Corporate Finance MGT 535 Course Overview Course Contents

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Corporate Finance MGT 535 Course Overview

Corporate Finance MGT 535 Course Overview

Course Contents • What Is A Corporation? – All large and medium-sized businesses are

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.

Continue • Separation of Ownership and Management – Who has the power? • Financial

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.

Continue • Net Present Value (NPV) – NPV = PV – INV • NPV

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 11/16/2014 Instructor: Mr. Wajid Shakeel Ahmed

Continue • Opportunity Cost of Capital – Rate of an Alternative investment opportunity having

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. 11/16/2014 Instructor: Mr. Wajid Shakeel Ahmed

Continue • Calculations of NPV & ROR – Rule Game • Managers and the

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

Continue • Valuing Long-Lived Assets – What is theory of valuation? – PV value

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

Continue • How To Value Common Stock – Capital Markets – Future Payoffs •

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

Continue • Returns Measurements – EPS; PE – Growth Opportunity – Growth Stock vs

Continue • Returns Measurements – EPS; PE – Growth Opportunity – Growth Stock vs NO Growth Stock • FCF and PV – Theoretical basis – Practical implication

Continue • NPV and its competitors – The payback Period – The book rate

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

Continue • What To Discount – Why Cash Flow – Inflation – Incremental Cash

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

Continue • Project Analysis • Project Interaction – Equivalent Annual Cost – Replacement –

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

Continue • 75 Years of Capital Market History – Relationship between risk and returns

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?

Continue • Measuring Portfolio Risk – Stocks return and risk – Coin game vs

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

Continue • Portfolio Risk – Correlation coefficient • Market Risk Is Measured by Beta

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

Continue • Markowitz Portfolio Theory – CAPM – Birth of Portfolio Theory • Risk

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

Continue • • • Borrowing & Lending Efficient Frontier Security Market Line CAPM Validity

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

Continue • Value Vs Growth Stock – Modified Beta • Standard vs Consumption CAPM

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

Continue • Qualification of Statements. • Examples. • Numerical – CAPM – APT –

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

Continue • Company and Project Costs of Capital – Rule of Thumb – Similarity

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

Continue • Capital structure and COC – Perfect Pitch – Capital Structure and COC

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

Continue • Discount Rates for International Projects – International Risk – In the absence

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

Continue • Look First To Market Values. – Why Markets are important? • Case

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?

Continue • Case 2: Gold Mine – Consult the Market – Credit Worthy Buyer

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

Continue • Avoiding $100 M Mistake – Simplified Spread Analysis – Competitive Spread Analysis

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

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

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

Continue • • The capital investment process Project Authorization Off Budget Expenditure Decision Makers

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