FINM551:CORPORATE FINANCE -II

Course Outcomes: Through this course students should be able to

CO1 :: analyze financing needs of the businesses and designing an optimum capital structure

CO2 :: summarize the retention and distribution of profits and impact on business valuation

CO3 :: examine the association of corporate governance and corporate financial performance

CO4 :: illustrate the impact of changing business environment of corporate valuations and
performance

Unit I
Cost of capital : meaning and concept, cost of debt, cost of equity, cost of retained earnings,
calculation of WACC, international dimensions in cost of capital, equity valuation through CAPM,
security market line (SML), capital market line (CML), CAPM and WACC difference, CAPM applications
Unit II
Financing decisions : value of the firm, capital structure theories – net income approach and
traditional approach, net operating income approach and modigliani miller model, determining the
optimal capital structure, checklist for capital structure decisions, costs of bankruptcy and financial
distress
Unit III
EBIT-EPS analysis : concept of leverage, types of leverage, operating leverage, financial leverage,
combined leverage
Unit IV
Dividend decisions : forms of dividend, cash dividend, bonus shares, stock split, stock repurchase,
dividend policies in practice, factors determining dividend policy, theories of dividend, gordon model,
walter model, MM hypothesis, value of firm, dividend decisions
Unit V
Corporate governance : value based corporate culture, disclosures, transparency and
accountability, corporate governance and human resource management, evaluation of performance of
board of directors
Unit VI
Economic outlook and business valuation : impact of changing business environment on
corporate valuation, climate change and corporate valuation, business sustainability and corporate
valuation, role of environmental social and governance (ESG) factors in corporate valuation

Text Books:
1. FUNDAMENTALS OF CORPORATE FINANCE by JONATHAN BERK, PETER DEMARZO &
JARRED HARDFORD, PEARSON
References:
1. CORPORATE FINANCE by STEPHEN A. ROSS, RANDOLPH W. WESTERFIELD & JEFFREY
JAFFE, MC GRAW HILL

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