Corporation FinanceFI 3300 – Fall 2010Instructor - Ryan Williams

My informationRyan WilliamsEmail: rwilliams83@gsu.eduWebsite: myrobinson.gsu.edu, Ulearn,

http://www.ryanwilliams7.comOffice location: Alpharetta Center, 123DOffice phone:404-413-7769

OFFICE HOURS: Mondays and Wednesdays from 11:00am – 12:00pm

Today’s AgendaQuick summary of syllabusDiscussion of courseMy expectationsMath SkillsChapter 1 - Introduction

Syllabus – Important HighlightsAttendance policy – Department-wide!On this – you are allowed to miss two weeks of

class. That means only FOUR classes.I reserve the right to pass the attendance

sheet at any point in time.Exam 1 – 9/27/2010Exam 2 – 11/1/2010Final Exam – 12/11/2010 at 3:45-6:15

Grading PolicyTwo midterms: 25% eachOne Final Exam: 40%Quizzes: 6%Resume: 2%Problem Set: 2%

We will have 5 quizzes and I will drop the lowest 2. If you miss a class you will receive a 0% for the quiz.

TextsMain text: “Lectures in

Corporate Finance”, 5th ed., by Jayant Kale and Richard Fendler.

Optional: 12-week subscription to The Economist, cheap student rates. Go to http://www.economistacademic.com and use Faculty ID code 6105.

CalculatorTexas Instruments BA II Plus

HP also makes a version

Can use NO calculator with a memory

We have used calculators available for $20. First come, first serve. Contact Prof. Genna Brown gbrown@gsu.edu

Course OutlineSplit into 3 sections:

1) Blending Accounting and FinanceFinancial Statements, F.S. Analysis, Fin. Mngt

2) Valuation from an Investor’s point of viewTime value of money, valuing stocks, valuing

bonds

3) Valuation from a CFO’s point of viewCapital Budgeting

Classroom rulesCellphones OFF – If your phone rings, I get to

answer it. (Also true for me).

No texting. If I see you texting you will be asked to solve a problem on the board.

I prefer no laptops. However, if you take notes on the laptop, please sit near the back of the classroom so you do not distract students behind you.

Final words of wisdomThis class is hard, however:

You may have heard the class requires a lot of math formulas, but everything is based on ONE FORMULA – not much memorization

This class rewards thinking, not arithmetic.

Math Test

Chapter 1- IntroductionWhy are you here?

Learning Objectives1. Identify the three main subject areas in

finance2. Know the different forms of business

organization and discuss the agency problem

3. Define the goal of corporate financial management

4. Compare/contrast finance and accounting5. Understand how cash affects value

Why is finance important?A horrible product (usually) dooms a

business.

A great product is not enough - horrible financial management coupled with a great product (usually) also dooms a business.

3 subfields of financeFinancial markets and institutions (or Banking) =

Middleman

Investments = Surplus (they invest money in stock, bonds, and savings accounts)

Corporate Financial Management (or Corporate Finance) = Deficit (they take money from investors and buy stuff)

*Identifying, managing, and valuing risky cash flows is the goal of finance*

Basic forms of Business OrganizationSole proprietorship

Partnership

Corporation

Advantages/Disadvantages?

Ownership structuresType Ownership Ability to Raise

CapitalLiability

Sole Proprietorship

•100% owned by a single individual•Owner usually manages company

Difficult Unlimited personal liability

Partnership Two or more individuals

Less difficult than Sole Proprietorship

Similar to Sole Proprietorship

Corporation Typical separation of owners and managers

The least difficult of all forms

Limited to owner’s initial investment

Also taxation and liquidity differences

Agency ProblemGetting the agent (the person running the

business) to act in the interest of the principal (the shareholders who own the business).

Financial manager’s goalMaximize value of the firm.

Same as maximizing stock price.

NOT the same as “maximizing profits”. Why not?

She accomplishes this goal by two basic decisions: How to get money (raise capital), and what to do with it (real investment).

Accounting and FinanceAccounting USUALLY deals in Book Value (i.e. cost)

Finance USUALLY deals with Market Value (what someone would pay you for it today).

Accounting is historical data (annual reports, 10-K filings, etc).

Finance attempts to project future data – BUT YOU NEED TO UNDERSTAND ACCOUNTING TO DO THIS

Cash and ValueValue = all future expected cash flows

discounted by their riskiness (we will slightly refine this definition later).

CASH is the only thing that matters here! This may seem counterintuitive right now,

but should be more clear when we look at Stock Valuation in Chapter 9.

Class Summary – Why should you care?After the introductory accounting chapters,

this entire class is associated with VALUE.

Specifically, how to value a bond, a stock, or a new project for a company.

Next Monday:You owe me:

Resume, upload picture to MyRobinson

Prepare for Quiz 1: Introduction, Income Statement and Balance Sheet