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L1 - Intro - Financial Management Fall 2010 Lecture 1...

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Financial Management Fall 2010 Lecture 1: Introduction Professor Erica Li Ross School of Business
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What is corporate finance? ! Every decision that a business makes has financial implications, and any decision which affects the finances of a business is a corporate finance decision. ! Defined broadly, everything that a business does fits under the rubric of corporate finance.
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Major decisions in corporate finance ! Capital budgeting decision " Where do you invest the scarce resources of your business? " What makes for a good investment? ! Capital structure decision " Where do you raise the funds for these investments? " What mix of owner’s money (equity) or borrowed money (debt) do you use? ! Working capital management " How to manage the short-term assets of your business? " Cash, inventory, short-term debt, AP, AR
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Examples ! Capital budgeting " Sep. 2005: eBay paid $2.6B to buy Skype " Sep. 2009: eBay sold 65% Skype stake for $1.9B ! Capital structure " Sep. 1998: eBay sold 3.5M shares at $18 and raised $62.8M " May 2009: Microsoft sold $3.75B of debt in its first bond offering ! Working capital management " Feb. 2008: eBay spent $2B on share repurchases " July 2008: General Motor cut dividend in an effort to raise $15B cash 4
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Outline of the course ! Discounting and present value ! Valuation of bond and stock ! Identifying relevant cash flows and investment criterion !
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