Structural Financial Decisions

Recommended Prerequisites

Not applicable.

Teaching Methods

This course is taught in a theoretical/practical way, with the purpose to initiate the students in research activities, to increase their ability to analyze a financial problem, and to be able of developing self-learning skills. For this purpose it is included in the course content the resolution/discussion of practical cases.

Learning Outcomes

The objectives of this course is to analyze and understand three of the main decisions at the medium and long term that are traditionally assigned to the financial function of the companies, namely: (i) investment decisions; (ii) strategic financing decisions (capital structure decisions), and (iii) dividends policy. This course also aims to provide the students with the basic financial knowledge that enables them to become aware of the importance of these decisions and at same time to develop skills in order to apply the concepts learned to real problems faced by the companies along the different stages of its life cycle. Additionally, seeks to give the students the capability of critical analysis and evaluation of decisions taken in particular circumstances namely those related with the maximization of the firm’s value.

Work Placement(s)

No

Syllabus

1. Introduction: strategic financial decisions

2. Investment decisions

2.1. The decision to invest and type of investments

2.2. Basic elements for the evaluation of investment projects

2.3. Cost of capital

2.4. Criteria and methods of decision

2.5. Project risk analysis

2.6. Interaction between investment and financing decisions

2.7. Case study

3. Strategic financing decisions

3.1. Capital structure decisions: basic concepts

3.2. Capital structure decisions and firm´s value: thesis of the neutrality of the optimal capital structure

3.3. Classic approach

3.4. The modern theory of capital structure: Modigliani - Miller model and their propositions

3.5. The tax effects on capital structure decisions

3.6. The effect of financial distress costs

3.7. Agency costs

3.8. Asymmetric information and signaling effects

3.9. Financial flexibility

3.10. Models based on product/input market interactions

4. Dividends policy.

Assessment Methods

Continuous
Critical analysis of three scientific papers: 100.0%

Bibliography

Augusto, Mário A. G. (2006), Política de Dividendos e Estrutura do Capital: Respostas e Dúvidas do Estado da Arte, Imprensa da Universidade de Coimbra, Coimbra.

Brealey, R. A., Myers, S. C., and Allen, F (2007), Princípios de Finanças Empresariais, 8ª Ed., Mcgraw-Hill, Portugal, Lisboa.

Brigham, E. F. and Ehrhardt, M. C. (2008), Financial Management: Theory and Practice, 12ª Ed., Thomson South-Western.

Martins, António; Cruz, Isabel; Augusto, Mário; Silva, Patrícia Pereira, and Gonçalves, Paulo Gama (2011), Manual de Gestão Financeira Empresarial, Coimbra Editora, Coimbra.

Ross, S. A.; Westerfield, R. W.; Jaffe, J., and Jordan, B. D. (2008), Modern Financial Management, 8ª Ed., McGraw-Hill International Edition.