This study session first presents capital budgeting analysis, focusing on the application of concepts in the corporate finance decision-making process. These capital budgeting principles are critical for an analyst inside a company preparing capital budgeting recommendations as well as for an external analyst estimating the value of the company. The remainder of the study session covers capital structure and dividend policy. The presentation of capital structure starts with the classic Modigliani–Miller irrelevance proposition. This proposition states that a company’s value is not affected by capital structure choices. The reading then considers how the optimal capital structure is affected by taxes, agency costs, and the possibility of financial distress. The reading on dividend policy discusses the company’s choice between reinvesting or distributing earnings and the choice between paying cash dividends and repurchasing shares. Analysts are interested in capital structure and dividend policies because of their effect on the risk and return characteristics of corporate equities and bonds.
Reading 20 Capital Budgeting
Reading 21Capital Structure
Reading 22 Dividends and Share Repurchases: Analysis
STUDY SESSION 8 Corporate Finance Financing and Control Issues
This study session presents two major organizational topics of corporate finance. First, corporate governance covers the system of principles and policies used to manage conflicts of interest among various groups of stakeholders of a corporation. Second, mergers and acquisitions and corporate restructurings, which redistribute ownership and control, are analyzed.
Reading 23 Corporate Performance, Governance, and Business Ethics
Reading 24 Corporate Governance
Reading 25 Mergers and Acquisitions