Finance is also a very early core MBA course offering, as well. This decision I feel is less a result of foundation building, as is the case with economics, and rather a factor of job search needs. Many MBA candidates arrive to their respective programs with visions of riches and prestige that exist within the investment banking and consulting career paths. However not all of these individuals possess the needed financial background to perform in these intense interview sessions. Therefore, MBA programs want to ready their students for these types of interviews early on. The MBA program has an incentive to prepare their students for these career fields because these jobs are the highest paying and most competitive career options. If a large percentage of a program’s students are accepted into these fields, the program’s starting salary figures climb, and their career placement prestige is solidified. Both of these factors will cause a program to rise in the BusinessWeek and Forbes MBA rankings.
While corporate and investment finance concepts are covered in the core class, the vast majority of the core curriculum focuses on “corporate” finance. By corporate finance, I mean the monetary decisions made by a company rather than an individual. Some investment finance topics are covered in the core, but this type of content is predominately covered in elective courses late in year one and year two. These investing electives are designated for those wishing to dedicate their careers to investing, and are therefore not as relevant to the more general business knowledge needs. Instead the core MBA curriculum covers how companies determine when to undertake certain projects or not. The most basic requirement of the MBA Finance class is understanding the net present value (NPV) calculation. Nearly all following classes will require the ability to calculate this figure and justify its inputs. Determining the NPV will determine whether you should undertake a given project or not. A positive NPV in the MBA world is the “green light” to move forward with a given project. A positive NPV shows that the project will produce a return greater than the hurdle rate, or the lowest accepted rate of return by the organization. The hurdle rate is based on the project’s riskiness and on returns that could be obtained through other means such as investing in the market, undertaking another known project, etc. If you understand the NPV calculation and its impacts on business decisions, you’ve effectively covered 80% of the corporate finance MBA core class! For some other key concepts and vocabulary, see the key vocab page.