How to build an advanced corporate finance course: a complete guide for lecturers

Central question: What does it mean to create financial value when managers face competing objectives, constraints and stakeholders?

Advanced Corporate Finance works best when it begins with the decision rule that holds the rest of the course together. Students need a defensible view of value creation before they can debate investment, financing, payout or transactions. The teaching challenge is to keep shareholder value, stakeholder constraints, governance and real-world frictions in the same frame rather than treating them as separate chapters.

What this concept covers

• Enterprise value, equity value and the link between operating decisions and investor returns.
• Net present value as a value-creation principle rather than only a calculation.
• Corporate objectives, agency problems, governance and incentives.
• Financial strategy as a connected set of investment, financing and payout choices.
• Stakeholder, sustainability and resilience constraints that can alter cash flows, risk and financing capacity.

Learning outcomes

By the end of this concept, students should be able to:

• Explain how investment, financing and payout decisions connect to value.
• Distinguish accounting performance from economic value creation.
• Identify agency conflicts that can distort financial decisions.
• Frame a corporate finance problem as a choice among alternatives with explicit assumptions.

Supports course learning outcomes through analysis, evaluation and defended recommendation.

How to teach it

• Open with a board-level decision rather than a formula sheet.
• Ask students to trace how one operating decision changes cash flow, risk, financing need and value.
• Use a short governance conflict to surface agency costs and incentives.
• Require students to state the objective function and constraints before calculating anything.

Case-style example

Aurelia Components can spend $80 million on a capacity expansion expected to add $14 million of annual after-tax cash flow for eight years, or return the cash through a special dividend. The CFO uses an 8.5% hurdle rate; the CEO argues the project also protects 600 jobs and a key customer. Students compute NPV, identify non-modelled consequences, then write a board recommendation. They discover that a positive NPV is necessary evidence, not the whole governance decision.

Where students struggle

Students often equate value creation with earnings growth or share-price movement. Push them to separate accounting outcomes, market reactions and the present value of incremental cash flows, then explain where governance and stakeholder constraints enter the analysis.

Reading and a quick check

Use Brealey, Myers, Allen and Edmans on corporate objectives, valuation foundations and governance. Quick check: ask students to name one decision that can raise EPS while destroying value, and explain the mechanism.

Applied teaching activity

Use a short board memo, model critique or structured seminar decision so students must turn the concept into an explicit recommendation without adding a simulation where it is not needed.

Where it leads

The next concept gives students the valuation architecture needed to compare claims, capital structures and transaction choices on a consistent basis.

Central question: How should a company or project be valued when financing choices, leverage and risk change over time?

Students usually arrive knowing a basic DCF. Advanced teaching should move them beyond a single WACC model and make method choice part of the judgement. WACC, adjusted present value and flow-to-equity can all be valid, but only when the cash-flow definition, discount rate and financing assumptions are internally consistent.

What this concept covers

• Free cash flow to the firm and free cash flow to equity.
• WACC, target leverage and the treatment of tax shields.
• Adjusted present value for changing or transaction-specific financing.
• Terminal value, continuing growth and reinvestment consistency.
• Comparable-company and precedent-transaction cross-checks.
• Sensitivity, scenario ranges and the danger of false precision.

Learning outcomes

By the end of this concept, students should be able to:

• Build a valuation using internally consistent cash flows and discount rates.
• Explain when APV can be more transparent than WACC.
• Reconcile enterprise value to equity value.
• Defend terminal assumptions and valuation ranges under challenge.

Supports course learning outcomes through analysis, evaluation and defended recommendation.

How to teach it

• Give students the same business under stable and changing leverage policies.
• Require a WACC and APV valuation, then reconcile the difference.
• Mark the assumptions note separately from spreadsheet accuracy.
• Use valuation ranges rather than a single target value.

Case-style example

Northstar Diagnostics forecasts unlevered free cash flow of $22 million next year, growing 4% for five years before 2.5% perpetuity growth. Its unlevered cost of capital is 9.5%. Management proposes $120 million of new debt that will amortise rapidly after year three. Students value Northstar using WACC and APV, reconcile tax shields and test terminal growth at 1.5%-3.0%. They discover that method choice matters most when leverage policy is not stable.

Where students struggle

A common error is mixing free cash flow to the firm with an equity discount rate or applying a constant WACC to a financing plan that changes materially. Ask students to audit the numerator, denominator and leverage path before discussing the answer.

