CLASS_01 - Lecture1:Overview&ValuationBasics&...

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1 Introduction to Financial Reports FINA 463: Case Studies January 10, 2012 Josh Pierce  piercej@moore.sc.edu
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2 Objectives of today’s lecture Course Overview Syllabus Introduction Valuation Basics Primer on NPV Next Lecture
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3 Course Overview Course will cover issues on Corporate Talk on firms Finance Talk about money Two-pronged, “top” and the “bottom” Policy Talk on goals of finance manager
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4 Introduction Focus will be on: Valuation Use DCF analysis Other ways…. Valuation Defined? “Translation of our expectations about the firm  and its environment into projections of financial  performance for the firm and the translation of the  projected financial performance into values.”
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5 Value of an Asset = Value of Cash Flow (CF)  it Will Generate (not profits) How does one value CF’s out into the future? Introduction: What is value? + + + + + + = ) 1 ( ..... ) 1 ( ) 1 ( 2 2 1 1 r CF r CF r CF Value
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6 So, value is based on three things Current Cash Flow Expected growth (used with to estimate future  cash flow) Riskiness of expected future cash flow  (discount rate) + + + + + + = ) 1 ( ..... ) 1 ( ) 1 ( 2 2 1 1 r CF r CF r CF Value Introduction: What is value?
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7 Cost of Capital Determine the firm’s expected required return Analyze the capital structure and how it impacts the  cost of capital. Take it for given. Net Present Value Estimate how a project will change firm’s cash  flows Value using project discount rate based on risk  level. Introduction: How do we value?
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8 The primary goal of a financial manager is:  Maximize Shareholder Value” Choose projects with positive and greatest  NPV (Investment Decision) Choose capital structure to minimize cost of  capital – which will maximize value of the  firm (Financing Decision) Introduction: Why do we need valuation?
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9 Investment Decision – a decision as to  which real assets the firm should acquire What projects should the company undertake? Introduction: Why do we need valuation?
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10 Financing Decision – a decision on how to  raise money needed for a firm’s  investments in real assets. Should the firm borrow or issue stock to fund  investments? Should the firm pay a dividend?  If so, how  much? Introduction: Why do we need valuation?
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11 Firms make financing and investment  decisions separately.  The investing choice will impact value  through the cash flow The financing choice of a firm will impact  value through the cost of capital Introduction: Why do we need valuation?
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CLASS_01 - Lecture1:Overview&ValuationBasics&...

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