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Corporate Financial Management -
Basic corporate financial management responsibilities and activities from the perspective of the chief financial officer are the focus of this week's course of study. This includes discussion about how strategy and corporate finance are growing closer together and how the interactions may influence strategic options.
A principal outcome is to be able to demonstrate understanding and proficiency with the principal capital structure theories and how they are useful in evaluating capital structures. Learning how to make corporate capital structure decisions is an important objective and outcome for the week.
Another important goal is to learn how to explain the Modigliani-Miller propositions concerning capital structure, including the impact of leverage, taxes, financial distress, agency costs, and asymmetric information on a company's cost of equity, cost of capital, and optimal capital structure.
A related outcome this week is to learn how to define and discuss the factors that affect capital structure decisions. It is also important to learn how to use financial forecasting models to assess how capital structures will change over time and to consider appropriate adjustments in response to projected changes.
It is also important to be able to explain the target capital structure of a company and why its actual capital structure may fluctuate around the target.
The potential short and long-term sources of financing, including public and private financing, and lease financing, are examined. It is important for financial executives to understand the advantages and disadvantages of the various sources of financing and their relative costs and risks. The discussion also includes the general structure of various financial markets. The course of study should help students to demonstrate proficiency with the evaluation and comparison of alternative financing strategies including hybrid financing, preferred stock, warrants, and convertible securities.
Shareholder distributions are examined this week. These include regular cash dividends, extra dividends, stock dividends, stock splits, reverse stock splits, and share repurchases including their expected effects on shareholders' wealth and a company's financial ratios.
It is important to understand the advantages and disadvantages of shareholder distributions including dividends and repurchases. An important outcome of the analysis this week is to understand the various theories of shareholder distributions, the effects on the value of the firm, and the impact of various tax considerations.
Working capital management is another important functional responsibility for finance executives. An expectation of this week's course of study is to learn how to evaluate working capital management including amounts and financing strategies.
Another important topic related to corporate financial management is leverage. It is expected that students will learn how to explain the concept of leverage and the advantages and risks of debt financing.