Reading and a quick check

Use Principles of Corporate Finance chapters on valuation and financing. Quick check: give three cash-flow definitions and ask which discount rate belongs to each.

Where a simulation fits

The Investment Banking Simulation becomes useful after students can defend a DCF. Its four-round structure makes valuation inputs influence financing terms, counterparty selection and enterprise-value bids, so model outputs have consequences rather than remaining a spreadsheet endpoint.

View Investment Banking Simulation

Where it leads

With a valuation framework in place, students can move from valuing the whole firm to deciding which new investments deserve scarce capital.

Central question: How should managers allocate capital when projects have different risk, timing, flexibility and strategic option value?

Advanced capital budgeting should go beyond ranking projects by base-case NPV. Students need to distinguish mutually exclusive choices from independent projects, diagnose capital rationing, model operating uncertainty and recognise that managers can delay, expand, contract or abandon projects as information arrives.

What this concept covers

• NPV, IRR, profitability index and payback as decision tools with different limitations.
• Mutually exclusive projects, unequal lives and capital rationing.
• Sensitivity, scenario and break-even analysis.
• Decision trees and staged investment.
• Real options to delay, expand, contract, switch or abandon.
• Post-audit discipline and the organisational problem of optimistic forecasts.

Learning outcomes

By the end of this concept, students should be able to:

• Rank projects under both unconstrained and rationed capital.
• Design scenario tests around the variables that drive value.
• Identify managerial flexibility that changes project value.
• Critique an investment proposal for forecast bias and missing options.

Supports course learning outcomes through analysis, evaluation and defended recommendation.

How to teach it

• Start with two projects where IRR and NPV rankings conflict.
• Introduce a hard capital budget and ask students to optimise the project set.
• Add a delay or abandonment option after the base-case calculation.
• Use a post-audit exercise to discuss incentives behind forecasts.

Case-style example

Meridian Renewables has $10 million to allocate across three projects: Project A needs $6 million and has NPV $1.8 million; B needs $5 million and has NPV $1.65 million; C needs $4 million and has NPV $1.05 million. B can be delayed one year for a $0.3 million option cost while demand becomes clearer. Students optimise the capital set, then value the flexibility qualitatively. They discover that the highest standalone NPV need not produce the best constrained portfolio.

Where students struggle

Students often treat IRR as a universal ranking rule and real options as an abstract derivatives topic. Keep the focus on incremental cash flow, scale, timing and managerial flexibility.

Reading and a quick check

Use Brealey et al. on investment criteria, project analysis and real options. Quick check: ask why a project with a higher IRR can still be the wrong mutually exclusive choice.

Where a simulation fits

The Capital Budgeting Simulation fits directly here. Students first evaluate projects using NPV, IRR, profitability index and payback, then allocate a fixed $10 million budget across eight independent projects from a CFO perspective. It is particularly useful before a written capital-allocation memo.

View Capital Budgeting Simulation

Where it leads

Capital investment creates financing needs. The course therefore moves next to capital structure, where students ask how much leverage the firm can sustain and why flexibility has value.

Central question: How should a firm balance tax benefits, distress costs, agency effects and strategic flexibility when choosing leverage?

This concept is where advanced corporate finance becomes visibly different from an introductory course. The aim is not to locate a universal debt ratio. Students should learn why observed capital structures reflect taxes, business risk, financing frictions, investment opportunities, managerial incentives and the option value of unused debt capacity.

What this concept covers

• Modigliani-Miller benchmarks and the role of assumptions.
• Interest tax shields and expected costs of financial distress.
• Trade-off, pecking-order and market-timing explanations.
• Debt capacity, ratings, interest coverage and covenant headroom.
• Agency conflicts between shareholders, managers and creditors.
• Financial flexibility and the option value of preserving borrowing capacity.

Learning outcomes

By the end of this concept, students should be able to:

• Explain what changes when perfect-market assumptions are relaxed.
• Assess a firm's debt capacity using operating and credit evidence.
• Compare competing capital-structure theories against observed behaviour.
• Defend a leverage range rather than a mechanically optimal ratio.

Supports course learning outcomes through analysis, evaluation and defended recommendation.

How to teach it

• Use MM as a benchmark, then add one friction at a time.
• Give teams the same company but different strategic plans and ask for leverage ranges.
• Require both an equity-holder and lender argument.
• Connect leverage to future investment capacity, not only current WACC.

