Corporate investment management: from beginner to expert.

The financial manager balances capital budgeting for real assets with financing from primary, secondary, and over-the-counter markets to maximize shareholder value, using positive net present value decisions or dividends.

Economic rents are profits above the cost of capital, eroded by competition over time. Align investments with corporate strategy, weighing NPV, strategic fit, and competitive dynamics.

Use the positive NPV rule: invest when net present value is positive, meaning future free cash flows exceed the investment outlay at the discount rate, with examples and Excel MPV.

Compute the net present value for constant growth perpetuities by discounting perpetual free cash flows at the discount rate minus the growth rate, and relate to annuity cases.

Explain two definitions of free cash flow, show how to compute free cash flow by adding non-cash items and deducting reinvestments and capex, and illustrate with a two-year project example.

Explore budgeting methods used to estimate future free cash flows, comparing incremental, activity-based, and zero-based approaches, and show how top-down and bottom-up inputs affect forecasts and the value proposition.

Evaluate cannibalization's impact on incremental and total free cash flows within capital budgeting. Use Disneyland Paris and Apple iPhone 50 versus 49 to assess net value effects.

Sales creation refers to a new project boosting the free cash flows of existing projects and increasing total value; examples use a rock band and Dell laptops with docking stations.

Add the net present values of two simultaneous projects to assess total investment, while accounting for cannibalisation effects that may shift demand between cookies and soda.

Define investment outlay as acquisition price plus installation costs and goodwill, including opportunity costs from reallocating assets, with R&D irrelevant and depreciation, residual value, and working capital influencing NPV.

Explore how changes in net working capital affect free cash flow, focusing on accounts receivable, inventories, and accounts payable.

Depreciation spreads a machine’s cost over years, creating a tax shield by reducing profits. Accelerated depreciation can improve investment value by front-loading deductions, aligning with NPV benefits.

Compute the weighted average cost of capital as the discount rate for evaluating project free cash flows, accounting for the time value of money and risk. Differentiate between project work and company work, and see how equity and debt, tax shield, and market values shape the wacc.

Explore how the weighted average cost of capital mixes debt and equity, how gearing affects NPV, and how tax shields and default risk shape the optimal capital structure.

Learn how mean, variance, and standard deviation describe central tendency and spread, and how covariance, correlation, and regression analyze relationships using least squares.

Explore the cost of debt through interest rates, credit risk, and yield curves, and learn how bond ratings influence borrowing costs and long-term discount rates for net present value calculations.

Explore how the capital asset pricing model (CAPM) determines the cost of equity, linking risk-free rate, market risk premium, and beta to explain shareholder returns within the WACC framework.

Explore Markowitz's mean-variance approach to portfolio construction, showcasing diversification, the efficient frontier, and the balance between expected return, risk, covariance, and correlation.

Explore how the capital market line optimizes risk and return by combining the risk-free rate with the market portfolio, using diversification to reduce non-systematic risk and borrowing if needed.

Understand the security market line and its link to the capital market line, illustrating how the cost of equity reflects market risk and the risk-free rate.

Explore the security market line and CAPM, and how beta and systematic versus non-systematic risk shape expected returns. Learn how diversification buffers non-systematic risk.

Explain how the return on the market portfolio measures the excess market premium using BEL 20 as a diversified index, and relate it to risk-free benchmarks like long-term government bonds.

Explore how the S&P 500 and the MSCI World Index act as market portfolios, reflecting the US and global economy through price-driven returns and benchmark behavior.

Learn to estimate beta and systematic risk by regressing excess equity returns on excess market portfolio returns, using Excel and CAPM equations.

Learn to estimate beta in Excel using covariance and variance and regression methods, applying daily excess returns and the Analysis ToolPak to compare results.

Compare your own beta calculations with Yahoo Finance's beta, and understand how horizon, data frequency, and assumptions shape CAPM risk estimates.

Learn Jenson's alpha as the abnormal return above CAPM's expected return, measured by observed minus expected, illustrating beating the market at the same risk.

Analyze event studies by examining how corporate events affect stock prices, using the mean adjusted return method and market model CAPM to estimate abnormal and cumulative abnormal returns.

