Syllabus

Financial Structure and Strategies Prof. Jyoti Gupta ESCP-EAP, European School of Management Objectives
Corporate Financial Managers try to find the combination of securities that maximizes the market value of the firm. The firms mix of debt and equity financing is called its Capital Structure. Over the last few years in addition to the two classic sources of funds; Debt and Equity, there are other types of securities called hybrids have been developed. The course aims to provide the students with a good understanding of the logic which the financial manager should use to decide upon the capital structure, with particular focus on the Cost of Capital and its impact on the Market Value of the Firm. The main focus is on value creation and its measures and financial strategy of firms. The problems related to the determination of Cost of Capital will be discussed. It will look at the different types of securities which the firm can issue, including Convertible Bonds and use of Warrants. Pedagogical Method Lectures, Cases and class discussions. The students will be asked to analyse cases and make presentations. Course Content I Financial objectives of A firm Definitions and measures Return on Capital Employed Economic Value Added Market Value and Book Value II Capital Structure Financial leverage and Return on equity Modigliani and Miller, Proposition I Corporate Tax and Capital Structure How Firms decide on the optimal Capital Structure

III The Weighted Average Cost of Capital What is Cost of Capital and how do we estimate it Asset Beta and Equity Beta How Leverage affects Beta of a firm Cost of Capital and Capital Budgeting.

IV Financial planning process Need for funds Internally generated funds External funds requirement Choice of funds V Raising Equity How firms issue securities Issuing new shares Cash Issue and Rights issue Initial Public offering VI Issuing Bonds Straight bonds How to set the parameters Yield to Maturity, Secondary Markets Rating Agencies and Bond spreads Interest rate risk, Duration and complexity VII Convertible Bonds and Warrants Definitions and characteristics Choice of convertibles as a source of funds Structuring and valuation of convertibles Warrants, the logic and use of warrants Valuation of convertibles Cost of Capital of Convertibles VIII Leasing as an alternative to buying General characteristics and definitions Operating leases and Financial leasing Choice between Leasing and Buying decisions Evaluation Case analysis and presentation of cases in groups. Final Examination Bibliography and information sources Websites of Firms, annual reports Journals to be indicated by the professor Books 1. Corporate Finance, by Brierly and Myers; McGraw Hills 2. Corporate Finance by Ross, Westerfield and Jaffe, Irwin Publications