This study session covers the capital budgeting process with emphasis on its principles and investment decision criteria. Project evaluation through the use of spreadsheet modeling is presented. Other income and valuation model approaches are compared. The subject of capital structure is introduced with the classic Modigliani– Miller irrelevance theory, which proposes that capital structure decisions should have no effect on company value. Additional considerations of taxes, agency costs, and financial distress are introduced. The session concludes with discussion on dividend policies, factors affecting distribution or reinvestment, and dividend payout or share repurchase decisions.

This study session presents two major organizational topics of corporate finance. The first topic presented is environmental, social, and governance (ESG) considerations in investment analysis. The process for identifying ESG-related risks and opportunities relevant to security analysis are described. ESG considerations provide analysts with a broader perspective of the risks and investment opportunities of a company’s securities. Next, mergers, acquisitions, and corporate restructurings—which create changes in ownership and control—are examined to determine whether 1) value is created from the transaction and 2) acquisition price is justified by the transaction’s benefits