Learn how beta from Bloomberg is estimated using historical data and adjusted beta, showing how future beta may move toward the market average, and why assumptions matter.

Explore using industry beta as a proxy for CAPM when private or unlisted firms lack public price data; compare industry betas with individual stock betas and note estimation trade-offs.

Explain beta in CAPM by showing how asset moves relate to the market, from zero to one to greater or negative betas, with examples like yield assets and inverse funds.

Capm faces europe's criticisms, where beta estimation for private firms is hard and underdeveloped markets push the use of comparable companies, yet historical, linear risk assumptions fail to predict returns.

Explore arbitrage pricing theory, linking stock returns to macroeconomic factors and a risk-free rate via factor sensitivities and regression, and illustrate practical calculations and arbitrage implications.

Fama and French's 1992 three-factor model adds SMB and HML to CAPM to explain returns of small and value stocks; coefficients are positive and significant, with growth versus value debated.

Explore Carhart's 1997 four-factor model, adding momentum to the three factor model of farmer and French, and assess its limits via sensitivity checks and confidence intervals for cost of equity.

Examine how the weighted average cost of capital blends the cost of equity and debt, affecting the present value of the free cash flows and maximizing npv through financing decisions.

Apply inflation considerations when evaluating long-term projects by matching cash flow terms with the appropriate discount rate, and use the Fisher equation to convert nominal and real rates.

Master sensitivity checks, scenario analysis, and Monte Carlo simulations in corporate investment management to see how growth, inflation, and cost of capital drive NPV and decision risk.

Explore how agency problems shape corporate governance. Learn how shareholders, managers, and boards manage asymmetric information, moral hazard, and adverse selection.

Examine agency problems of equity when managers are not shareholders, illustrating empire building, negative npv investments, free cash flow theory, and hubris in acquisitions.

Learn how corporate governance addresses agency problems of equity via independent boards and auditors, conflict-of-interest registers, whistleblowing rules, and audit committees.

Explore how management compensation, including variable bonuses and stock options, reduces agency problems of equity by aligning managers' incentives with shareholder interests through performance measures and governance considerations.

Explore agency problems of equity and how a market for corporate control disciplines managers in listed firms by takeovers driven by stock price signals and competitive monitoring.

Explore how corporate governance mechanisms reduce agency problems through contracts, monitoring, and incentives, highlighting markets, boards, compensation, regulatory rules, and external audits that influence performance.

Explain the debt agency problem by showing how in default managers may invest in negative-NPV projects to gamble for redemption, transferring downside to debt holders.

The lecture highlights the agency problems of debt and the overinvestment problem, showing that a negative NPV project may be pursued to save the firm, harming debt holders.

In distress, debt holders capture the benefits of positive NPV projects, causing underinvestment by shareholders. A project costing 20 with cash flows of 25 would still leave shareholders with nothing.

Learn how debt covenants and collateralized contracts curb agency problems by limiting overinvestment, while acknowledging potential underinvestment, and see how reputation and trust further reduce debt and equity agency issues.

Explore theories of the firm beyond agency theory, including stewardship, market failure, transaction cost economics, stakeholder, and legitimacy theories relevant to corporate investment management.

Examine AB InBev's 2018 annual report to show how governance, transparency, and stakeholder focus mitigate agency problems and moral hazard, while emphasizing sustainability, compliance, and diversified risk.

Examine budget constraints and their causes, driven by information asymmetries and adverse selection in capital markets, and outline investment techniques beyond NPV, including pecking order theory.

Apply the present value index to select project portfolios under a budget constraint, comparing inflows and outflows to maximize value across project combinations A, B, C, and D.

Explore the profitability index as a time-adjusted investment tool, linked to NPV, by comparing discounted cash inflows to the investment outlay; a PI above one indicates a viable project.

Explore the accounting rate of return (ARR), using average annual accounting profit and depreciation, noting no discounting, sensitivity to depreciation policy, and the impact of denominator choice.

Learn how the internal rate of return is the discount rate that makes net present value zero. Explore mirr, sign changes, and private equity applications with nod to the j-curve.

