Corporate Finance II: Financing Investments and Managing Risk

Go to Course: https://www.coursera.org/learn/corporate-finance-two

Introduction

### Course Review: Corporate Finance II: Financing Investments and Managing Risk on Coursera **Overview:** "Corporate Finance II: Financing Investments and Managing Risk" is a comprehensive course hosted on Coursera, designed for individuals eager to delve deeper into the intricate world of corporate finance. This course is an essential follow-up to foundational finance topics, advancing your understanding of how companies make pivotal financial decisions. By the end of the course, you will be equipped not only to understand but also to analyze and apply sophisticated financial strategies in real-world scenarios. **Course Content and Structure:** The course is structured into four modules, each focusing on critical components of corporate finance: 1. **Module 1: Raising Financing: The Capital Structure Decision** This module lays the groundwork for understanding the fundamental differences between debt and equity financing. Emphasis is placed on avoiding common analytical pitfalls when deciding on capital structures. Students will gain insights into financial statements, exploring how an increase in debt can affect corporate profitability and overall risk. By the conclusion of this module, you will have developed the ability to assess how much debt is appropriate for different types of companies. 2. **Module 2: Understanding Debt Financing and Payout Policy** Diving deeper, this module examines the intricacies of debt financing. It covers crucial concepts like default probabilities and credit ratings, shedding light on their significance in debt markets. Students explore the contractual elements tied to debt, such as covenants and collateral, leading to informed discussions about the choice between bank debt and bonds. The module also addresses how dividend policies and share repurchase strategies impact firm value, rounding out a comprehensive understanding of corporate payouts. 3. **Module 3: Risk Management** Risk management is a vital skill in finance, and this module provides an in-depth look at why companies hedge their risks. It introduces derivative instruments—like forwards and futures—while also emphasizing the importance of liquidity in risk management. Students will glean insights into modeling risks and the impact of currency fluctuations on investment strategies, especially for firms operating globally. 4. **Module 4: Finance, Governance, and Society** The final module explores the ethical implications and societal consequences of financial decisions. It challenges students to consider how debt might lead to both over- and underinvestment, discussing real-world scenarios where the interests of the company might diverge from societal welfare. This module not only heightens awareness of corporate governance but also fosters critical thinking about the moral dimensions of finance. **Course Conclusion and Additional Resources:** The course wraps up with guidance on potential next steps in your learning journey, as well as an opportunity to reflect on the course experience. This conclusion reinforces the understanding that learning in finance is ongoing and multifaceted. ### Recommendation: I highly recommend "Corporate Finance II: Financing Investments and Managing Risk" to anyone with a foundational knowledge of finance seeking to deepen their expertise. Whether you’re an aspiring finance professional, a business executive, or a student looking to enhance your understanding of corporate financial strategies, this course will provide you with valuable insights and analytical tools. The course’s blend of theoretical frameworks and practical applications makes it an essential resource for navigating the complexities of corporate financing. With its high-quality content, engaging format, and practical case studies, learners will not only understand the principles of corporate finance but also be able to apply them in real-time decision-making processes. Investing time into this course will undeniably pay dividends in your career and personal growth in the finance domain. If you’re ready to elevate your understanding of corporate finance, I highly encourage you to enroll in "Corporate Finance II: Financing Investments and Managing Risk."

Syllabus

Course Orientation

You will become familiar with the course, your classmates, and our learning environment. The orientation will also help you obtain the technical skills required for the course.

In Module 1, we will discuss the differences between debt and equity financing for corporations. We will then learn how to avoid usual mistakes that people make when analyzing the choice between debt and equity. We will work with financial statements to understand the impact of higher debt on corporate profits, and we will learn how debt and risk are fundamentally related. Finally, we will use our knowledge to understand how companies choose how much debt to have.

In Module 2 we will dig deeper into the mechanics and the institutional details that are important to understand debt financing. We will learn models that allow us to link default probabilities to yields on a company’s debt. We will discuss the roles of credit ratings for debt markets and for companies. We will learn the importance of non-price contractual terms such as debt covenants, collateral, and seniority. We will use this knowledge to understand how companies choose between bank debt and bond financing. Finally, we will discuss how payout decisions (dividends and share repurchases) affect firm value and how companies choose their optimal payout policy.

In Module 3 we will identify good and bad reasons why companies engage in risk management, or hedging. We will learn the mechanics of how to use derivatives such as forwards and futures to eliminate specific risks. We will also discuss how to manage risks that cannot be hedged with derivatives. In particular, we will learn that appropriate liquidity management can work as a substitute for hedging strategies. We will also discuss how and why to hedge currency risk, and how to think about a company’s cost of capital when making cross-border investments.

In Module 4, we will apply our knowledge on how to discount future cash flows to challenging situations. First, we learn how the presence of debt can result in acceptance of negative NPV projects (overinvestment, excessive risk taking). Then, we learn how debt can result in the rejection of positive NPV projects (underinvestment). Next, we will learn that NPV of the firm can differ from NPV for society, and how this may explain firms’ decisions to make bribe payments even though corruption is detrimental to welfare. Last, we examine situations where the NPV equation does not hold and what this means for society.

You will find out where to go next after completing this course and be able to share any thoughts you have on this course experience.