MBA Corporate Finance Course Guide Template

Corporate Finance Course Guide: [Your programme, term and section]

A course guide for the MBA core course in corporate finance: the time value of money, capital budgeting, risk and return, portfolio theory, the capital asset pricing model, the cost of capital, capital structure, payout policy, valuation and options. It is for first-year MBA students planning the term, admitted students preparing over the summer, and study groups that want a shared plan. It gives the competencies the course builds, the prerequisites, a 13-session roadmap linked to the concept cards, a key concepts map, an original mini-case on a fictional company (Corvane Robotics) with exhibits, discussion questions and a teaching note, a grading rubric, an exam preparation plan, the struggles most students hit, a reading list and a self-test with an answer key. Source basis: the primary works of corporate finance from Fisher (1930) to Black and Scholes (1973) and Myers (1984), written up in original words. Session order and grading are typical of leading international programmes; your syllabus decides. Replace every [bracketed] value and every row marked Example. This is a learning aid, not investment advice.

Document control

Contents

• What the course is for
• Prerequisites
• The course in one page
• Session roadmap
• Key concepts map
• Mini-case: Corvane Robotics and the Atlas line
• Teaching note
• Typical assignments and how they are graded
• Exam preparation plan
• Common struggles
• Reading list
• Self-test questions
• My notes and next steps
• Sources and further reading
• Answer key
• Revision history

What the course is for

Corporate finance asks three questions every manager faces: which investments should the firm make (capital budgeting), how should it pay for them (capital structure), and how much cash should it return to its owners (payout policy). One idea ties the answers together: a decision creates value when the present value of the cash it generates exceeds the present value of the cash it uses, measured at the return investors could earn elsewhere on investments of equal risk. The course gives you the tools to measure that value and the judgment to know when the tools mislead.

The competencies the course builds, mapped to the competency list used across this library (see mba/mba-core-curriculum-map). The list reflects learning goals commonly set by accredited schools; the AACSB Global Standards for Business Education, ratified by AACSB members on 20 April 2026, leave each school to define its own learning goals, so check your programme's list (as of October 2026, see aacsb.edu):

Prerequisites

The course in one page

Time value of money. A cash flow $C$ at date $t$ is worth $C/(1+r)^t$ today. An annuity of $C$ for $T$ periods is worth $C \cdot \frac{1 - (1+r)^{-T}}{r}$; a perpetuity growing at $g < r$ is worth $\frac{C_1}{r - g}$ (Williams 1938; Gordon and Shapiro 1956). Compounding $m$ times a year turns a quoted rate $q$ into an effective annual rate $(1 + q/m)^m - 1$.

Capital budgeting. Accept projects with positive NPV at the opportunity cost of capital; use IRR, payback and PI as summaries, aware of their failure modes (mba/mba-npv-irr-card). Cash flows are incremental, after tax, include working capital and exclude financing costs.

Risk and return. Diversification removes company-specific risk (Markowitz 1952). For two assets, portfolio variance is $w_1^2 \sigma_1^2 + w_2^2 \sigma_2^2 + 2 w_1 w_2 \rho_{12} \sigma_1 \sigma_2$: correlation below 1 makes the portfolio less risky than the weighted average of its parts. The CAPM prices the risk that remains: $E[R_i] = r_f + \beta_i (E[R_m] - r_f)$ (Sharpe 1964; Lintner 1965; Mossin 1966). Markets that quickly reflect public information (Fama 1970) make it hard to earn excess returns by picking stocks, which is why the course focuses on real investment decisions.

Cost of capital. $WACC = \frac{E}{V} r_E + \frac{D}{V} r_D (1 - t_c)$ at target market-value weights, with a beta from peers unlevered and relevered at the target's structure (Hamada 1972; mba/mba-capm-wacc-card).

Capital structure. With no taxes or frictions, financing does not change firm value (Modigliani and Miller 1958). With corporate taxes, debt adds the value of its tax shields (Modigliani and Miller 1963): for permanent debt, $V_L = V_U + t_c D$. Expected distress costs offset this at high leverage (trade-off theory, Kraus and Litzenberger 1973); agency costs (Jensen and Meckling 1976), debt overhang (Myers 1977) and information asymmetry (Myers and Majluf 1984; Myers 1984, the pecking order) explain why real firms borrow less than taxes alone suggest. Adjusted present value (Myers 1974) values financing side effects separately (mba/mba-capital-structure-card).

