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WEMBA Summer 2002 Finance Elective

WEMBA Summer 2002 Finance Elective. Chris Lamoureux UofA. Value Management. Finance is Everything Process Assets Liabilities. Process. Incentives Information Evaluation (ex. EVA). Assets. Capital Budgeting vs Strategic Planning Expected Future Cash Flows Economic Implications

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WEMBA Summer 2002 Finance Elective

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  1. WEMBA Summer 2002 Finance Elective Chris Lamoureux UofA

  2. Value Management • Finance is Everything • Process • Assets • Liabilities

  3. Process • Incentives • Information • Evaluation (ex. EVA)

  4. Assets • Capital Budgeting vs Strategic Planning • Expected Future Cash Flows • Economic Implications • Pro-Forma Financials • Key Value Drivers • Real Options • Develop Intuition • Develop Analytic Framework

  5. Liabilities • Issues • Internal vs. External Capital • Debt vs. Equity • Bank Debt vs. Public Debt

  6. Style • Readings • McKenzie Quarterly • Light Academic Articles • Copeland Book (Cookbook) • Long-Term Group Projects • Strategic Valuation • Build Spreadsheet Models • ALCAR-style

  7. Style (Cont’d.) • Each Class - Increasingly Complex Real Option Spreadsheets • Each Class - Demonstrate Mastery of Economic Concepts • Exam -- Final Only • All Else -- Group Work

  8. Skills / Tools • Process • Underpinnings of Corporate Form • Information Economics (Contract Theory) • Managerial Accounting

  9. Skills / Tools (cont’d.) • Assets - Std. Cap Budgtg • Identifying Future Cash Flows • Tax Laws • Engineering / Marketing • Risk-Adjusted Discount Rate (Key assumption of Market Efficiency)

  10. Skills / Tools (cont’d.) • Assets - Real Options • Identify the Implicit Options: (Every Investment creates some options and destroys others) • Option Pricing (Key assumption of Market Efficiency) • Binomial Trees • Hysteresis

  11. Skills / Tools (cont’d.) • Assets - Strategic Planning • Financial Statements (FASB)   Economic Picture • Valuation Model (ex ALCAR) • Sensitivity Analysis (Value Drivers) • Key assumption of Market Efficiency • Economic Picture   Financial Statements (FASB)

  12. Skills / Tools (cont’d.) • Liabilities (Financing) • M & M Irrelevance / Taxes ? • Key assumption of Market Efficiency - how risk is priced in market • InformationEconomics -- ContractTheory(AgencyCosts)

  13. Separability / Hierarchy • Absent Options perspective • Find Optimal Capital Structure • Use WACC from that cap struct to discount expected future cash flows. (May be different for different divisions /projects.) • Optimal Process (strategic architecture) also solved in isolation.

  14. Separability / Hierarchy (cont’d.) • Option perspective • Capital Structure creates / destroys options that complement technological options (not additive). • Strategic Architecture creates / destroys options in its own right / and is costly.

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