Comm298-Week1-Overview_to_finance-wit

Comm298-Week1-Overview_to_finance-wit - Com298: Week 1...

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Com298: Week 1 Overview of Finance Learning Objectives: Focus on the following: Overview of the course. Role of financial managers. Objective of financial management. Definitions of cash flow. Capital cost allowances (CCA). Overview of the Course Overview of corporate finance: 1
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Goals and role of financial management. Importance of cash flows. Valuation of future cash flows: Time value of money. Discounted cash flow valuation. Bond and stock valuation. Capital budgeting : Net present value and other investment criteria. Making capital investment decisions. Project analysis and evaluation. Risk and return: Return, risk and the security market line. Role of the Financial Manager To focus on the following financial management decisions: 2
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Capital budgeting decision: What long term investments should the firm consider making ? Example: decision on whether to expand a manufacturing plant. Capital structure decision: What is the mix of debt and equity should the firm use to fund its long term investments ? Example: decision on whether to issue new equity and use the proceeds to retire outstanding debts. Working capital decision: How should the firm manage the everyday financial activities of the firm ? Objective of Financial Management To maximize shareholder’s value or the enterprise value. Enterprise value 3
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= market value of equity + debt – cash = $50.4m + $116.7m - $21.2m = $145.9 m The firm has 3.6 million shares; and these shares are trading for $14 per share. Market value of equity = 3.6 m x $14 = $50.4 m Debt = $116.7 m = notes payable ($3.5 m) + maturities of long term debt ($13.3 m) + long term debt ($99.9 m) Cash = $21.2 m Example: Interpretations of Enterprise Value Enterprise value is the cost to take over the firm. Cost to buy the equity and pay off debt = $50.4m + $116.7m = $167.1m. Net cost = $167.1m - $21.2m = $145.9m 4
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the take-over. Accounting Cash Flow Statement Three types of cash flows: Operating cash flows: Reveals how the firm is performing in its ordinary course of business. Investing cash flows: Refers to cash inflows and outflows due to investing activities. Example: Purchase and disposal of PPE and shares in other companies. Financing cash flows:
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This note was uploaded on 01/27/2011 for the course COMM 298 taught by Professor L during the Spring '10 term at Capilano.

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Comm298-Week1-Overview_to_finance-wit - Com298: Week 1...

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