Case-style example

Orchard Data Services has EBITDA of $90 million, maintenance capex of $18 million and net debt of $180 million. A proposed recapitalisation would add $220 million of debt at 7.2%, fund a special dividend and take net leverage to 4.4x. Management expects a major acquisition within 18 months. Students estimate coverage, stress EBITDA down 20%, and recommend a leverage range. They discover that unused borrowing capacity can be strategically valuable even when more debt initially raises equity returns.

Where students struggle

Students frequently reduce the topic to “debt is cheaper than equity”. Require them to explain why debt appears cheaper, what risk is transferred, and what future decisions become harder at higher leverage.

Reading and a quick check

Assign Harry DeAngelo, “The Capital Structure Puzzle: What Are We Missing?” alongside the textbook. Quick check: ask students to state one reason a low-leverage firm may rationally remain low leverage.

Where a simulation fits

The Debt Financing Simulation can follow this concept or the next. It turns leverage into a negotiated refinancing decision in which borrower and lender teams must trade off debt amount, pricing, maturity, repayment, seniority, security, covenants and guarantees.

View Debt Financing Simulation

Where it leads

The next concept moves inside the debt package, from leverage level to the contractual terms, pricing and refinancing risks that determine whether the structure is actually sustainable.

Central question: What makes a debt package financeable, and how should borrowers and lenders trade price against protection and flexibility?

Advanced corporate finance students should be able to look at the same company through an equity and credit lens. Debt financing is not only a cost-of-capital input. It is a contract that allocates control, cash flow and downside protection across stakeholders, often long before a formal distress event.

What this concept covers

• Debt instruments, seniority, security, guarantees and maturity.
• Credit risk, spreads, coverage, leverage and cash-flow resilience.
• Amortisation, bullet structures, refinancing and maturity walls.
• Maintenance and incurrence covenants.
• Private versus public debt and relationship lending.
• Refinancing under changing market conditions.

Learning outcomes

By the end of this concept, students should be able to:

• Translate operating risk into debt capacity and pricing considerations.
• Compare debt packages using both borrower and lender criteria.
• Interpret covenants as contingent control rights.
• Identify refinancing risk before liquidity becomes distress.

Supports course learning outcomes through analysis, evaluation and defended recommendation.

How to teach it

• Give students a term sheet with deliberately attractive headline pricing and restrictive covenants.
• Ask borrower and lender groups to define their non-negotiables.
• Stress the forecast and ask which term becomes binding first.
• Use a refinancing calendar to make maturity concentration visible.

Case-style example

Helix Software needs to refinance a $160 million facility. Bank A offers $190 million at SOFR + 300 bps with a 4.0x leverage covenant and five-year maturity. Bank B offers $170 million at SOFR + 250 bps, 3.25x covenant and seven-year maturity. EBITDA is $52 million and could fall 15% in the downside case. Students compare headroom, flexibility and all-in risk, then negotiate a preferred package. They discover that the cheapest coupon may not be the cheapest financing decision.

Where students struggle

Students often compare debt offers only on interest rate. Make them quantify covenant headroom, maturity risk, security and flexibility before announcing a preferred package.

Reading and a quick check

Use Principles of Corporate Finance on credit risk and debt instruments. Quick check: ask which covenant or maturity feature can create the earliest loss of flexibility in a downside case.

Where a simulation fits

The Debt Financing Simulation is the strongest direct application. Students take lender or borrower roles in Softie's refinancing and use company, financial and market evidence to negotiate debt capacity, pricing, maturity, repayment, seniority, security and covenant terms.

View Debt Financing Simulation

Where it leads

Once the funding structure is set, the course turns to the other side of capital allocation: how much cash to retain, reinvest or distribute.

Central question: When should a firm retain cash, pay dividends, repurchase shares, reduce debt or reinvest in growth?

Payout policy is a useful bridge between operating investment and financing because it forces students to treat cash as scarce capital. The central teaching point is that dividends and repurchases are not isolated market events. They compete with positive-NPV investment, acquisitions, debt reduction, liquidity buffers and future financing flexibility.

What this concept covers

• Dividends, repurchases and payout smoothing.
• Residual payout logic and investment opportunities.
• Signalling, taxes, agency costs and investor clienteles.
• Share repurchases, EPS effects and value-neutral mechanics.
• Cash holdings, liquidity buffers and the marginal value of cash.
• Integrated capital allocation across organic investment, M&A, deleveraging and payout.