Payout. In perfect markets dividend policy does not affect value (Miller and Modigliani 1961); taxes, signalling and agency costs make it matter in practice. Managers smooth dividends and adjust them slowly toward a target payout (Lintner 1956); repurchases have grown as a flexible alternative.

Valuation. A firm is worth its free cash flows to the firm discounted at the WACC, plus a terminal value; equity is that value minus net debt (mba/mba-dcf-valuation-card). Multiples of comparable companies are a cross-check, not a substitute (finance/comparable-companies-analysis).

Options. An option's value comes from asymmetry: the right without the obligation. Put-call parity links calls and puts; the Black-Scholes-Merton model prices European options (Black and Scholes 1973; Merton 1973). Real options apply the same logic to managerial flexibility: expand, delay, abandon (Myers 1977; mba/mba-options-real-options-card).

Session roadmap

Key concepts map

Mini-case: Corvane Robotics and the Atlas line

Situation. It is early in the year at Corvane Robotics, a venture-backed maker of autonomous picking robots for warehouses. Founded seven years ago, Corvane has grown revenue quickly by selling robots to third-party logistics firms, but until now it has outsourced final assembly to a contract manufacturer. The contract manufacturer has struggled with quality on the newest robot, the Atlas, and customers have begun to ask for faster delivery.

Mei Okafor, Corvane's chief financial officer, has been asked by the board to evaluate an in-house Atlas production line. Operations has proposed a line that would cost USD 12.0m to build and equip, all paid at the start, with a five-year economic life and no salvage value. The line would produce Atlas units sold under multi-year service contracts; the sales team's forecast of incremental revenue appears in Exhibit 1, together with the operating assumptions finance has agreed with operations.

At the last board meeting, two directors disagreed sharply. Rafael Lindqvist, who represents the lead venture investor, argued that "every dollar we spend should earn our fund's 30% target return", and that the line should be rejected unless it pays back within three years, because Corvane's runway matters more than distant profits. Asha Varma, an independent director and former operations executive, argued that the line removes a quality problem that is costing customer goodwill, and that a mature company in this industry would use its cost of capital, not a venture fund's target.

Mei has asked her analyst, Tomás Reyes, to estimate a cost of capital from listed peers (Exhibit 2). Corvane has no traded shares. Its last funding round valued the equity at USD 180m after the investment, and it has no debt today. Management's plan is to add term debt over the next two years so that debt reaches about 20% of firm value, a level similar to listed peers.

The funding question is open. A specialist lender has offered USD 30.0m of venture debt at 9% interest, interest-only for five years, with warrants for a small amount of equity. The alternative is a new equity round, which the lead investor would support but which several founders fear would dilute them at a valuation they consider too low. Exhibit 3 summarises the funding options. Corvane is not yet profitable at the group level: it has tax losses carried forward that would shelter about the next three years of group taxable income.

Finally, operations notes that if demand for Atlas proves strong by the end of year 3, the line could be doubled for a further USD 10.0m; the board has not considered this option (Exhibit 4).

Mei must recommend to the board, next month, whether to build the line and how to fund it.

Exhibit 1. Atlas line forecast (USD m, fictional). Capital spending 12.0 at year 0, depreciated straight line over five years (2.4 a year), no salvage value. EBITDA margin 35% of revenue. Tax rate 25% on project operating profit. Net working capital equal to 10% of each year's revenue, built up in years 1 to 4 and released in full at the end of year 5.

Exhibit 2. Peer data and market inputs (fictional; market inputs are Example teaching values).

Risk-free rate 4.2%; equity risk premium 5.0%. A comparable-credit 5-year bond with a 6.0% annual coupon trades at 96.50 per 100.

Exhibit 3. Funding options (fictional).

Exhibit 4. Expansion option (fictional). At the end of year 3, if demand is strong (operations estimates a 50% chance), Corvane could invest USD 10.0m to double capacity, adding USD 6.5m of free cash flow in each of years 4 and 5. If demand is weak, it would not expand.

Discussion questions.

1. Build the free cash flows of the Atlas line from Exhibit 1. What are its NPV, IRR and payback at Corvane's cost of capital?
2. Estimate Corvane's WACC from Exhibit 2. Respond to Rafael's view that the line should earn the fund's 30% target.
3. How should the board treat the three-year payback rule? What does the NPV profile tell you about risk?
4. Which forecast assumptions matter most? Find the break-even EBITDA margin and the break-even revenue level.
5. Should Corvane fund the line with venture debt or with new equity? Consider tax shields, the tax losses, financial distress and what each choice signals.
6. How much is the expansion option worth, roughly, and does it change the recommendation?

