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EC4418 Description 2016
EC4418 Description 2016
You will learn about the formal structure of corporate liabilities (debt, equity and
options) and how the valuation of corporate liabilities can be affected by the value
and structure of corporate assets.
You will learn how the valuation of corporate liabilities can be affected by
corporate financing decisions, such as dividend or debt policies.
You will learn how the concept of market efficiency importantly modifies the
interaction between corporate asset and corporate liability values.
You will learn how the techniques of corporate liability evaluation are central to
understanding the wider implications of corporate restructuring such as mergers,
acquisitions and spin-offs.
You will learn importantly how different corporate tax and personal income tax
regimes affect the choice of appropriate tools of analysis.
You will develop a set of skills that are transferable into settings in which any kind
of investment valuation needs to be done or are transferable into settings in
which any kind of policy analysis is required with regard to corporations,
investments, banking and finance.
Course Outline
This module uses a single textbook (for recommended readings) in addition to lecture
material: Brealey, Richard A., Myers, Stewart C., Allen, Franklin, Principles of
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Corporate Finance, Eleventh edition, 2014, McGraw-Hill. The lectures below contain
material that can be covered in one or more lectures sessions. It is unlikely that the
complete list below can be covered in the number of allocated lecture sessions that
we have.
Lecture 1: Preliminaries of Corporate Finance
Lecture 2: Valuation of Options on Binary Gambles (Basic Pricing)
Brealey, Myers and Allen (2014), Chps 20 and 21, but you can skip the BlackScholes stuff
Lecture 3: Corporate Liabilities under Limited Liability & Options
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homework question will have the benefit of having that question marked and answers
given back to the student.
Understanding the Lecture Material
This means understanding everything in class notes, the homework problems and
understanding the relevant parts of the textbook. Please note that the material in the
lectures will depart from the textbook in many places. Therefore, it is imperative that
you attend the lectures. In many instances the textbook material is only a basic
departure point for the lectures.
The best way to learn is by preparing before lectures, by reading the relevant part of
the textbook in advance and studying your lecture notes after lectures carefully
making sure that you understand everything contained in the lecture. It would be a
very good idea for you to download the notes prior to a lecture, print them off and
bring them with you to the lecture. That would save you a lot of writing and allow you
to pay closer attention to the lecture itself.
Getting lots of practice
This means doing the homework and all practice problems. The more practice you
do, the better you will do in the class test and the exam.