available to the firm in how the projects will be operated. After seeing the equivalence between the liabilities of the levered firm and financial options, the problem of capital structure and financial policy are further studied. The course closes with more advanced topics including convertible bonds and the decision of the firm to list its shares on a stock exchange.

30 hours of lectures in the LT.

Weekly problem sets.

Brealey, Myers and Allen, Principles of Corporate Finance.

Exam (100%, duration: 2 hours) in the main exam period.