Teaching note

Q1. Free cash flow and NPV. Free cash flow = NOPAT + depreciation - capital spending - change in working capital.

At a 10% cost of capital: NPV = USD 1.965m (=NPV(10%, C9:G9) + B9), IRR = 15.25% (=IRR(B9:G9)), MIRR at 10% = 13.39%, PI = 1.164, payback = 3.66 years, discounted payback = 4.45 years. (Year 2 NOPAT is 1.0875, shown as 1.088 in Exhibit 1; the model carries full precision.) The NPV and IRR card (mba/mba-npv-irr-card) uses a simplified version of the same line with rounder cash flows; the method is identical.

Q2. Cost of capital. Unlevering the peers with Hamada gives asset betas of 1.1837, 1.1623 and 1.1782, mean 1.1747. Relevered at a target D/E of 0.25 and a 25% tax rate, $\beta_L = 1.3950$, so $r_E = 4.2\% + 1.3950 \times 5\% = 11.17\%$. The bond yield is =RATE(5, 6, -96.5, 100) = 6.85%, or 5.14% after tax. WACC = $0.8 \times 11.17\% + 0.2 \times 5.14\% = 9.97\%$, about 10%. With today's zero debt the WACC is 10.07% (the cost of equity at the asset beta): the financing mix barely moves it. The 30% venture target is the wrong rate for expected cash flows: it compensates for illiquidity, for the fund's portfolio of failures and for optimistic founder forecasts. At 30% the NPV would be USD -3.73m, rejecting a project that creates value for the company's diversified owners. The right response is to challenge the forecast (Q4), not to inflate the rate.

Q3. Payback and risk. Payback of 3.66 years fails the three-year rule. Payback ignores the cash after year 3, which is most of the value, and it is not a risk measure. If runway is the real concern, the board should ask a liquidity question (can Corvane fund the outlay and the working capital without endangering operations?) and answer it with a cash-flow plan, not by rejecting a positive-NPV project. The NPV profile crosses zero at about 15.25%, so the project tolerates about 5 points of error in the discount rate: a comfortable but not large margin.

Q4. Sensitivity. NPV falls to USD 0.796m if revenue is 10% lower in every year and to USD 0.247m if the EBITDA margin is 30% instead of 35%. Break-even: EBITDA margin 29.28% (Goal Seek on the margin cell for NPV = 0), or revenue at 83.19% of forecast. The margin is the critical assumption; a strong answer asks what evidence supports 35% (the contract manufacturer's margin, peers' margins) and proposes a pilot or a staged build.

Q5. Funding. Under Modigliani and Miller (1958) the funding choice would not change the line's value. Taxes create a difference: the annual interest on USD 30.0m at 9% is USD 2.7m, and at 25% the tax shield would be USD 0.675m a year (present value over five years at 9% about USD 2.63m) if Corvane paid tax. With losses carried forward sheltering about three years of income, the shield is deferred and worth much less, which weakens the main argument for debt. Against debt: a young, loss-making firm faces real distress costs, covenants on minimum cash can bind just when cash is needed, and the warrants add an equity cost. For debt: the pecking order (Myers and Majluf 1984) suggests that issuing equity when insiders believe it is undervalued sends a negative signal and transfers value to new investors, which is exactly the founders' concern. A balanced recommendation: fund the line with a modest amount of venture debt within covenant headroom, keep equity for growth beyond the base plan, and revisit the target leverage when Corvane becomes taxable.

Q6. Expansion option. If demand is strong, the expansion is worth $-10.0 + 6.5/1.10 + 6.5/1.10^2 =$ USD 1.281m at the end of year 3. With a 50% chance, and expanding only when demand is strong, the option is worth about $0.5 \times 1.281 / 1.10^3 =$ USD 0.481m today. This is a simplified decision-tree estimate (discounting at the WACC after the uncertainty resolves); mba/mba-options-real-options-card and mba/mba-decision-trees-card show more careful methods. The option adds about a quarter to the static NPV and argues for building the line in a way that keeps space to double it.

Recommendation in one paragraph. Build the Atlas line: at Corvane's cost of capital of about 10% it adds roughly USD 2.0m of value (about USD 2.4m with the expansion option), with an IRR of 15.3%. The result depends most on the 35% EBITDA margin; below about 29% the line destroys value, so the board should require evidence for the margin and a quality and cost review at the end of year 1. Replace the payback rule with an explicit liquidity plan. Fund the line mainly with venture debt sized within covenant headroom, recognising that its tax advantage is deferred by Corvane's tax losses.

