Bama Finance 302: Intermediate Corporate Finance

Bama Finance 302, typically offered at the University of Alabama’s Culverhouse College of Business, delves into the core concepts and applications of corporate finance, building upon the foundational knowledge gained in introductory finance courses. This course is generally considered a crucial step for students pursuing careers in finance, investment banking, corporate financial management, and related fields.

Key Topics Covered

Finance 302 expands upon basic financial principles, focusing on the practical application of these principles in a corporate setting. Key topics often include:

• Capital Budgeting: This involves analyzing and evaluating potential investment projects, utilizing techniques like Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period to determine project feasibility and profitability. Students learn to assess project risk, incorporating it into the capital budgeting decision-making process.
• Cost of Capital: Understanding the cost of capital – the required rate of return for investors – is essential for making sound financial decisions. The course covers calculating the cost of debt, cost of equity (using models like the Capital Asset Pricing Model – CAPM), and the weighted average cost of capital (WACC). This knowledge is crucial for capital budgeting and valuation.
• Capital Structure: The course explores the optimal mix of debt and equity financing for a company. Students analyze the trade-offs between debt and equity, considering factors like financial risk, tax implications, and agency costs. They learn about capital structure theories, such as the Modigliani-Miller theorem, and their limitations in the real world.
• Dividend Policy: Finance 302 examines the factors influencing a company’s dividend policy, including shareholder preferences, investment opportunities, and financial constraints. Students learn about different dividend payment methods and the impact of dividends on stock price and shareholder wealth.
• Financial Planning and Forecasting: This area focuses on developing financial forecasts and plans to guide a company’s future growth. Students learn to create pro forma financial statements (income statement, balance sheet, and cash flow statement) and use these forecasts to make strategic financial decisions.
• Working Capital Management: Efficiently managing a company’s current assets (cash, accounts receivable, and inventory) and current liabilities is critical for maintaining liquidity and profitability. The course covers techniques for optimizing working capital levels and managing the cash conversion cycle.

Learning Outcomes

Upon successful completion of Finance 302, students are typically expected to:

• Apply financial theories and models to real-world corporate finance problems.
• Evaluate investment opportunities and make sound capital budgeting decisions.
• Determine the optimal capital structure for a company.
• Develop and analyze financial forecasts.
• Understand the factors influencing dividend policy.
• Effectively manage working capital.
• Communicate financial concepts and analysis clearly and concisely.

Course Structure

The course generally involves lectures, case studies, problem sets, and exams. Case studies provide students with opportunities to apply the concepts learned in class to complex business scenarios. Problem sets help students develop their quantitative skills and reinforce their understanding of the material. Exams assess students’ knowledge of the key concepts and their ability to apply them to solve problems.

Prerequisites

Typically, students are required to have completed introductory finance courses (such as Bama Finance 300 or equivalent) and accounting courses before enrolling in Finance 302. A strong foundation in these areas is essential for success in the course.