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Corporate Finance

Corporate Finance. MGT 535 Course Overview. Course Contents. What Is A Corporation? All large and medium-sized businesses are organized as corporations. The Role of The Financial Manager Capital Budgeting vs Financing Decision. Who Is The Financial Manager?

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Corporate Finance

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  1. Corporate Finance MGT 535 Course Overview

  2. Course Contents • What Is A Corporation? • All large and medium-sized businesses are organized as corporations. • The Role of The Financial Manager • Capital Budgeting vs Financing Decision. • Who Is The Financial Manager? • Anyone responsible for a significant investment or financing decisions.

  3. Continue • Separation of Ownership and Management • Who has the power? • Financial Markets • First hand vs Second hand • Present Value (PV) • A dollar today is worth more than a dollar tomorrow.

  4. Continue • Net Present Value (NPV) • NPV = PV – INV • NPV Rule • Accept the project that makes a net contribution to value. • Rate Of Return Rule • Rate of Return is > Cost of Capital Instructor: Mr. Wajid Shakeel Ahmed

  5. Continue • Opportunity Cost of Capital • Rate of an Alternative investment opportunity having a similar risk. • Investment vs. Consumption • Manager finds it difficult to reconcile the different objectives of the shareholders. Instructor: Mr. Wajid Shakeel Ahmed

  6. Continue • Calculations of NPV & ROR • Rule Game • Managers and the Interests of Shareholders • Do managers really looking after the interests of shareholders? • Fundamental Study Result

  7. Continue • Valuing Long-Lived Assets • What is the theory of valuation? • PV value Rule • DCF • PV Calculation Short Cuts • Annuity • Perpetuity • Numeric Examples

  8. Continue • How To Value Common Stock • Capital Markets • Future Payoffs • Valuing Common Stock • DCF • Continuous Growth • Capitalization Rates • Dividend Yied

  9. Continue • Returns Measurements • EPS; P\E • Growth Opportunity • Growth Stock vs NO Growth Stock • FCF and PV • Theoretical basis • Practical implication

  10. Continue • NPV and its competitors • The payback Period • The book rate of return • Internal rate of return • Profitability Index • Internal Rate of Return • Pitfalls of IRR

  11. Continue • What To Discount • Why Cash Flow • Inflation • Incremental Cash Flows • Case: IM&C Project • Depreciation vs. Tax rate effect • Project Analysis

  12. Continue • Project Analysis • Project Interaction • Equivalent Annual Cost • Replacement • Project Interaction • Timing • Fluctuating Load Factors

  13. Continue • 75 Years of Capital Market History • Relationship between risk and returns • Why to have historical data • Measuring Risk • Variability measures • Risk Premium • How to determine it?

  14. Continue • Measuring Portfolio Risk • Stocks return and risk • Coin game vs Stock market investment • Measuring Risk Variability • Probability • Past events • Unique Risk vs Market Risk • Diversification

  15. Continue • Portfolio Risk • Correlation coefficient • Market Risk Is Measured by Beta • Why Beta? • Beta as a Portfolio Risk Measurement • Interpretation • Understanding

  16. Continue • Markowitz Portfolio Theory • CAPM • Birth of Portfolio Theory • Risk and Return Relationship • Rules • Efficient Portfolio • Best Choice

  17. Continue • Borrowing & Lending • Efficient Frontier • Security Market Line • CAPM • Validity of CAPM • Testing the CAPM

  18. Continue • Value Vs Growth Stock • Modified Beta • Standard vs Consumption CAPM • Modified version of CAPM • Asset Pricing Model • Macroeconomic Factors • Three Factor Model • Size vs Book to market

  19. Continue • Qualification of Statements. • Examples. • Numerical • CAPM • APT • Three Factors Model

  20. Continue • Company and Project Costs of Capital • Rule of Thumb • Similarity of risks of new project • Beta As a Proxy • General Motors • Exxon Mobil • Dell Computers • Industry

  21. Continue • Capital structure and COC • Perfect Pitch • Capital Structure and COC • Measuring the Cost of Equity • Effect on the Beta • Capital structure and Discount rate

  22. Continue • Discount Rates for International Projects • International Risk • In the absence of Beta • Asset Beta • Example • Risk, DCF and CEQ • Example

  23. Continue • Look First To Market Values. • Why Markets are important? • Case 1: Departmental Store • How to evaluate an investment • Rents vs Income • Example: Pricing a Gold • Who priced it?

  24. Continue • Case 2: Gold Mine • Consult the Market • Credit Worthy Buyer • Fixed Price Markets • Forecasting Economic Rents • Competitive advantages

  25. Continue • Avoiding $100 M Mistake • Simplified Spread Analysis • Competitive Spread Analysis • Case: Marvin Enterprises • Conclusion 1st • Conclusion 2nd • Conclusion 3rd

  26. Continue • Conclusion 4th • Conclusion 5th • Lessons of Marvin Enterprises

  27. Continue • The capital investment process • Project Authorization • Off Budget Expenditure • Decision Makers and Information

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