Advanced Enterprise Accounting

obligatory courses

The course aims to to present the theoretical basis of this field so that the listener is well understood and properly applied the paradigms used within corporate finance, including presented as part of basic lectures on the subject. The lecture will also allow further independent student work on this issue.

The purpose of this lecture is to provide as completely as possible (in the particular number of hours) and a consistent description of the theoretical corporate finance, which could be the foundation for students to further in-depth studies in this field. The starting point will be the base's value theory in a deterministic - discrete and continuous. There will be discussed broad class of pricing models for fixed paths growth. Moreover, a method for determining the optimal rate of reinvestment will be presented. The theory of value in the non-deterministic case will be built based on the approach of arbitration - for a discrete time in doubly periodic and finite multi-period situation. It will show also the possibility of simpler applications of stochastic processes as “tree” models generalizations. Based on the theory of arbitration will be presented also selected theories of valuation of various types of financial assets of particular importance in the theory of corporate finance, including the CAPM and APT theories and main concepts of the cost of capital (also based on the model of Jorgenson). The main concepts of the weighted cost of capital, and the conditions of use will be discussed. Furthermore, there will be showed assertions of the Modigliani-Miller theorem on the basis of theorem on martingales extent.

The lecture will present the theoretical basis of ratio analysis. Will be discussed features of statistical distributions of the indicators, and the reasons - including the assertion of homogeneity - and the procedures to detect and remove statistical anomalies in the distributions. Subsequently techniques will be presented to reduce the number of statistical indicators, including the method of principal components. There will also be discussed various applications of the indicators and ratio analysis in finance companies - including discriminatory method for predicting the financial situation of companies.

As part of lecture will be presented a methodology for making investment decisions in firms in different situations and with different characteristics of the investment process - in the case of investments divisible, indivisible, repeatable, unique, consistent, etc.., for two and many future periods. Case will be presented to both deterministic and stochastic (for the distribution of the dependent and independent) with particular emphasis on the option to wait. There will be explained the use of sensitivity analysis and Monte Carlo type simulations.

The lecture shall complete a review of working capital management issues in the enterprise, including forecasting tools and simple stochastic models.

Basic:

Damodaran A.: Finanse korporacyjne. Teoria i praktyka. Helion 2007, Rozdz. 2, 7, 18,19,20

Dixit A.K.: Pindyck R.S.: Investment under Uncertainty, Princeton University Press, Princeton 1993, Part I

de Matos J.A. Theoretical Foundations of Corporate Finance, Princeton University Press, 2001

Tirole J, The Theory of Corporate Finance, Princeton University Press 2006, Rozd.1,2,4

Complementary literature:

Brealey R.A., Myers S.C.: Podstawy finansów przedsiębiorstw, PWN, Warszawa 1999, Rozdz. 2, 4, 5, 6, 7, 8, 9, 17, 18, 27,28, 33

Brigham E.F.: Podstawy zarządzania finansami, PWE, Warszawa 1996, Rozdz. 7, 12, 16, 17, 20

Fama E.F., French K.R.: Multifactor Explanations of Asset Pricing Anomalies, The Journal of Finance, Vol. 51, No. 1. (Mar., 1996)

Gale D., Hellwig M., Incentive-Compatible Debt Contracts: The One–Period Problem, Review of Economic Studies vol.52 1985

Luenberger D.: Teoria inwestycji finansowych, PWN, Warszawa 2003, Rozdz. 6, 7, 8

Marcinkowska M.: Kształtowanie wartości firmy, PWN, Warszawa 2000, Rozdz. 1 – 5, 7

Sargent T.J.: Macroeconomic Theory, Academic Press, Chapter 3.1

Myers C.S.: Interactions of Corporate Financing and Investment Decisions – Implications for Capital Budgeting, The Journal of Finance, Vlo.29, No.1. (Mar., 1974)

Truong G., Partington G., Peat M.: Cost of Capital Estimation and Capital Budgeting Practice in Australia, University of Sydney, 2006

A. Knowledge

Student knows the microeconomic models of business valuation in the absence of risk, in particular, understands the importance of investing and financial markets for shaping the company. Student knows the Gordon model and its extension to the continuous case. Student understands the possibilities of using this approach to determine the optimum rate of reinvestment.

Student knows the model of Jorgenson's valuation, the concept of cost of capital and the theoretical basis of these tools - including the role of dynamic optimization and the calculus of variations. Student knows and understands the equivalence theorem.

Student knows and understands the concept of states of the world, risky assets, risk-free assets, Arrow's assets

Student knows and understands the concept of arbitration. Student knows the mathematical foundations of the theory of arbitrage, including the Stiemky assertion and Farkas lemma.

Student knows and understands the asset pricing equation in the absence of arbitrage

Student knows the valuation of the business model for many companies and for the three periods. Student understands the economic substance of the states deflators.

Student knows the concept of completeness of markets. Student knows the asset pricing models based on the valuation equation, including the options, and equity.

Student knows and understands the basics of option pricing models of the company. Student knows the statement "call-put parity"

Student knows and understands the basis of CAPM and APT models. Student knows the practical problems and limitations associated with using CAPM.

Student knows and understands the concept of capital structure and the basic theories of the structure - including the theory of "trade-off" and the "pecking order". Student knows and understands the importance of Modigliani-Miller theorems (MM) on the effect of capital structure on cost of capital and company value. Student knows selected models of moral hazard, leading to a breach MM paradigm, in particular the issue of costs of bankruptcy.

Student understands the concepts of policy dividends. Student understands the development of theoretical premises, including the Ornstein-Uhlenbeck processes. Student knows III MM theorem and its derivation.

Student knows and understands the concept of insolvency and bankruptcy. Student knows the basic models predicting business bankruptcies.

B. Skills

Student is able to construct models of financial flows in the company at various power structures (own funds, loans, bonds, issuance of new capital) - for the various stakeholders.

Student can set the optimal capital structure, and the optimal rate of reinvestment.

Student uses freely basic valuation models of financial assets under conditions of uncertainty and lack of arbitrage. In particular, the student knows how to derive call-put parity theorem, and 1st statement of Modigliani-Miller (MM). Student is fluent in CAPM model, including methods of estimating the model parameters.

Students can evaluate the risk the company's bankruptcy

Student understands the interaction between theory of corporate finance and other economic paradigms, particularly microeconomics and legal conditions and know how to creatively use them in corporate finance analysis.

Students can work independently on difficult scientific articles, devoted to corporate finance, as well as he knows how to prepare and carry out a presentation in Polish of the present article.

C. Social competence:

Student has a thorough understanding of the mechanisms governing the non-financial corporate sector and is able to perceive and analyze and interpret a number of processes in this sector.

Student has a "cognitive courage", consisting of shaped and revised during the course competencies in independent work on difficult scientific articles and other professional studies on the financing of corporations.

Student understands the finances of enterprises, understanding of their extensive relationships with various elements of the social environment, considerations of legal and political system, psychological aspects in a holistic way.

KU05, KU06, KK01, KK03, KU04, KU03. KU02, KU01, KW03, KW02, KW01

Basis for evaluation will be multiple-choice test containing 50 questions (each for 1 point) with four potential answers. Taking part in a lecture systematically, randomly controlled during the semester, can provide an additional 2 points.