Typical assignments and how they are graded

Common assessment forms in leading programmes: problem sets (often 15% to 25% of the grade), team case memos or write-ups (20% to 30%), class participation (10% to 25%), and a midterm and final exam or a final exam alone (30% to 50%). Your syllabus decides the weights; record them here: [weights].

Use mba/mba-case-write-up for structure and mba/mba-case-prep-sheet before each case discussion.

Exam preparation plan

Retrieval practice and spacing beat re-reading (Dunlosky et al. 2013); mixed (interleaved) practice improves the skill exams test most, which is choosing the right method. Turn the key concepts map into flashcards with mba/mba-concept-flashcards.

Common struggles

1. Spreadsheet conventions. Excel's NPV discounts the first value; PMT returns negative numbers; IRR needs a sign change. Test each function on a case you can solve by hand.
2. Profits versus cash flows. Students discount net income, forget working capital or include interest.
3. Choosing the discount rate. The rate belongs to the risk of the cash flows, not to the source of funds.
4. Leverage and beta. Relevering at the peers' structure instead of the target's.
5. Modigliani-Miller intuition. The point is not that capital structure never matters, but that it matters only through taxes, costs and information; learn the assumptions and which one each theory relaxes.
6. Terminal value dominance. In a DCF most of the value often sits in the terminal value; check its implied growth and multiple.
7. Options. Payoff diagrams first, formulas second; many errors come from confusing long and short positions.
8. Case discussions. Bringing calculations without a recommendation, or a recommendation without numbers.

Reading list

• Classic works: Fisher (1930); Williams (1938); Markowitz (1952); Modigliani and Miller (1958, 1963); Miller and Modigliani (1961); Lintner (1956); Sharpe (1964); Fama (1970); Black and Scholes (1973); Merton (1973); Jensen and Meckling (1976); Myers (1977, 1984); Myers and Majluf (1984). Full references are under Sources.
• Textbooks (by name only): Berk, J., and DeMarzo, P., Corporate Finance; Brealey, R. A., Myers, S. C., and Allen, F., Principles of Corporate Finance; Ross, S. A., Westerfield, R. W., and Jaffe, J., Corporate Finance; Koller, T., Goedhart, M., and Wessels, D., Valuation; Hull, J. C., Options, Futures, and Other Derivatives.
• Open resource: OpenStax, Principles of Finance (CC BY-NC-SA 4.0).

Self-test questions

1. What is the present value of USD 1.0m a year for 10 years at 8%? Give the Excel formula.
2. A business will generate USD 2.0m next year, growing 3% a year forever. At 9%, what is it worth? What happens to the value if growth equals the discount rate?
3. Two assets have standard deviations of 20% and 30% and correlation 0.2. What is the standard deviation of a portfolio with 60% in the first? Compare with the weighted average and explain.
4. Why does the CAPM use beta rather than total volatility?
5. An unlevered firm is worth USD 500m. It issues USD 200m of permanent debt and repurchases shares; the tax rate is 25%. Under Modigliani and Miller (1963), what is the levered firm worth? Name two reasons the real increase may be smaller.
6. A share will pay a dividend of USD 2.40 next year, growing 4% a year; the cost of equity is 10%. What is its value?
7. Why might a firm prefer internal funds, then debt, then equity? Who proposed this ordering?
8. A one-year European call on a non-dividend stock costs USD 8.00; the stock is at 100, the strike is 100, and the one-year rate is 5% (annual compounding). What must the put cost?
9. Give two reasons a firm might choose a repurchase over a dividend increase.
10. In one sentence, why is the venture investor's 30% target not Corvane's cost of capital?

