1-1
CHAPTER 1
Overview of Corporate Finance and the
Financial Environment
Corporate finance
Forms of business organization
Objective of the firm: Maximize wealth
Determinants of stock pricing
The financial environment
Financial instruments, markets and
Capital Structure
with Corporate Tax
and Personal Taxes
Finance 1 Text- and Workbook:
Chapter 16
Berk & DeMarzo:
Chapter 15
1
assume that the investment decision
has already been taken, then VL =
Perfect capital market conditions:
= the market value of t
Dividend Policy
Finance 1 Text- and Workbook:
Chapter 18
Berk & DeMarzo:
Chapter 17
1
Payout Policy
when a firms investments generate
free cash flow, how to use the cash?
1. NPV > 0 opportunities
then reinvest the cash: V
investment projects
e.g. young,
Performance
measures
Finance 1 Text- and Workbook:
Chapter 11
Berk & DeMarzo: nowhere
1
Performance Measures
(only introductory)
ex post: realized returns
(usually on a monthly basis)
RP measures the average of RP,t
where t is in the evaluation period
her
Capital Structure
in general
Finance 1 Text- and Workbook:
Chapter 17
Berk & DeMarzo:
Chapter 16
1
Practice: average U.S. firm shields
1/3 EBIT from corporate tax
Question: D tax benefit of leverage
Example: firm = airline UAL
interest expense
other tax
Capital Asset Pricing
Model
Finance 1 Text- and Workbook:
Chapter 9
Berk & DeMarzo:
Chapter 11+13
1
CAPM assumptions in addition to A1-A8:
A9.
The total supply of securities is fixed
and all securities can be traded.
A10.
Investors have homogeneous expect
Mean-Variance
Analysis
Finance 1 Text- and Workbook:
Chapter 7
Berk & DeMarzo:
Chapter 10 + 11
1
Expected Utility (EU) of wealth
the rationality of the EU model of
choice under risk is based on axioms
underlying (the derivation of) expected
utitility maxi
Efficient Market
Hypothesis (EMH)
Finance 1 Text- and Workbook:
Chapter 12
Berk & DeMarzo:
Chapter 9.5 + 13
1
Efficiency
Informational efficiency (Fama, 1970)
a market where prices completely reflect all
(relevant) available information at any given
momen
Portfolio Theory
Finance 1 Text- and Workbook:
Chapter 8
Berk & DeMarzo:
Chapter 11
1
NORMATIVE PORTFOLIO THEORY
quantifying and analyzing all
relevant individual securities
characteristics EA,EB,AB etc.
combining individual securities into
an efficient
AthenaSummary
Erasmus University Rotterdam
Erasmus School of Economics Bachelor 2
Applied Statistics 2
Lecture summary
Table of contents
Week 6
Chapter 13 Company cost of capital and NPV
C
MGMT 218: ENTREPRENEURSHIP
AND BUSINESS CREATION
Building a Dream Team for e-Queue System
Assignment 2
By: Yip Kai Loong Benny
Matriculation Number: S8728902H
Instructor: Professor Patrick Loh
1st October 2015
MGMT 218: Entrepreneurship and Business Creat
Introduction
FNCE 201 Corporate Finance
Course Administration
ASSESSMENT METHODS
Group Research Project: 20%
Group Case Analysis: 10%
Class Participation: 10%
Midterm Exam: 25%
Final Exam: 35%
Group Formation for Research
Project & Case Analysis
Form sev
Cost of Capital
FNCE 201 Corporate Finance
The Cost of Capital
Each year in the US, corporations
undertake more than $500b in capital
spending. Since a difference of a few
percent in capital costs can mean a
swing in billions of expenditure, how
firms est
Executive Summary:
Ezra Holdings is an established leading offshore service provider in the global Oil and Gas
industry. Along with this, Ezra Holdings has successfully listed its main business division on
the SGX-ST over the past decade. Due to its great
Multi-Factor Model
and
Arbitrage Pricing Theory
Finance 1 Text- and Workbook:
Chapter 10
Berk & DeMarzo:
Chapter 13
1
Multi-factor model
(1) Ri = E(Ri) + bi1F1 + +bikFk + i i = 1,.,n
a combination of identifiable factors,
simultaneously explain all securi
17 - 1
CHAPTER 17
Option Pricing with Applications to
Real Options
Financial options
Black-Scholes Option Pricing Model
Real options
Decision trees
Application of financial options to
real options
17 - 2
What is a real option?