Learning outcomes

By the end of this concept, students should be able to:

• Evaluate payout in the context of investment opportunities and leverage.
• Separate EPS accretion from value creation in a repurchase.
• Explain why firms may retain apparently excess cash.
• Build a capital-allocation recommendation with explicit priorities.

Supports course learning outcomes through analysis, evaluation and defended recommendation.

How to teach it

• Give students five competing uses for the same cash balance.
• Use a repurchase example where EPS rises but value does not.
• Ask students to rank uses of cash under base and recession scenarios.
• Require a board memo that explains what management will not fund and why.

Case-style example

Seabrook Consumer has $240 million of cash, $70 million annual free cash flow and no near-term maturities. It can fund a $120 million plant with expected NPV of $22 million, acquire a distributor for $95 million at an uncertain synergy value, repurchase shares at an estimated 12% premium to intrinsic value, or reduce $150 million of debt carrying 6.5%. Students allocate the cash and defend sequencing. They discover that capital allocation is a portfolio decision, not four separate recommendations.

Where students struggle

Students can confuse higher EPS after a buyback with higher value. Force a before-and-after enterprise/equity value bridge and ask what assumption actually creates value.

Reading and a quick check

Assign Bolton, Chen and Wang on the marginal value of cash. Quick check: ask why the same dollar of cash can be worth different amounts to two otherwise similar firms.

Applied teaching activity

Use a short board memo, model critique or structured seminar decision so students must turn the concept into an explicit recommendation without adding a simulation where it is not needed.

Where it leads

The next sessions apply the same valuation and financing logic to control transactions, where synergy, negotiation and deal structure interact.

Central question: When does an acquisition create value, who captures the synergy, and how should the transaction be structured?

M&A brings multiple corporate finance ideas together at once: standalone value, synergy, financing, control, information asymmetry and bargaining. Students should not be rewarded for calculating an accretion percentage without asking whether the acquisition price exceeds the economic benefit available to the buyer.

What this concept covers

• Strategic rationale and testable synergy hypotheses.
• Standalone valuation and maximum willingness to pay.
• Operating and financial synergies, timing and implementation risk.
• Cash, shares and mixed consideration.
• Control premiums, announcement effects and bargaining.
• Earn-outs, collars and risk sharing.
• Accretion/dilution versus economic value creation.

Learning outcomes

By the end of this concept, students should be able to:

• Estimate synergy value and distinguish it from price paid.
• Calculate a reservation price for the acquirer.
• Compare cash and share consideration under uncertainty.
• Explain how deal terms allocate risk between buyer and seller.

Supports course learning outcomes through analysis, evaluation and defended recommendation.

How to teach it

• Start with standalone valuations before discussing strategic narrative.
• Make students calculate the maximum price at which the buyer still creates value.
• Assign buyer and seller teams different synergy estimates.
• Require a term sheet with price, consideration and one contingent term.

Case-style example

Redwood Medical is worth $820 million standalone; buyer Valeon Health is worth $2.4 billion. Management estimates annual after-tax synergies of $42 million beginning in year two, growing 2% thereafter, discounted at 9%. The seller wants $1.05 billion, while Valeon can pay cash or shares. Students value synergies, calculate the buyer's reservation price, then negotiate consideration. They discover that a strategically sensible deal can still destroy buyer value if too much synergy is transferred to the seller.

Where students struggle

Students often treat announced synergies as certain and use EPS accretion as a shortcut for value creation. Ask who bears implementation risk, when synergies begin and how much of them the purchase premium gives away.

Reading and a quick check

Assign Guo, Liu, Tu and Cohen on merger valuations. Quick check: ask students to distinguish “synergy created” from “synergy captured by the buyer”.

Where a simulation fits

The M&A Simulation fits after this concept. Buyer and seller teams model a transaction and negotiate linked terms, including consideration, so lecturers can debrief how valuation, bargaining and structure jointly determine the outcome.

View M&A Simulation

Where it leads

M&A provides the control-transaction framework. The next concept specialises it for sponsor-backed acquisitions, where leverage and target returns reshape the bid.

Central question: How do purchase price, debt structure, operating performance and exit assumptions combine to produce sponsor returns?

An advanced corporate finance course should teach LBOs as a transaction and capital-structure problem, not only an Excel template. Students need to connect sources and uses, debt capacity, cash generation, deleveraging, operating improvement and exit value to the final equity return and to recognise the discipline imposed by a target return.

