ACADEMIC YEAR 2022

CP 201 & BUSINESS FINANCE

4 ECTS

FLORJANA LLESHI

COURSE DESCRIPTION

Business Finance is an introductory course to basic finance fundamentals and how financial
operating decisions are made. The main topics covered by the course include: foundations of
financial management, present and future values, bonds and common stock valuation,
working capital management and cost of capital.

A combination of problem-solving and forum discussion methodologies are used, both in class
and in homework assignments, to illustrate relevant concepts and theories in day-to-day
financial and business practices.

COURSE OBJECTIVES

This course focuses on the financial management of both publicly held and private
corporations. Students are presented with a conceptual framework for understanding and
addressing problems commonly faced by corporate decision-makers and provided
opportunities to apply these concepts to contemporary business situations. The objective of
the course is to provide an introduction to the analysis of corporate decisions from a financial
point of view, and to help students develop an understanding of basic economic issues and of
the main tools required for any type of financial analysis.

COURSE OUTCOMES

Students following this course will be able to evaluate how:

• capital markets determine financial prices and the price of risk
• to use the time value of money in valuation
• to compare the benefits and costs of an investment project
• to value stocks and bonds
• firms estimate their cost of capital and choose their capital structure
COURSE CONTENT

UNIT /SESSION 1: INTRODUCTION TO CORPORATE FINANCE

In the first session we will analyze the role of corporations, financial managers and financial markets
in the financial decision making process. We will specifically look at the goals of a corporation and

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how these goals gear the decisions made by the firm. Subsequently we will analysis the different
kinds of financial decisions that financial managers make using input from the corporation, but also
from financial markets.

FORUM AND ASSIGNMENTS

Video / Readings / Discussion Questions / Required Weekly Test

UNIT /SESSION 2: HOW TO CALCULATE PRESENT VALUE

In the second session we will be introduced to the concept of present. We will see in details the
mechanics of calculating present values of lump sum amounts, perpetuities, annuities, growing
perpetuities, growing annuities and unequal cash flows. Furthermore, we will discuss about other
related topics like simple interest, frequent compounding, continuous compounding, and nominal and
effective interest rates. The net present value rule and the rate of return rule will also be integral part
of our discussions.

FORUM AND ASSIGNMENTS

Video / Readings / Discussion Questions / Required Weekly Test

UNIT /SESSION 3: VALUING BONDS

In the third session we will see how present value concepts can be applied to the valuation of bonds.
Consequently, we will analyze the impact of inflation on nominal interest rates in the value of bonds.
Also, we will explore the concept of the term structure of interest rates and various theories that apply
to the term structure of interest rates.

FORUM AND ASSIGNMENTS

Video / Readings / Discussion Questions / Required Weekly Test

UNIT /SESSION 4: THE VALUE OF COMMON STOCKS

In the fourth session we will look at the different methods available to value common stocks. Using the
same concept applicable to the valuation of stocks we will see how we can estimate the cost of equity
and how to value a business.

FORUM AND ASSIGNMENTS

Video / Readings / Discussion Questions / Required Weekly Test

UNIT /SESSION 5: MIDTERM EXAM

In this session will take place the Midterm exam that will cover sessions 1 to 4 and will consitute 30%
of the total valuation.

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FORUM AND ASSIGNMENTS

Not applicable

UNIT /SESSION 6: NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA

In the sixth session we will look at the NPV rule for capital budgeting. We will also discuss about the
NPV rule’s competitors: the book rate of return, the payback period and the internal rate of return
(IRR) and their shortcomings in comparison to NPV. We will close the session with a discussion of
capital rationing and profitability index (PI).

FORUM AND ASSIGNMENTS

Video / Readings / Discussion Questions / Required Weekly Test

UNIT /SESSION 7: MAKING INVESTMENT DECISION WITH NPV RULE

In this seventh session we will continue to deepen in the capital budgeting concept. We will look at
how to measure the incremental cash flows associated with investment proposals, implication of
depreciation in the estimation of cash flows, projects with differing lives, equivalent annual cost, the
decision to replace an existing machine and the cost of excess capacity.

FORUM AND ASSIGNMENTS

Video / Readings / Discussion Questions / Required Weekly Test

UNIT /SESSION 8: WORKING CAPITAL MANAGEMENT

In this eighth session we will discuss the short-term financial management decisions of a
firm. Short-term financial management decisions relate to current assets and liabilities and
are collectively identified as working capital. In this session, management of accounts
receivables, inventories, cash, and marketable securities are discussed respectively.

FORUM AND ASSIGNMENTS

Video / Readings / Discussion Questions / Required Weekly Test

UNIT /SESSION 9: INTRODUCTION TO RISK AND RETURN

In this ninth session we will take a look at the relation between risk and return for various securities
like stock, bonds and treasury bills. We will discuss how to calculate the expected return and the
standard deviation of returns for a portfolio and finally, we will introduce the concept of beta as a
measure of risk.

FORUM AND ASSIGNMENTS

Video / Readings / Discussion Questions / Required Weekly Test

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UNIT /SESSION 10: PORTOFOLIO THEORY AND CAPITAL ASSET PRICING MODEL

In this tenth session we will look at the theories linking risk and return in capital markets and show
how these theories can be used to estimate returns required by investors. We will carefully review the
most widely used theory, capital asset pricing model and also touch on other theories like arbitrage
pricing and three factor model.

FORUM AND ASSIGNMENTS

Video / Readings / Discussion Questions / Required Weekly Test

UNIT /SESSION 11: RISK AND THE COST OF CAPITAL

In the eleventh session we will see how modern theories about risk and return, discussed in previous
chapters, are applied to capital budgeting decisions. The main focus will be on the estimation of beta,
company and divisional cost of capital, and project cost of capital – including international projects.
We will also look at how to estimates the discount rate for risky projects.

FORUM AND ASSIGNMENTS

Video / Readings / Discussion Questions / Required Weekly Test

UNIT /SESSION 12: EXAM REVISION

Exam revision session will include dicussion and exercises related to the concepts covered in session
6 to 11 and also clarify on questions that students might have related to those topics.

FORUM AND ASSIGNMENTS

Not applicable

UNIT /SESSION 13: FINAL EXAM

In this session will take place the Final exam that will cover sessions 6 to 11 and will consitute 40% of
the total valuation.

FORUM AND ASSIGNMENTS

Not applicable

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COURSE EVALUATION

ASSESSMENT METHODOLOGY

The course will be assed based on following factors:

• Webinars attendance

• Discussion forums participation

• Weekly tests

• A Mid-term exam

• A Final exam

RUBRICS

EBU Grading Rubrics will apply and will be posted in the Moodle page

COURSE WEIGHTINGS

Course weightings per item:

WEEKLY TESTS 30%

MIDTERM EXAM 30%
FINAL EXAM 40%

15%
THEORETICAL MODELS

Capital Asset Pricing Model, Time Value of Money, Net Present Value and Internal Rate of Return,
Random Walk, Economic Value Added, Payback Periods.

BIBLIOGRAPHY

REQUIRED TEXTS

“Principles of Corporate Finance” Brealey, Myers, 12th l., Mc Graw-Hill.

DIDACTIC READINGS

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http://pages.stern.nyu.edu/~adamodar/New_Home_Page/home.ht

m www.bloomberg.com www.nasdaq.com www.morningstar.com

www.msci.com www.reuters.com

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