BED3 Capital Budgeting and Finance
This course deals with a number of topics in capital budgeting, such as selecting projects when the amount of capital is limited, constructing cash flows and relating them to the required rate of return, including tax, inflation and debt considerations. A few financing issues, like choosing among alternative loan arrangements and debt versus leasing, are discussed. Methods of dealing with a project's total risk are presented. Furthermore, this course gives an introduction to the functioning of financial markets, including both investors' placement of capital (Investments) and firms' financing and risk management decisions (Corporate Finance). The principles of measuring market risk are introduced and the relationship between risk and expected returns is discussed. The concepts of valuing stocks, bonds and derivatives (options and futures) are presented. The course also focuses on debt and dividend policy as well as on risk management and international financial management.
Ethical issues are presented and discussed explicitly on a number of occasions. During the first lecture, we focus on how organizations, companies and the authorities describe ethical norms. Other examples of ethical considerations are topics related to insider trading and interest conflicts among management, shareholders and creditors.
Upon successful completion the students:
- Have knowledge about the firm's capital budgeting and financing decisions
- Understand how capital markets function and how they may be favorably utilized
- Have knowledge about the development in capital markets and about securities in these markets
- Understand the pricing of securities and their risk characteristics
- Understand the consequences of debt financing versus equity financing
- Have knowledge about important relationships in currency markets
- Are able to employ theories and models on important problems in finance
- Are able to perform calculations related to profitability, return and risk for projects, securities and sources of capital
- Are able to make decisions on how to finance the company's assets (debt versus equity) and how to spend annual profits (dividend policy)
- Are able to demonstrate how risk may be managed by using derivatives and other financial instruments
- Are able to perform profitability analyses related to international projects and foreign debt
- Are able to communicate the above-mentioned elements related to knowledge and skills
- Are able to use this insight on practical problems
- Are able to exchange views and experience with other people having background in the field of business and thereby contributing to good practice
The course consists of plenary lectures, five exercises of problem sets in groups, one obligatory case-assignment in groups of maximum three participants, one voluntary assignment and Orakel service in the whole semester.
It will be possible to follow the course digitally.
Students are recommended to follow the normal plan for the first three semesters of the bachelor program at NHH. In particular, it is recommended that students have completed BED1, BED2, MET1, and MET2.
Credit reduction due to overlap
Compulsory case-assignment in groups of maximum three students must be approved.
Written individual home exam, 4 hours, counts 100%.
A - F.
Brealey, Richard A., Stewart C. Myers & Alan J. Marcus, Fundamentals of Corporate Finance, McGraw-Hill/Irwin, latest edition.
In addition, a few chapters from a Norwegian textbook will be included (dealing with some specific issues relevant for projects in Norway).
Will be given by the lecturers on request.
- ECTS Credits
- Teaching language
Spring. Offered Spring 2022.
Exam each semester.
Professor Øystein Gjerde, Department of Business and Management Science.
Professor Frode Sættem, Department of Business and Management Science.