My notes and next steps

Sources and further reading

• Fisher, I. (1930). The Theory of Interest. Macmillan.
• Williams, J. B. (1938). The Theory of Investment Value. Harvard University Press.
• Markowitz, H. (1952). Portfolio selection. The Journal of Finance, 7(1), 77-91.
• Gordon, M. J., and Shapiro, E. (1956). Capital equipment analysis: the required rate of profit. Management Science, 3(1), 102-110.
• Lintner, J. (1956). Distribution of incomes of corporations among dividends, retained earnings, and taxes. The American Economic Review, 46(2), 97-113.
• Modigliani, F., and Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. The American Economic Review, 48(3), 261-297.
• Miller, M. H., and Modigliani, F. (1961). Dividend policy, growth, and the valuation of shares. The Journal of Business, 34(4), 411-433.
• Modigliani, F., and Miller, M. H. (1963). Corporate income taxes and the cost of capital: a correction. The American Economic Review, 53(3), 433-443.
• Sharpe, W. F. (1964). Capital asset prices: a theory of market equilibrium under conditions of risk. The Journal of Finance, 19(3), 425-442.
• Lintner, J. (1965). The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. The Review of Economics and Statistics, 47(1), 13-37.
• Mossin, J. (1966). Equilibrium in a capital asset market. Econometrica, 34(4), 768-783.
• Fama, E. F. (1970). Efficient capital markets: a review of theory and empirical work. The Journal of Finance, 25(2), 383-417.
• Hamada, R. S. (1972). The effect of the firm's capital structure on the systematic risk of common stocks. The Journal of Finance, 27(2), 435-452.
• Black, F., and Scholes, M. (1973). The pricing of options and corporate liabilities. Journal of Political Economy, 81(3), 637-654.
• Merton, R. C. (1973). Theory of rational option pricing. The Bell Journal of Economics and Management Science, 4(1), 141-183.
• Kraus, A., and Litzenberger, R. H. (1973). A state-preference model of optimal financial leverage. The Journal of Finance, 28(4), 911-922.
• Myers, S. C. (1974). Interactions of corporate financing and investment decisions: implications for capital budgeting. The Journal of Finance, 29(1), 1-25.
• Jensen, M. C., and Meckling, W. H. (1976). Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
• Myers, S. C. (1977). Determinants of corporate borrowing. Journal of Financial Economics, 5(2), 147-175.
• Myers, S. C. (1984). The capital structure puzzle. The Journal of Finance, 39(3), 575-592.
• Myers, S. C., and Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187-221.
• Dunlosky, J., Rawson, K. A., Marsh, E. J., Nathan, M. J., and Willingham, D. T. (2013). Improving students' learning with effective learning techniques. Psychological Science in the Public Interest, 14(1), 4-58.
• AACSB International (2026). Global Standards for Business Education, ratified 20 April 2026, aacsb.edu (checked 2026-10-28); context for the competency map; check the current text.

Answer key

1. USD 6.7101m: $1.0 \times (1 - 1.08^{-10})/0.08$; Excel =PV(8%, 10, -1).
2. $2.0 / (0.09 - 0.03) =$ USD 33.33m. As $g$ approaches $r$ the value grows without bound; the formula requires $g < r$, and a long-run growth rate above the economy's is not credible.
3. Variance $= 0.36 \times 0.04 + 0.16 \times 0.09 + 2 \times 0.6 \times 0.4 \times 0.2 \times 0.2 \times 0.3 = 0.034560$, so standard deviation = 18.59%, below the weighted average of 24.0%, because correlation is below 1.
4. Company-specific risk can be diversified away cheaply, so investors are not paid for it; beta measures the exposure to market risk, which remains.
5. $V_L = 500 + 0.25 \times 200 =$ USD 550m. Smaller in practice because of expected financial distress costs, personal taxes on interest income, uncertainty about using the deductions, and agency costs of debt.
6. $2.40 / (0.10 - 0.04) =$ USD 40.00.
7. Information asymmetry: outsiders read an equity issue as a sign that managers think the shares are overvalued, so internal funds and safe debt are cheaper. Myers (1984) and Myers and Majluf (1984).
8. Put-call parity: $P = C - S + K/(1+r) = 8.00 - 100 + 100/1.05 =$ USD 3.24 (with continuous compounding at 5%, USD 3.12).
9. Flexibility (repurchases need not be repeated, while dividend cuts are punished), tax treatment for some investors, offsetting dilution from employee equity, and signalling that management sees the shares as undervalued.
10. The 30% target compensates the fund for illiquidity, failure rates and optimistic forecasts; Corvane's cost of capital is the return on investments of the Atlas line's market risk, about 10% in the Example data.

Revision history

Standard and licence note

Structure aligned with the core corporate finance curriculum common to leading international MBA programmes, with the competency areas mapped to learning goals of the kind accredited schools set under the AACSB Global Standards for Business Education (2026), summarised in original words. The text, the Corvane Robotics mini-case, its exhibits, its teaching note and all questions are original; no published case or textbook text is copied or paraphrased, and all companies and people are fictional. The template is independent and not affiliated with or endorsed by any business school, accreditation body or publisher. Check your own syllabus and the current official versions of any standard before you rely on it. Template licence: MIT.