Explore the payback period method, its intuitive calculation and limitations, including ignoring post‑payback cash flows and time value of money; compare with discounted payback and NPVs.

Use net present value as the primary method to value money, with sensitivity checks. Internal rate of return dominates in small firms; large firms favor NPV, with payback for pitches.

Explore economic value added (eva) and market value added, and learn how to calculate eva from nopat and wacc. See how invested capital and value drivers influence value creation.

Explore market value added, the discounted value of future economic value added using the stock as the discount rate, and its relation to EVA, NPV, and invested capital.

Analyze corporate bonds and government bonds to understand how discounting cash flows, yield curves, liquidity, and credit risks determine spreads above risk-free rates.

Learn how to value a simple bond by discounting coupon and par payments using the cost of debt, and explore the yield curve and risk premiums.

Explore the term structure of interest rates through the expectation, segmented market, and liquidity preference theories. Learn how long-term rates reflect expected future short-term rates along the yield curve.

Segmented market theory states that each maturity's rate is determined by supply and demand for instruments, producing a yield curve and contrasting with the expectation theory.

Explain how the liquidity premium adds to the expectation theory to determine long-term securities' interest rates and shape the observed yield curve.

Explore how firms construct yield curves by adding a fixed spread to an overnight rate like eonia to estimate long-term debt costs, and compare fixed spreads with market-driven methods.

Explore extrapolation and interpolation to build a yield curve, comparing linear interpolation and cubic spline methods, with their advantages and limitations.

Learn how compounding the overnight rate builds the yield curve under the expectation theory, from EONIA to longer terms, with continuous and averaged approaches, volatility, and convexity considerations.

bootstraps a yield curve from the overnight rate up, building a discount curve and iteratively deriving spot rates using overnight rate swaps, futures, and zero coupon bonds.

Explore regression-based yield curve fitting using historical data, from Bradley and Grainne to Dobi Willke and the Super Bowl model, with terms to maturity and coupon rate shaping yields.

Explore empirical yield curve models using a discount function with polynomial and MacCulloch cubic forms. Examine Nelson and Seagle forward-rate models and Sveinsson's Homeshare Bajou component.

Explore the Vasicek yield-curve model as an equilibrium, mean-reverting Wiener process for interest rates, with speed of reversion, long-term mean, and volatility, estimating alpha, gamma, and sigma via Excel.

Explore the Cox–Ingersoll–Ross yield-curve model and its sigma extension to prevent negative rates, with alpha, gamma, and sigma shaping rate changes.

Credit risk drives yields, widening spreads between corporate and government bonds as default risk rises. Ratings from AAA to junk bonds signal the spectrum from investment grade to high risk.

Value a business for mergers and acquisitions, initial public offering pricing, or division sale, to avoid overpricing and identify undervalued firms.

Compare book value, market value, and intrinsic value using balance sheet figures, stock prices, and discounted cash flow analysis to assess overvaluation or undervaluation.

Explore valuation methods for companies, including cost approach, relative benchmarks from comparable transactions, and discounted cash flow, highlighting assumptions, negotiations, and practical use for non-listed firms.

Apply the comparable companies approach by selecting similar listed firms, calculating market-to-sales and market-to-book ratios, and averaging them to value your company.

Value a share with the dividend discount model, where intrinsic value comes from future dividends growing at a constant rate in perpetuity, but note its reliance on stable growth.

Value a company as a project by discounting incremental cash flows at the weighted average cost of capital, with a terminal value.

Learn how discounted cash flow valuations rely on many estimations and value drivers; use sensitivity, scenario, and simulation analyses to focus on drivers and process rather than a single number.

Identify where dcf breaks down, such as negative free cash flows, and apply book value or replacement cost. Consider real options, timing, and comparables for private firms.

Explore how capital structure affects the weighted average cost of capital and firm value, explaining tax shields from debt, bankruptcy costs, and the trade-off theory to identify optimal debt levels.

The pecking order theory explains why firms favor internal funds and debt over equity, due to signaling and adverse selection, while profitable firms have lower debt, challenging the trade-off view.

