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Bachelor Program Course Outline Academic Year 2022-2023

BCO212 BUSINESS FINANCE I (4 ECTS) Professor Click or tap here to enter text.

Course Description Course Objectives Learning Outcomes

This course is an introduction to the basics of business finance fundamentals and their application to the usual financial issues and decision-making of business enterprises. This to familiarize the students with the role of financial management in maximizing the value of the firm.

The course has the following objectives:

• Introduce students to the languageof finance and developunderstanding of correspondingtheories

• Explain the theory of the time valueof money, basics in risk-return analysis

• Understand the bonds and stocksvaluation inside business enterprises

• Improve analytical and quantitativeskills

On successful completion of this course, students will be able to:

• understand the basic theories offinance and apply these to practicalproblems;

• describe the relationship betweenrisk and return and apply methodsand techniques of risk and returnmeasurement;

• analyze series of future cash flowsand recommend choices forinvestment;

• categorize the value of bonds as perrisk, maturity, rate of return;

• assess bonds yields within thecurrent financial markets’conditions;

• analyze the different types of stocks(preferred and common), asses theirvalue and rate of return.

Course Content

Unit 1 Introduction to Financial Management • The Goal of the Firm

o Discuss “maximization of shareholders wealth”• Five Principles That forms the Foundations of Finance

o Cash flows is what matterso Money has time valueo Risk requires rewardo Market price is generally righto Conflict of interest cause agency problems

• The legal forms of Business organizationso Sole proprietorshipo Partnershipo Corporationo Which organizational form should be chosen?

• Why study finance?

Unit 2 The Time Value of Money • Compound interest, future, and present values

o Using timelines to visualize cash flowso Future value calculations, using formula, financial tables and excelo Present value calculations, using formula, financial tables and excelo Techniques for moving money through time

• Annuities

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o Future value annuities calculations o Present value annuities calculations o Examples of future value annuities and present value annuities

• Loan amortizations schedules o Loans with equal period payments o The amortization process

• The present value of an uneven stream o Many projects will involve uneven cash flows over several years o Comparison of present values of projected future cash flows

• Perpetuities o Annuities that continues forever o Preferred stock valuation as a perpetuity.

Unit 3 The Meaning and Measurements of Risk and Return • The expected return defined and measures

o Holding period return o Expected rate of return

• Risk defined and measures o What is risk? o How do we measure risk? o Will diversification reduce risk? o Computing the expected return and standard deviation

• Rates of returns: The investor’s experience o Compare the historical relationship between risk and rates of return in the capital markets.

• Risk and diversification o Company-unique risk/unsystematic risk o Market risk /systematic risk o Diversifiable risk o Non-diversifiable risk o Measuring market risk

• Measuring a portfolio’s beta o Computing portfolio beta

• The investor’s required rate of return o The required rate of return concept o The minimum rate of return necessary to attract an investor to purchase and hold a security o Measuring the required rate of return o Capital asset pricing model (CAPM)

Unit 4 Interest Rates and Bond Valuations • Types of Bonds

o Coupon bonds compared to zero coupon bonds • Terminology and Characteristics of Bond

o Claims on assets and income; par value; coupon interest rate; maturity • Standard & Poor’s Corporate bond ratings

o Bond ratings o Discuss potential risk of the corporate bond o How poor rating effect the interest rate demanded by investors o The importance of ratings for financial managers

• Defining value o The present value of expected future cash flows, discounted at investor’s required rate of return.

• What determines value? o The amount and timing of the future cash flows o The riskiness of the cash flows o The investor’s attitude about the risk

• Valuing Bonds o The present value of both interest to be received and the par value of the bond o How does the value of the bond change with: coupon rate; required rate of return; maturity?

• Bond yields

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o The bondholder’s yield or returno Finding the discount rate that equates the present value of the future cash flows with current

market price of the bond• Bond valuations: Three important relationships

o Key relationships exist in bond valuations – coupon, maturity & risk)

Unit 5 Equity Valuations • Preferred stock

o A hybrid security• Valuing preferred stock

o The present value of future cash flow’s discounted at investor’s required rate of return.o Dividend model

• Common stocko A share that present the ownership of a corporation

• Valuing common stocko The PV of future CFs discounted at investor’s required rate of return.o Dividend growth model

• Expected rate of return of stockholderso What are investors willing to pay for certain securities?o The required rate of return of the firm’s investors.

• Observing listed stocks, through e.g. Google Financeo Price fluctuationso Benchmarking the price movementso Market capitalizationo Beta

Learning Assessment(s)

Formative assignments can be required to be submitted prior to summative assessments completion. Formative assessments are designed to monitor student learning and provide ongoing feedback that can be used by students to improve their performance in the summative assessments.

Summative Assessments: Exam 40% Final Exam 60%

The Midterm and Final assessments are both in-class written exams testing students’ understanding, knowledge and application of the materials and information covered.

Bibliography

Required Readings Recommended Readings 1. Keown, Martin, Petty (2017) Foundations of Finance:

Pearson1. Brealey, Myers, Allen (2017) Principles of corporate

finance: McGrawHill2. Annual reports3. Harvard Business Review4. The Economist5. Financial Times6. Wall Street Journal

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