Capital Budgeting and Finance

BED3 Capital Budgeting and Finance

Spring 2024

  • Topics

    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. Profitability related to sustainable investments are discussed and conflicts, if any, between sustainability and traditional finance theory will be touched upon.

  • Learning outcome

    Upon successful completion the students:

    Knowledge

    • Have knowledge about the firm's capital budgeting and financing decisions.
    • Understand what sustainable investments mean, including measuring sustainability, ESG-assessments and -rating as well as related profitability.
    • Have knowledge about ethical standards and how they are expressed in various companies as well as ethical problems related to insider trading and conflicts of interest.
    • Understand how capital markets function and how they may be favourably 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.

    Skills

    • 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, as well as sustainable investments including ESG-rating and profitability.
    • Are able to judge ethical standards and related decisions.
    • 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.

    General competence

    • 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.

  • Teaching

    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.

  • Recommended prerequisites

    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

    BED3 overlaps 100% with BED3E, and can not be taken in combination with BED3E.

  • Compulsory Activity

    Compulsory case-assignment in groups of maximum three students must be approved.

  • Assessment

    Written individual school exam, 4 hours (pen and paper), counts 100%.

    An assessment in BED3 will be organised in the autumn semester of 2024 for students with a valid course approval. As of autumn 2023, only mandatory bachelor courses with an individual assessment will have an assessment in the non-teaching semester. This only applies to students with a valid course approval. The retake options that apply at all times are decided by the dean for the bachelor program and will be published in the course description.

  • Grading Scale

    A - F.

  • Literature

    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).

    Recommended literature will be provided  by the lecturer if requested.

  • Permitted Support Material

    Calculator

    One bilingual dictionary (Category I) 

    All in accordance with Supplementary provisions to the Regulations for Full-time Study Programmes at the Norwegian School of Economics Ch.4 Permitted support material https://www.nhh.no/en/for-students/regulations/https://www.nhh.no/en/for-students/regulations/ and https://www.nhh.no/en/for-students/examinations/examination-support-materials/https://www.nhh.no/en/for-students/examinations/examination-support-materials/  

Overview

ECTS Credits
7.5
Teaching language
Norwegian
Semester

Spring. Will be offered Spring 2024.

Course responsible

Professor Frode Sættem, Department of Business and Management Science.

Assistant Professor André Wattø Sjuve, Department of Business and Management Science.

Adjunct Associate Professor Ole-Andreas Elvik Næss, Department of Business and Management Science.