MGT 6331 · Vanderbilt Owen Graduate School of Management · Fall 2024 · Nick Bollen, Frank K. Houston Professor of Finance

Why this masterclass exists

If financial accounting (the 22nd masterclass) is the language of business, managerial finance is its grammar of decision-making. Every quantitative business decision worth making — buy this machine or that one, lease or finance the van, invest in the new product line or harvest the cash, value the bond, value the company, take the debt or issue equity, exercise the option or let it expire — runs through the same engine: forecast the future cash flows, discount them at an appropriate rate, and see whether the present value of what you get back exceeds what you have to pay today. Net Present Value, computed properly, is the only number that matters.

Managerial finance is the discipline of computing that number properly. It is the discipline of getting the cash flows right (Module 5), getting the discount rate right (Modules 6–8), handling the timing right (Module 1), and recognizing when the standard tools are pushing you toward the wrong answer (Modules 9 and 10). Done well, it is the most powerful general-purpose decision tool in business. Done poorly — and most of the famous corporate disasters of the last fifty years involve managerial finance done poorly — it produces overconfident capital allocation, busted acquisitions, blown WACCs, and decades of value destruction.

Every doctrine in the field reduces to one principle: a dollar today is worth more than a dollar next year, and the right answer to almost every financial question is the difference between what you get and what you give up, expressed in present-value terms. Time value of money in, NPV out. Once you internalize the recursion, the entire course folds into a coherent system.

This is also the asset side of the trade you made when you sat through a ten-week core corporate finance course. The class gave you the formulas. This masterclass gives you the formulas plus the architecture — what each formula is doing in the broader system, when it applies, when it breaks, and how it wires into capital allocation, valuation, and strategic decision-making.

What you should be able to do after working through this masterclass

  1. Value any bond or stock from first principles. Given a coupon rate, yield, and maturity, compute the bond's price, build its amortization schedule, and identify whether it's at par, discount, or premium. Given dividend forecasts and a required return, value any stock with the DDM, including multi-stage growth.
  2. Run a complete capital budgeting analysis. Given a project, project the cash flows (revenues, costs, taxes, depreciation, working capital, salvage), compute NPV and IRR, run sensitivity and break-even analysis, and identify embedded real options.
  3. Compute and defend a discount rate. Given a firm's beta, capital structure, and tax rate, compute the cost of equity (CAPM), after-tax cost of debt, and weighted average cost of capital (WACC). Defend the choice with the underlying theory.
  4. Make capital structure decisions. Predict how leverage changes the cost of equity, the cost of debt, the WACC, and (under taxes) firm value. Apply Modigliani-Miller correctly.
  5. Price and use options. Draw payoff and profit diagrams for puts, calls, and combination strategies (protective put, covered call). Identify when real options exist embedded in operating decisions and value them.
  6. Read markets like a finance person. Distinguish between the efficient-market view and the behavioral-finance view. Recognize quantitative anchoring, halo effects, representative bias, and overconfidence in your own decisions and those of others.

How this masterclass is organized

Ten modules, mirroring the conceptual arc of MGT 6331:

  1. Module 1: Time Value of Money — The single-cash-flow PV/FV machinery, opportunity cost of capital, present-value tables, and multi-period cash flow summation.
  2. Module 2: Perpetuities, Annuities, and Bonds — Closed-form formulas for streams of cash flows; valuation of zero-coupon and coupon bonds; APR vs. EAR; level-payment loans.
  3. Module 3: Stocks and the Dividend Discount Model — Constant DDM, Gordon growth model, multi-stage DDM, PVGO, plowback and ROE.
  4. Module 4: NPV, IRR, and Investment Decision Rules — Net present value as the gold standard; IRR's pitfalls (lending vs. borrowing, mutually exclusive projects, scale); payback period.
  5. Module 5: Discounted Cash Flow Analysis — Direct cash flows (CapEx, operating cash flow, working capital), indirect cash flows (incidental effects, sunk costs, opportunity costs), the depreciation tax shield, and the Segway/edibles worked examples.