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AF350: Advanced Corporate Finance

Session: Two 

Prerequisites: Finance (to the level of AF250) and introductory microeconomics (to the level of EC101)

Dr Jack Favilukis

This course will focus on theoretical issues which arise in modern corporate finance. The major theme of the course will be the firm's capital structure and payout decision. We will see that under certain assumptions, this decision is irrelevant, this is the Modigliani and Miller Theorem. We will then loosen these assumptions to see when it may be better for firms to issue debt versus equity, or to repurchase shares rather than pay out dividends. In the last part of the course we will learn about real options and apply this to study the optimal policy of a firm raising capital to finance risky investment.

The topic of capital structure is covered in AF250 Finance. That course however provides only a brief overview. Advanced Corporate Finance will build on that by taking the decisions of the firm as the main topic. We will spend significant amounts of time on topics beyond the scope of AF250, such as taxes, bankruptcy, private information, signalling, and real options.

Topics covered will include:

  • A review of valuations
  • Modigliani and Miller
  • Taxes
  • Recapitalisation
  • Bankruptcy and distress
  • Private Information
  • Dividend policy
  • Optimal capital structure
  • Investment under constraints
  • Real options

M. Grinblatt and S. Titman, Financial Markets and Corporate Strategy, McGraw-Hill (2001).

Lectures: 36 hours    Classes: 12 hours
Assessment: Two written examinations