Transcript BA 180 Corporate Finance

Corporate Finance
2009
Corporate Finance
Instructor: Mohammad Mohsen
phone :0599863570
em :[email protected]
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Today’s Agenda
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Overview of the Course
Introduction to Corporate Finance
Keys to Success
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Overview of the Course
Objectives
Prerequisites
Course Materials
Evaluation
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Objectives
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To understand fundamental concepts of
finance and see its applications.
The focus is on applying analytical tools
to personal and business financial
decisions.
The course has the objective to lead the
students to build operative, Excel-based,
models for capital budgeting decisions,
bond and stock valuation, calculation of
the cost of capital, company valuation.
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Keys to Success
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Attend all lectures and review the lecture notes.
Do the math!
- Focus on solving problems, doing the
calculations as well as mastering the intuition.
- master all examples done in class!
- build library of excel spreadsheets, so you don’t
have to reinvent everything on the exam.
Read the Textbook
Ask questions!
- Chat with me after class or during office hours
- Form study groups
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Prerequisites
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Working knowledge of…
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Accounting
Economics,, & statistics
Microsoft Excel
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Course Materials
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Ross, Westerfield, and Jordan: Fundamentals of
Corporate Finance, Irwin/McGraw-Hill, 6th edition.
Additional readings and lecture notes – all will be available
on the course WEB page. Hard copies of class notes,
presentation materials and selected readings will be
distributed in class.
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Table of Contents (continued)
Chapter 8
Stock Valuation
Chapte9
Net Present Value and Other Investment Criteria
Chapter
10Making Capital Investment Decisions
Chapter11
Project Analysis and Evaluation
Chapter 12
Chapter 13
Chapter 14
Chapter 16
Some Lessons from Capital Market History
Return, Risk, and the Security Market Line
Cost of Capital
Financial Leverage and Capital Structure Policy
Chapter 17
Chapter 18
Chapter 19
Dividends and Dividend Policy
Short-Term Finance and Planning
current asset management
Irwin/McGraw-Hill
2000
©The McGraw-Hill Companies, Inc.
Other Readings That You Can Follow...
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Wall Street Journal
Business Week
Internet sources
Try to incorporate what you read to what we cover in
this course. You will see how practical issues form
the theory
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Evaluation
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Midterm Exam (30%)
Group Assignments (10%)
Quizzes & Class Participation (20%)
Final Exam (40%)
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Management Decisions
Operating
Investment
Financing
Operating Decisions
Marketing
Product, Price, Promotion, Place
Distribution
Advertising
Manufacturing
Choice of technology
Product Planning and Inventory Control
Procurement
Quality Control
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Investment Decisions
Fixed Assets:
Replacement
Capacity Expansion
New Productive Capacity
Working Capital:
Liquidity
Credit Policy
Inventory Policy
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Financing Decisions
Debt vs. Equity Decision
Appropriate Financing Instruments
Dividend Policy
Recapitalization
Refunding
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How do these decisions affect the financial statements of the firm?
CORPORATE
OBJECTIVE
VALUATION
COMPONENTS
VALUE
DRIVERS
MANAGEMENT
DECISIONS
Creating Shareholder
Value
Cash Flow From
Operations
•Value
Growth
Duration
Shareholder Return
•Dividends
•Capital Gains
Discount Rate
•Sales Growth
•Operating Profit
Margin
Operating
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Debt
•Working Capital
Investment
•Fixed Capital
Investment
Investment
•Cost of
Capital
Financing
What is Finance?
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Framework for decision making under
uncertainty
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Corporate applications
Personal decisions
Two fundamental concepts
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Time value of money: a dollar today is worth
more than a dollar tomorrow.
Risk: a safe dollar is worth more than a risky
dollar.
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Two Categories of Decisions
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Investment: choose best business
opportunities
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Acquisitions
Production
Scale of investment
Financing: raise money to fund the desired
investments
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Debt or equity
Public or private financing
Buy or lease
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How is Finance Used?
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Here are a few examples:
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A real estate developer can decide on a new housing
subdivision;
A construction company can develop a budget and
borrow money to pay for supplies;
A lumber company can reduce the risk it faces in
selling the trees it is growing;
A community can issue bonds to pay for the sewer
system and roads;
A family can borrow money against their future income
to buy a house.
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Branches of Finance
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Corporate finance
Capital budgeting - managing long-term investments
 Capital structure - the mixture of equity and debt
 Working capital management - short-term assets and
liabilities
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Investments/Asset Pricing
Equity analysis
 Derivatives
 Mutual fund management
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Banking
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