What this concept covers

• Sources and uses, enterprise value and sponsor equity.
• Debt capacity, interest, amortisation and cash sweep logic.
• IRR and MOIC as sponsor return measures.
• Entry and exit multiples, EBITDA growth and margin improvement.
• Deleveraging versus multiple expansion as return drivers.
• Bid discipline, lender selection and downside sensitivity.

Learning outcomes

By the end of this concept, students should be able to:

• Build or interpret a simplified LBO model.
• Decompose returns into operating, leverage and multiple components.
• Assess whether debt structure is consistent with cash-flow resilience.
• Defend a maximum bid under a target return and downside case.

Supports course learning outcomes through analysis, evaluation and defended recommendation.

How to teach it

• Make students explain return drivers before opening the model.
• Use a bid competition where a higher price reduces IRR.
• Compare two debt packages, not only two purchase prices.
• Require a downside case with lower EBITDA and exit multiple.

Case-style example

Falcon Industrial has EBITDA of $75 million and is offered at 9.0x EBITDA. A sponsor can finance 4.5x with debt at 7%, expects EBITDA to grow 5% annually and plans to exit in five years at 8.5x. Students calculate sponsor equity, build a simple debt paydown, estimate IRR/MOIC and then stress growth to 1% with a 7.5x exit. They discover how quickly a seemingly robust return can become a bid-discipline problem.

Where students struggle

Students may treat the target IRR as an output rather than a constraint on price and structure. Ask how much the sponsor can pay while preserving the return under a defensible downside.

Reading and a quick check

Use Brealey et al. on capital structure and corporate restructuring, supported by an LBO technical note. Quick check: ask which return driver is least under the sponsor's control.

Where a simulation fits

The Leveraged Buyout Simulation is the strongest direct fit. PE firms, lenders and sell-side advisers move from analysis and roadshow through debt packages, lender selection and final enterprise-value bids. Students must connect the model to financing and competitive deal behaviour.

View Leveraged Buyout Simulation

Where it leads

The course then shifts from sponsor-backed acquisition financing to public equity issuance and the conditions under which a firm should access the IPO market.

Central question: When should a firm issue equity, how should an IPO be priced, and what trade-offs arise between proceeds, ownership and aftermarket performance?

Equity issuance provides a useful contrast with debt and LBO financing. Students should understand issuance costs, dilution, information asymmetry and market timing, then see how an IPO converts valuation into a live demand-discovery and allocation process.

What this concept covers

• Seasoned equity and initial public offerings.
• Primary versus secondary shares and dilution.
• Underwriting, book building and investor demand.
• Price ranges, final pricing and underpricing.
• Market timing and information asymmetry.
• Ownership, control and allocation choices after listing.

Learning outcomes

By the end of this concept, students should be able to:

• Explain why equity issuance can be costly even without a contractual coupon.
• Calculate ownership dilution from a new issue.
• Assess the trade-off between offer price and execution certainty.
• Evaluate IPO readiness using both financial and governance evidence.

Supports course learning outcomes through analysis, evaluation and defended recommendation.

How to teach it

• Use a simple cap table before and after an equity issue.
• Ask students to set an IPO price range from comparable-company evidence.
• Introduce weak demand late in the process and require a repricing decision.
• Debate whether underpricing is a cost, an insurance mechanism or both.

Case-style example

LumaGrid Energy plans to sell 25 million new shares in an IPO. Comparable-company analysis suggests equity value between $850 million and $1.05 billion before the issue; management wants to raise at least $220 million while existing owners want to keep dilution below 24%. Investor feedback weakens above $10.50 per share. Students calculate feasible prices and ownership, then recommend final pricing. They discover that maximising headline price can conflict with proceeds certainty, allocation quality and aftermarket support.

Where students struggle

Students often treat IPO price as just another valuation output. Emphasise demand discovery, primary proceeds, dilution and the issuer-underwriter trade-off between price and execution risk.

Reading and a quick check

Assign Huang, Ritter and Zhang on IPOs and SPACs. Quick check: ask why an issuer might rationally accept a price below the top of its valuation range.

Where a simulation fits

The Initial Public Offering Simulation fits directly after the topic. Underwriter and investor teams value three IPOs using comparable companies, conduct a roadshow, build demand, set the final price and make allocation decisions.

View Initial Public Offering Simulation

Where it leads

Financing choices work well only while the operating case holds. The next concept asks what happens when leverage, liquidity or claims can no longer be honoured as planned.

Central question: How should value be allocated and the capital structure changed when the firm cannot meet the original financing plan?

