Course Introduction

1. Course Introduction Corporate Finance

2. Corporate Finance Decisions • Financial analysis and planning. • Assess the strengths and weaknesses of the firm via the Financial Statements, ratio analysis, and common sized financial statements. • Pro forma financial statements. • Cash flow for valuation.

3. Corporate Finance Decisions • Capital budgeting. • Decisions that involve what fixed assets the firm should acquire. • “Investment” or “Left-hand side” decisions. • The value of any asset is a function of: • Size of its future cash flows. • Timing of its future cash flows. • Risk of its future cash flows. • How do we make an investment decision?

4. Corporate Finance Decisions • Capital structure. • Decisions that determine how to raise $ to buy assets. • Financing or “Right-hand side” decisions. (Liabs + Eqty). • Capital structure: blend of debt and equity to finance firm’s portfolio of assets used to operate the business. (Goal: minimize total financing cost. • Financial claims of a firm are contingent claims, their value derives solely from “left-hand side” of firm. (Assets) • Dividend decision part of this?

5. Corporate Finance Decisions • Risk versus return. • An important and difficult question is exactly how to measure risk. • Once have handle on measuring risk, need to explain how measured risk relates to required or expected returns.

6. Corporate Finance Decisions • Working capital management. • Subset of investment and financing decisions of the firm. • Both sides of B/S affected. • Focuses on current assets and liabilities. • Net working capital is an asset that must be financed from some source of funds. • It is an easy and dangerous thing to lose control of.

7. Valuation Basics • Assets currently have value due to the future “value” (CFs) provided to those who buy them. • The price you are willing to pay for an asset depends upon value received from owning it. • Timing matters – a concept called “time value of money.”