Unit Overview
Corporate finance focuses on how businesses make decisions with money: which projects to invest in, how to fund those investments, and how to return value to shareholders over time.
In this unit, you will learn capital budgeting tools like net present value (NPV) and internal rate of return (IRR), the logic of the cost of capital, and the tradeoffs between debt and equity financing. You will also explore dividend and payout policies and how financial decisions shape firm value.
Learning Objectives
- Explain the goals of corporate finance and the concept of maximizing firm value.
- Use capital budgeting tools (NPV, IRR, payback) to evaluate investment projects.
- Define the cost of capital and explain why required returns differ by funding source.
- Describe the tradeoffs between debt and equity and how capital structure affects risk.
- Explain dividend and payout policy options and why firms choose different approaches.
Lessons in This Unit
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Lesson 4.1: Corporate Finance & Firm Value
What corporate finance is, how value is created, and the role of financial decision-making.
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Lesson 4.2: Capital Budgeting Basics
Project evaluation frameworks, cash flow estimation, and decision rules.
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Lesson 4.3: NPV, IRR, and Payback Methods
Comparing capital budgeting tools and understanding when each method can mislead.
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Lesson 4.4: Cost of Capital (WACC)
Required returns, risk, and how companies estimate the weighted average cost of capital.
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Lesson 4.5: Debt vs Equity & Capital Structure
Financing tradeoffs, leverage, financial distress risk, and why structure matters.
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Lesson 4.6: Dividends, Buybacks & Payout Policy
How firms return value to shareholders and why payout strategy can signal confidence.
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Lesson 4.7: Corporate Finance in Practice
Real-world case thinking: valuation drivers, scenario analysis, and decision tradeoffs.
Unit Assessment
After completing all lessons, students should:
- Complete the Unit 4 Quiz
- Evaluate a hypothetical investment project using NPV and IRR
- Write a short recommendation memo (300–600 words) explaining a debt vs equity financing choice
Self-Paced Learning Guidance
Corporate finance is best learned by practice. When working problems, focus on cash flows (not accounting profit), write down assumptions, and test how outcomes change under different scenarios. The goal is strong reasoning—not perfect prediction.