Distress is where corporate finance contracts become visible. Priority, security, covenants and bargaining power matter because there may not be enough enterprise value to satisfy every claim. Teaching restructuring helps students understand why financing terms negotiated years earlier shape control in a downside scenario.

What this concept covers

• Financial versus economic distress and liquidity versus solvency.
• Absolute priority, secured claims and recovery values.
• Out-of-court restructuring, amendments, maturity extensions and debt exchanges.
• Debt-for-equity swaps, new money and sponsor support.
• Enterprise value uncertainty and bargaining ranges.
• Stakeholder incentives across senior debt, junior debt and equity.

Learning outcomes

By the end of this concept, students should be able to:

• Map claims against a distressed enterprise value.
• Estimate recoveries under alternative restructuring values.
• Explain how priority affects negotiating power.
• Recommend a restructuring that is feasible, not merely favourable to one constituency.

Supports course learning outcomes through analysis, evaluation and defended recommendation.

How to teach it

• Give creditor groups different claims and private reservation points.
• Use a valuation range rather than a single distressed value.
• Require students to separate legal priority from negotiated outcome.
• Finish with a board memo explaining liquidity runway and next actions.

Case-style example

MetroFreight has first-lien debt of $260 million, second-lien debt of $140 million and equity invested at $180 million. Current enterprise value estimates range from $300 million to $380 million, and the business needs $35 million of new liquidity. Students calculate recoveries at both valuation endpoints, then design and negotiate a restructuring with new money. They discover why each stakeholder can hold a defensible but incompatible view of value and control.

Where students struggle

Students sometimes assume the accounting balance sheet determines recovery. Keep the debate on enterprise value, legal priority, liquidity needs and negotiated alternatives.

Reading and a quick check

Use Principles of Corporate Finance on financial distress and restructuring. Quick check: ask why equity can still have bargaining power when a midpoint valuation implies little or no residual value.

Where a simulation fits

The Debt Restructuring Simulation fits naturally here. Teams represent Lien 1, Lien 2 and Equity claims in a distressed company where total claims exceed enterprise value, forcing students to negotiate haircuts and recoveries under conflicting incentives.

View Debt Restructuring Simulation

Where it leads

After downside finance, students broaden the lens to market, currency and operating risks that can alter the cash-flow distribution before distress occurs.

Central question: Which risks should the firm hedge, which should it retain, and how does risk management create financial flexibility rather than simply reduce volatility?

Risk management belongs in Advanced Corporate Finance because financing capacity and investment policy depend on the distribution of cash flows, not just expected cash flow. The focus should be on exposure identification, hedge objectives, basis risk and the interaction between hedging, distress costs and investment capacity.

What this concept covers

• Risk mapping across interest rates, currencies, commodities and operating exposures.
• Forwards, futures, swaps and options at a managerial level.
• Hedging policy versus speculation.
• Basis risk, counterparty risk and hedge effectiveness.
• Foreign-currency financing and translation versus transaction exposure.
• Risk management as support for investment and financing capacity.

Learning outcomes

By the end of this concept, students should be able to:

• Identify financially material exposures rather than hedge every volatility source.
• Match hedge instruments to the exposure and decision horizon.
• Explain how hedging can protect investment capacity.
• Evaluate hedge costs, residual risk and governance limits.

Supports course learning outcomes through analysis, evaluation and defended recommendation.

How to teach it

• Start with the underlying exposure before teaching the derivative.
• Give students competing hedge proposals with different costs and protection.
• Ask what happens to capex and covenant headroom if the exposure is left open.
• Use a policy memo with limits, authorised instruments and escalation rules.

Case-style example

Cobalt Foods earns 45% of revenue in euros but produces mainly in the UK. It expects a EUR 60 million net receipt in nine months and has a GBP 25 million capex programme that would be cut if sterling cash inflow falls below plan. The treasurer can lock a forward rate of 0.855 GBP/EUR or buy downside protection at a 1.8% premium. Students compare payoff, cash certainty and retained upside. They discover that the hedge objective should follow the financing constraint, not a view on currencies.

Where students struggle

Students can focus on instrument payoff while ignoring what risk the company is actually trying to manage. Make every hedge recommendation start with the cash-flow exposure and corporate objective.

Reading and a quick check

Assign Stulz on risk, limits of financial risk management and corporate resilience. Quick check: ask when reducing earnings volatility would not create economic value.

