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Welcome to Corporate Finance CFA Level 2 Course.
As the name indicates, this course covers Corporate Finance Paper of Level 2 of CFA Exams.
Section 1 will cover Reading 23: Capital Budgeting
Section 2 will cover Reading 24: Capital Structure
Section 3 will cover Reading 25:Dividends and Share Purchases: Analysis
Teaching and Learning Style:
This course is structured in self paced learning style. It is suggested to take screenshots of case studies for reference back during problem solving. Approaching the course with note book and pen or MS Excel and solving problems paralelly along with instructor will make you feel like attending real class and improve your listening and learning experience.
Teaching and Learning outcomes:
By taking this course, you will be able to
a) calculate the yearly cash flows of expansion and replacement capital projects and evaluate how the choice of depreciation method affects those cash flows;
b) explain how inflation affects capital budgeting analysis;
c) evaluate capital projects and determine the optimal capital project in situations of a) mutually exclusive projects with unequal lives, using either the least common multiple of lives approach or the equivalent annual annuity approach, and b) capital rationing;
d) explain how sensitivity analysis, scenario analysis, and Monte Carlo simulation can be used to assess the stand-alone risk of a capital project;
e) explain and calculate the discount rate, based on market risk methods, to use in valuing a capital project;
f) describe types of real options and evaluate a capital project using real options;
g) describe common capital budgeting pitfalls;
h) calculate and interpret accounting income and economic income in the context of capital budgeting;
i) distinguish among the economic profit, residual income, and claims valuation models for capital budgeting and evaluate a capital project using each.
j) explain the Modigliani–Miller propositions regarding capital structure, including the effects of leverage, taxes, financial distress, agency costs, and asymmetric information on a company’s cost of equity, cost of capital, and optimal capital structure;
k) describe target capital structure and explain why a company’s actual capital structure may fluctuate around its target;
l) describe the role of debt ratings in capital structure policy;
m) explain factors an analyst should consider in evaluating the effect of capital structure policy on valuation;
n) describe international differences in the use of financial leverage, factors that explain these differences, and implications of these differences for investment analysis.
o) compare theories of dividend policy and explain implications of each for share value given a description of a corporate dividend action;
p) describe types of information (signals) that dividend initiations, increases, decreases, and omissions may convey;
q) explain how clientele effects and agency issues may affect a company’s payout policy;
r) explain factors that affect dividend policy;
s) calculate and interpret the effective tax rate on a given currency unit of corporate earnings under double taxation, dividend imputation, and split-rate tax systems;
t) compare stable dividend, constant dividend payout ratio, and residual dividend payout policies, and calculate the dividend under each policy;
u) explain the choice between paying cash dividends and repurchasing shares;
v) describe broad trends in corporate dividend policies;
w) calculate and interpret dividend coverage ratios based on a) net income and b) free cash flow;
x) identify characteristics of companies that may not be able to sustain their cash dividend.
Indian scenario has been considered for explaining concepts through case studies.
Wishing you all the very best to excel in Finance World.