Concordia University - FINA 395: Theory of Finance II (Solutions)

- Theory of Finance II (FINA 395) at Concordia University refines your finance knowledge, equipping you for advanced studies. The course explores valuing stocks and bonds, capital budgeting with real options, and the risk-return tradeoff. You'll delve into efficient markets, long-term financing, capital structures, and the impact of debt on valuation and investment. The course also covers shareholder payouts, issuing new equity, and the financial aspects of mergers and acquisitions.

✔ (Summary) Main Areas of Focus -

• Valuation of Bonds & Stocks: The course centers on techniques for determining the theoretical fair value of bonds and stocks, considering factors like interest rates, cash flows, and market conditions.
• Capital Budgeting & Real Options: This section delves into the evaluation and selection of long-term investments and the concept of real options, which embody the flexibility and adaptability of investment strategies in response to changing market conditions or new information.
• Risk, Return, and Capital Budgeting: The course explores the connection between risk and expected return in capital budgeting, incorporating various financial models and methods to estimate the appropriate discount rate for investment projects.
• Corporate Financing Decision & Efficient Capital Markets: This section examines the role of efficient capital markets in corporate finance and the implications for financial managers when making financing and investment decisions.
• Long-Term Financing: The course discusses the different sources of long-term financing available to firms, including debt and equity, and the factors that influence a firm's choice of capital structure.
• Capital Structure: This section investigates the specific mix of debt and equity used by a company to finance its overall operations and growth, as well as the factors that influence a firm's capital structure decisions.
• Limits to the Use of Debt: The course addresses the practical considerations that affect a firm's ability to use debt financing, including business characteristics, financial risk, and market conditions.
• Valuation & Capital Budgeting for the Levered Firm: This section examines the valuation and capital budgeting process for firms with a mix of debt and equity financing, accounting for the impact of leverage on the firm's cost of capital and investment decisions.
• Dividends & Other Payouts: The course explores the various forms of payouts that firms can make to their shareholders, such as dividends, stock buybacks, and other distributions.
• Issuing Equity Securities to the Public: This section discusses the process of issuing new equity securities, like stocks, to the public in the primary market, including the valuation, pricing, and marketing of new securities.
• Mergers & Acquisitions: The course focuses on the financial aspects of mergers and acquisitions, including valuation, deal structure, and financing options.