An extensive part of the course will be focused on calculating the cost of capital under various assumptions. We will also cover different ways of allocating a value to assets, with an emphasis on the discounted-cash-flow (DCF) method. For this we will rework the financial statement in order to create the measure of free cash flow, which is the basis for the DCF method alongside the cost of capital. In order to get the most out of this course, we also need to understand the yield curve, together with a firm grasp of calculating interest rates with different compounding, as well as how to estimate geometric- and weighted averages.

Examples of course topics:

• prediction of unlevered cash flow
• discounting of cash flow
• calculation of capital costs of capital (e.g., WACC)
• sensitivity- and scenario analysis (e.g., the use of binomial trees)
• fundamentals underlying corporate valuation
• corporate valuation methods (e.g., multiples, certainty-equivalent cash flows, adjusted present value, NPV, IRR)
• the use of risk-free interest rates (theoretical spot rates; investment horizon issues)
• terminal value
• assessing and calculating historical performance
• amending the financial statement for the purpose of corporate valuation
• financial ratios
• corporate strategy and prediction of performance
• unlevered beta
• the functions of asset pricing models (e.g., CAPM and APT)
• integrating principles and thinking in finance, strategy and accounting in order to value assets, projects and corporations

The topics listed are not meant to be exhaustive, and may be amended.

Knowledge:

After the completion of this course, the candidates have fundamental knowledge of topics, issues and methods in corporate finance and valuation, for instance:

• knowledge about how various assumptions influence the estimation and understanding of capital costs
• good understanding of the theorems of Modigliani and Miller
• good understanding of Hamadas model of capital costs
• good understanding of how to rework financial statements for valuation purposes
• knowledge of two main methods for using the CAPM in practice
• knowledge of pro-forma statements
• knowledge of sensitivity- and scenario analyses
• knowledge of how to calculate leverage and value simultaneously

Skills:

After completion of this subject, the candidate will be able to work independently with topics and issues that are essential for this subject, for instance:

• work independently with practical tasks and issues where a project, unit, firm, or another asset, needs to be values (need to master the whole valuation process for start to end)
• independently choose among the covered methods for estimating capital costs based on the given and taken assumptions
• independently choose the information that is relevant for the issue at hand in corporate finance and valuation
• understand and discuss in which cases the traditional methods for estimating capital costs do not work
• independently estimate discount factors with different compounding of interest rates, and calculate geometric average and other weighted averages
• discuss and argue for mechanisms underlying the models of MM and Hamada
• independently design a simple pro-forma statement

General competence:

After completion of this subject, the candidate will be able to apply and convey ones knowledge and skills for a trainee- or similar position related to corporate finance and valuation, for instance:

• subvert an issue in corporate finance and valuation, analyze it, and identify the information necessary to illuminate or clarify the issue at hand
• complete necessary and critical analyses and estimations of issues in corporate finance and valuation that are different or new compared to the material covered in the course
• be able to convey analyses and arguments to those that do not have an in-depth knowledge of corporate finance and valuation, but whom do at least have a bachelor degree in business economics
• handle the daily use of expressions and terminology from the subject, both in Norwegian and English
• potentially contribute to the development of essential aspects of corporate finance and valuation
• have a fundamental understanding and insight of ethical issues related to the application of the subject in practice

Main book: Berk & DeMarzo, 2014 or 2017 (BD): Corporate Finance. Global edition.

Syllabus: to be announced.