Explore Anson's free cash flow theory and behavioral finance theories, examining overinvestment in cash-rich firms, debt discipline, market timing, and investor sentiment shaping asset prices.

No single capital structure theory fits; blend trade-off and pecking order theories while focusing on operating cash flows, growth opportunities, and value via NPV/DCF and WACC.

Assess how cash and marketable securities as financial slack affect investment, debt ratios, and creditor negotiations under pecking order theory and trade-off theory, highlighting the optimal cash level.

Compute the weighted average cost of capital from multiple financing sources, including debt, preferred and common equity, with tax shields. See how long-term bonds and short-term lending affect WACC.

Learn how to value a company with the adjusted present value approach, adding the present value of financing advantages, such as the debt tax shield.

Explore financial benchmarks and how they influence other numbers, from stock indices like the S&P 500 to interest-rate measures like Euribor, used in loans and derivatives.

Examine how banks manipulated LIBOR during the crisis, driven by conflicts of interest and lax controls as they signaled creditworthiness and profited from swaps, triggering hefty fines.

Explore how IOSCO principles shape financial benchmarks, the shift from LIBOR to transaction-based measures, and the move toward multi-rate, risk-free benchmarks under the BMR.

Examine Euribor and Eonia, their term and overnight benchmarks, and how the European money market calculates these rates to underpin vast contractual references.

Explore how BMR requirements drive Euribor and Eonia reform, demanding transaction-based benchmarks, robust methodologies, stress testing, and market liquidity considerations.

EMI develops a hybrid Euribor methodology based on transactions and back testing, using level 1 data, interpolation, and level 3 expert judgment to measure borrowing rates.

examines the long-term outlook for euribor, contrasts it with libor amid FCA regulatory moves, and discusses panel banks, liquidity risks, and the need for fallbacks and a plan b.

This lecture explains eonia reform, noting liquidity and manipulation risks, and outlines the euro area shift to an alternative risk-free rate with governance, transition workstreams, and contractual considerations.

Explore the Eurozone shift from EONIA to ESTER as the wholesale euro unsecured overnight rate and its link to the euro SDR benchmark.

Explore ibor and eonia transition issues and the wide impact across product design, market conventions, contracts, accounting, tax, risk management, and governance within banks.

Explore how to build a term structure for risk-free rates (RFRs) using backward-looking compounding or forward-looking bootstrapping, leveraging derivatives and addressing liquidity and credit-spread concerns.

Discover how private equity and buyout investors add value in unlisted or taken-private companies through hands-on governance, board seats, and fund raising to exit and distribution.

Explore types of buyouts, including leveraged buyouts with NewCo structures and debt pushdown, management, divisional, secondary, and family buyouts, and how private equity uses debt and equity to exit.

Explore how private equity creates value through multiple strategies—market timing, organic growth, buy-and-build consolidation, and operational improvements. Distinguish buyouts from mergers within the broader market for corporate control.

Explore how buy-out investors use syndication to diversify risk, with a lead financier guiding the process, and examine four motives: diversification, resource base, duflo, and competition reduction.

Explore the resource-based motive for syndication as private equity learns the target's institutional environment through legal and cultural knowledge, with lead financiers' prior buyouts reducing syndication.

The deal flow motive shows that syndicating current deals creates future deal flow by inviting partners, sharing returns, and reducing future risk, reinforced by investor size and experience.

This lecture explains the competition reduction motive in syndication, portraying buyout financiers as a cartel that lowers competition and raises bargaining power, with no clear evidence it changes syndication levels.

Explore how syndicate structure balances the number of investors and the lead financier's equity stake, using the Hirschmann index to measure concentration and address adverse selection and moral hazard.

Assess how syndication influences target company performance via regression, comparing syndicated financing to a single investor and identifying when lead financier structures boost or hurt value.

European buyouts yield mixed value creation; evidence of target performance deterioration over time suggests outcomes hinge on the private equity financier and the target, not generalizable from US-centric studies.

Analyze how market conditions and competition, via excess funds and buyout activity, affect value creation. Highlight how investor knowledge and deal structures—management buyouts, divisional buyouts, going private, cross-border, syndication—affect profitability.