Real options exist whe
2-1
Chapter 2
Time Value of Money
Future value
Present value
Rates of return
Amortization
2-2
Time lines show timing of cash flows.
0
1
2
3
CF1
CF2
CF3
i%
CF0
Tick marks at ends of periods, so Time 0
is today; Time 1 is the end of Period 1;
or the beg
3-1
CHAPTER 3
Risk and Return Basic return concepts Basic risk concepts Stand-alone risk Portfolio (market) risk Risk and return: CAPM/SML
3-2
What are investment returns? Investment returns measure the financial results of an investment. Returns may be h
4-1
CHAPTER 4
Bonds and Their Valuation
Key features of bonds
Bond valuation
Measuring yield
Assessing risk
4-2
Key Features of a Bond
1.
Par value: Face amount; paid
at maturity. Assume $1,000.
2.
Coupon interest rate: Stated
interest rate. Multiply
5-1
CHAPTER 5
Stocks and Their Valuation
Features of common stock Determining common stock values Efficient markets Preferred stock
5-2
Common Stock: Owners, Directors, and Managers Represents ownership. Ownership implies control. Stockholders elect dire
6-1
CHAPTER 6
The Cost of Capital
Cost of Capital Components
Debt
Preferred
Common Equity
WACC
6-2
What types of long-term capital do
firms use?
Long-term debt
Preferred stock
Common equity
6-3
Capital components are sources of
funding that come from in
7-1
Chapter 7: The Basics of
Capital Budgeting: Evaluating
Cash Flows
Overview and vocabulary
Methods
Payback, discounted payback
NPV
IRR, MIRR
Profitability Index
Unequal lives
Economic life
7-2
What is capital budgeting?
Analysis of potential proje
9-1
CHAPTER 9
Financial Statements,
Cash Flow, and Taxes
Balance sheet
Income statement
Statement of cash flows
Accounting income versus cash flow
MVA and EVA
Personal taxes
Corporate taxes
9-2
Income Statement
2001
2002
Sales
3,432,000
5,834,400
C
10 - 1
CHAPTER 10
Analysis of Financial Statements Ratio analysis Du Pont system Effects of improving ratios Limitations of ratio analysis Qualitative factors
10 - 2
Income Statement 2002 2003E Sales 5,834,400 7,035,600 COGS 4,980,000 5,800,000 Other expe
11 - 1
CHAPTER 11
Financial Planning and Forecasting Financial Statements Financial planning Additional Funds Needed (AFN) formula Pro forma financial statements Sales forecasts Percent of sales method
11 - 2
Financial Planning and Pro Forma Statements Th
12 - 1
CHAPTER 12
Corporate Valuation and ValueBased Management
Corporate Valuation
Value-Based Management
Corporate Governance
12 - 2
Corporate Valuation:
List the two types of assets that a
company owns.
Assets-in-place
Financial, or nonoperating,
15 - 1
CHAPTER 15
Multinational Financial Management
Factors that make multinational
financial management different
Exchange rates and trading
International monetary system
International financial markets
Specific features of multinational
financial
Lecture 2
Cost of Capital
Cost of Capital
Weighted
Average Cost of Capital
Cost of Debt
Cost of Preferred Equity
Cost of Common Equity
2
Cost of Capital
Cost
of capital rate of return that the
suppliers of capital (bondholders and
owners) require as