Introduction & Underwriting
Corporate Finance Corporate Finance Fall 2012 2012 General Information Instructor: Dr. Lawrence He Office: Taro 328 Phone: (905) 688-5550 ext. 4540 Email: LHE@brocku. ca General Information Classroom and Time: Sec 1 14:00 – 15:30 T R Sec 2 08:00 – 09:30 M 11:00 – 12:30 R Sec 6 19:00 – 22:00 M TA 405 TA 405 TA 405 PL 409 Office Hours: Monday 09:30 – 11:00, 14:30 – 16:00 or after class or by appointments Course Materials Ross, Westerfield, Jordan and Roberts, h Fundamentals of Corporate Finance, 7tth Canadian Edition. Lecture Notes on Sakai
Lecture Notes on Sakai Financial Calculator (recommended) Financial Calculator (recommended) Grading & Policy Two Case Studies (15%) Form a group of 2 – 3 students Midterm Test (35%) Comprehensive Final Exam (50%) Common Course Outline Common Problem Sets & Exams Common Exam Grading Scheme What is Corporate Finance? Corporate Finance addresses the following three questions: 1. 2. 3. What long-term investments should the firm engage in? engage in? (investment decision) decision How can the firm raise the money for the required investments? required investments? financing decision) decision How much short-term cash flow does a company need to pay its bills? company need to pay its bills? (net working working capital) The Balance-Sheet Model of the Firm Total Value of Assets: McGraw-Hill/Irwin Corporate Finance, 7/e Total Firm Value to Investors: Fi The Balance-Sheet Model of the Firm The Capital Budgeting (Investment) Decision Capital Budgeting Decision McGraw-Hill/Irwin Corporate Finance, 7/e What longterm investments should the firm engage firm engage in? The Balance-Sheet Model of the Firm The Capital Structure (Financing) Decision
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St How can the firm raise the money for the required investments? McGraw-Hill/Irwin Corporate Finance, 7/e The Balance-Sheet Model of the Firm The Net Working Capital Investment Decision Net Working Capital Investment Decision Net Working Capital How much short-term cash flow does flow does a company need to pay its bills? McGraw-Hill/Irwin Corporate Finance, 7/e Capital Structure The value of the firm can be thought of as a pie. The goal of the manager is to increase the size of the pie. The Capital Structure decision can be viewed as how best to slice up a the pie. 5% 50% Debt 30% Debt Equity 70% Debt 75% 50% Equity If how you slice the pie affects the size of the pie, then the capital structure decision matters capital structure decision matters. The Financial Manager To create value, the financial manager should: 1. Try to make smart investment decisions. 2. Try to make smart financing decisions. 3. Try to make smart use of net working capital. Th Fi The Firm and the Financial Markets th Fi Firm Firm issues securities (A) Invests in assets (B) Retained cash flows (F) Short-term debt Cash flow from firm (C) Dividends and ebt payments (E) Taxes (D) Current assets Fixed assets Ultimately, the firm must be a cash generating activity activity. McGraw-Hill/Irwin Corporate Finance, 7/e Financial markets Government Long-term debt Equity shares The cash flows from the firm must exceed th the cash flows from fl the financial markets. Course Objectives Build on the concepts and tools developed in 2P91 to address various firm financing issues. The central concern is to introduce the basic theories of financing decision-making within a corporation, i. e. , D/E, dividend policy, etc.
To achieve this, you need to solve a lot of ac you so numerical problems assigned to you. What have you learned in 2P91? Valuation of Cash Flows The price of any asset is the present value of all future cash flows discounted at a required rate of return required rate of return Capital Budgeting: NPV Cost of Capital: WACC What will we learn in 3P93? Build on the concepts and tools covered in 2P91. Long-Term Financing Raising Capital: Chpt 15 (3) Leverage and Capital Structure: Chpt 16 (7) Dividend Policy: Chpt 17 (3) Short-Term Financing Interest Rate: Chpt 18 (2)
Cash and Liquidity: Chpt 19 (2) Credit and Inventory: Chpt 20 (2) What will we learn in 3P93? Leasing: Chpt 22 (2) Mergers and Acquisitions: Chpt 23 (2) Options: Chpt 25 (2) Options: Chpt 25 (2) Convertibles and Warrants: Chpt 25 (2) Study Guide 1. 2. 3. 4. Use class notes as a guideline Read the corresponding chapters Practice the assigned problems, before the assigned problems, before checking on solutions Going back to the previous steps if back to the previous steps if necessary Financing Life Cycle of a Firm Business Fail Acquisition >90% Start-up Venture Capital