This course emphasizes problem solving and applications for the theories of modern finance. What efficiencies of markets means in a practical sense is demonstrated, the economic model of the firm is compared with the accounting model, the weaknesses of the accounting framework are demonstrated in valuation of acquisitions and designing incentive contracts for management. Dividend policy and capital structure are investigated as they relate to changes in share value and the price-to-earnings ratio. The concept of cost of capital is shown to be independent of capital structure even in the real world, a principal component of the Miller-Modigliani theorems in a world of perfect capital markets. Finally, three alternate models are presented for pricing firms, including initial public offerings, acquisitions and divestitures and for internal capital allocation. Strategic planning and valuation is reconciled and the
EVA framework is used for designing incentive contracts for management, boards of directors and even for all employees right down to the shop floor. The emphasis is on real world illustrations. The student should have achieved a practical understanding of the theories of modern finance when the course is
Joel Stern was a Columbia Business School faculty member from 1976 to 2016.