Where a simulation fits

The Investment Banking Simulation can support this topic within its extended capstone because one round includes derivatives offers alongside debt and advisory work. It is most effective when students already know DCF and basic finance and can connect hedge terms to financing and transaction decisions.

View Investment Banking Simulation

Where it leads

The final concept integrates governance, sustainability, resilience and capital allocation so students can defend a complete corporate finance recommendation rather than a collection of techniques.

Central question: How should boards integrate value, incentives, financing resilience and stakeholder consequences when no single model resolves the decision?

The closing concept should force integration. Advanced Corporate Finance is ultimately about choosing under uncertainty when valuation ranges overlap, incentives differ and every alternative has financing consequences. Governance and ESG are therefore not appendices: they change cash-flow forecasts, cost of capital, risk, optionality and sometimes the set of feasible actions.

What this concept covers

• Board oversight, delegated authority and incentive design.
• Agency problems in investment, financing, payout and acquisitions.
• ESG factors when they are financially material to cash flow, risk or financing access.
• Resilience, liquidity and strategic flexibility.
• Decision memos that distinguish facts, assumptions, scenarios and recommendations.
• Integrated capital allocation and post-decision review.

Learning outcomes

By the end of this concept, students should be able to:

• Diagnose agency and governance risks in a finance proposal.
• Incorporate material ESG and stakeholder effects without replacing financial analysis.
• Defend a recommendation where quantitative and qualitative evidence conflict.
• Specify monitoring triggers that would cause management to revise the decision.

Supports course learning outcomes through analysis, evaluation and defended recommendation.

How to teach it

• Run a board simulation with CFO, investor, lender and operating perspectives.
• Require each team to publish the assumptions that would reverse its recommendation.
• Use a red-team group to challenge evidence quality and omitted risks.
• Close with a personal defence rather than another polished group deck.

Case-style example

Vantage Mobility can acquire a battery supplier for $420 million, build an internal plant for $360 million, or sign a five-year supply contract. The acquisition has estimated synergy NPV of $55 million but increases net leverage to 4.2x; the plant has NPV $38 million but higher execution risk; the contract preserves cash but creates supplier concentration. Students build a board recommendation and reversal triggers. They discover that advanced corporate finance is disciplined comparison under constraints, not finding the most impressive spreadsheet.

Where students struggle

Students may bolt ESG or governance language onto the conclusion without showing a cash-flow, risk, financing or control mechanism. Require them to state exactly where a factor enters the model or decision rights.

Reading and a quick check

Assign Graham on Corporate Finance and Reality together with Barry, Campello, Graham and Ma on corporate flexibility in crisis. Quick check: ask students to name the three assumptions most likely to reverse their final recommendation.

Where a simulation fits

The Investment Banking Simulation works as an extended capstone across the final part of the course. Its linked rounds connect DCF, debt financing, derivatives, advisory work, fairness opinions and restructuring, which makes it suitable for an integrated defence rather than a single-topic exercise.

View Investment Banking Simulation

Where it leads

This closes the course. Students should now be able to move from value and investment through financing, transactions, distress and risk to a board-level recommendation with explicit assumptions and evidence.

10-week course structure

A 10-session version should compress adjacent topics rather than delete the difficult decisions. Combine value creation with valuation, capital structure with debt financing, and use the final session for integration. Preserve capital budgeting, M&A, LBOs, IPOs and distress because these are the points where students must choose and defend.

14-week course structure

A 14-session version creates room to separate method choice from application, add a dedicated M&A negotiation session, and run longer simulations or debriefs without crowding out risk and governance.

The Leveraged Buyout Simulation places students inside a competitive buyout process rather than asking them to complete an isolated LBO model. Three transaction perspectives interact: sell-side advisers represent the target companies, PE firms value and bid for the targets, and lenders assess credit risk and offer financing. The activity moves from briefing and initial analysis through a roadshow, debt capital markets, financing selection, final enterprise-value bids and reflection.

Why it fits here

By Session 8 students already know enterprise value, DCF, leverage, debt capacity, sources and uses, sponsor equity, IRR/MOIC and downside sensitivity. The simulation therefore tests whether they can turn those mechanics into a credible bid while dealing with seller narratives and lender constraints.

What students do

• Sell-side teams study one of three targets, use role-specific information to prepare a roadshow pitch, develop a valuation and respond to PE and lender information requests.
• PE teams value all three targets using supplied Excel models, form forecasts, identify information gaps, question sellers, compare financing packages, update their models and submit final enterprise-value bids.
• Lender teams assess all three companies from a credit perspective, develop packages covering debt amount, interest premium, leverage covenant, maturity, amortisation, prepayment, guarantees and security, then compete to be selected.
• During the roadshow and data-room process, teams share and request information. In the buy-side stage PE teams choose a lender, incorporate the terms and new information, then finalise bids and upload models and Approval Memorandums.
• The final results identify the acquirer, selected financing team, enterprise value, debt terms, equity contribution and transaction outcomes, creating a concrete debrief on price, leverage and return.

Recommended course placement

• At the end of Session 8 after the LBO lecture and model workshop.
• Across Sessions 8 and 9 if you want more time for role preparation and debrief.
• Before a written investment committee recommendation so students can convert deal choices into assessable analysis.

Knowledge students should have before the simulation

• Basic DCF valuation.
• Enterprise value and equity value.
• Debt capacity, cash-flow resilience and lender risk.
• LBO return logic including sponsor equity, deleveraging, IRR and MOIC.

Delivery format

Suggested debrief questions

• Which assumption had the greatest effect on your maximum bid?
• Did a more generous debt package improve the deal or merely transfer risk into the downside?
• Which roadshow claim changed your valuation and how did you verify it?
• Which team won a target at a price that weakened its equity return?
• What would you change in the model or memorandum before presenting the deal to an investment committee?

The Investment Banking Simulation is the broadest fit for Advanced Corporate Finance because it connects decisions that are normally taught in separate chapters. Across four rounds, teams work through debt financing, derivatives, buy-side and sell-side advisory, fairness opinions and restructuring. The simulation is 16-32 hours, so it should be treated as a multi-session or blended capstone rather than squeezed into one ordinary class.

Why it fits here

Students should enter with basic finance and DCF knowledge, and by the end of this course they also hold the capital structure, transaction, risk and distress concepts needed to interpret why the same modelling choice affects financing, bidding, fairness and recoveries differently across roles.

What students do

• Round 1: lender teams propose debt packages for Frametastic and Star Hotel while PE teams build financial models, calculate enterprise values, select financing and submit acquisition bids.
• Round 2: lenders deepen debt terms and may prepare derivatives offers; sell-side teams pitch companies, conduct roadshows and manage the data room; PE teams select counterparties, update valuations and submit models and Approval Memoranda.
• Round 3: teams work across debt capital markets, derivatives, buy-side advisory, sell-side advisory, acquisition and divestiture activity, continuing modelling, roadshows, information management, counterparty selection and transaction inputs.
• Round 4: teams prepare FCFF-based fairness opinions for Frametastic and Star Hotel and negotiate a debt restructuring for Eco Frames in groups representing first-lien creditor, second-lien creditor and equity owner.
• After each round, teams review acquisition-financing results and role-specific performance; at the end they review fairness-opinion and restructuring outputs as part of the debrief.

Recommended course placement

• Launch after Session 9 if the course can distribute work across several teaching periods.
• Use Sessions 11-12 for the main integrated work and debrief, with homework-supported modelling between classes.
• For a 14-session version, allocate several separate sessions so students can experience all four rounds without compressing analysis.

Knowledge students should have before the simulation

• Basic finance and DCF valuation are the formal prerequisites.
• For this course placement, students should also know debt capacity, capital structure, acquisition valuation, risk management and restructuring logic.
• Students should be able to turn model outputs into a role-specific recommendation.

Delivery format

Suggested debrief questions

• Where did the same DCF assumption lead to different decisions for lenders, PE firms or advisers?
• Which financing term changed a bid or counterparty choice most materially?
• What did the derivative decision protect, and what risk remained?
• How did fairness-opinion work differ from an acquisition recommendation?
• What did the final restructuring reveal about the financing choices made earlier in the corporate lifecycle?
• Which individual judgement should be assessed outside the platform to establish attributable evidence?

PE firms, lenders and sell-side advisers work through analysis, roadshow, debt packages, financing selection and final enterprise-value bids.

Lecturers may assess:

• Forecasting and model discipline
• debt-capacity logic
• valuation and return judgement
• bid discipline
• role-specific reasoning
• post-simulation explanation of price versus return.

Across four rounds, teams connect DCF valuation, debt financing, derivatives, buy-side and sell-side advisory, fairness opinions and restructuring.

Lecturers may assess:

• Financial modelling and DCF
• role-based performance
• financing and transaction inputs
• Approval Memoranda
• fairness/restructuring reasoning
• individual capstone defence outside the platform.