f303 day 1

7/23/2019 F303 Day 1

http://slidepdf.com/reader/full/f303-day-1 1/20

1-1

F305 Intermediate CorporateFinance

Class 1 Introduction

Intermediate Corporate Finance

Teresa Kase

Indiana University

7/23/2019 F303 Day 1


A Puzzle

General ynamics! a lar"e de#ensecontractor! too$ %3 years to o&tain a stoc$value o# '()* &illion dollars)

+etscape too$ a #e, minutes to do t-esame ,-en it announced an IP.)

+etscape -ad no pro/ts and paid nodividend)

How is it possible for these two verydierent rms to have the same value?

1-2

7/23/2019 F303 Day 1


olution to t-e Puzzle

aluation is 2#or,ardloo$in")46emem&er78 alue o# any asset e9uals t-e

present value o# all #uture cas- :o,s! i)e)!

,-ere CFt denotes cas- :o, at time t! and r denotes

t-e discount rate

1-3

( ) ( ) ( ) ( ) ...

1...

111 2

2

1

1

0

0

T

T

r

CF

r

CF

r

CF

r

CF Value

+

++

+

+

+

+

+

=

7/23/2019 F303 Day 1


.&;ectives <y t-e end o#

F305! yous-ould &e a&leto=

>valuate a variety o#corporate pro;ects and

ma$e decisions &ased on

/nancial data

Analyze a /rm?s /nancialstatements! #orecast its/nancials! compute its costo# capital! and value t-e/rm• i)e)! value o# t-e /rm@s assets! de&t

and e9uity

Understand t-e impact o# a/rm@s /nancin" decisions onits cost o# capital and value

1-4

7/23/2019 F303 Day 1


T-e F305 <i" Picture

Intrinsic

aluePo# FCFs

FCF

alueo# e9uity

BACC

Cost o#e&t

Cost o#

>9uity

alue o#de&t

ProFormaIncometmt)

<alance-eet

Pro;ect alesGro,t-

Pro;ectin" 6atios!Costs! Fied Assets

Pro;ect Financin"

Financin"Taes<an$ruptcycostsA"encypro&lems

Module C

Module A (Projects) Module B (Firm)

1-5

7/23/2019 F303 Day 1


General AdministrationInstructor= Teresa Kase

t$aseDindiana)eduCG3010.Ece ours= Bednesdays 11=%51=00 in (0%<

and &y email appointment

Be&site= -ttps=HHoncourse)iu)edu .ncourse ,ill &e your source #or all in#ormation

announcements! slides! "rade&oo$

1-6

mailto:[email protected]

https://oncourse.iu.edu/


mailto:[email protected]

7/23/2019 F303 Day 1


ylla&us6ead t-e sylla&us care#ully

I@m not "oin" to read it out in class8 JJ

It contains in#ormation on=

Gradin" policyescription o# Pro;ects 1 and (>am dates! policy on missed eams

-ttps=HHoncourse)iu)edu

1-7



7/23/2019 F303 Day 1


B-at is to &e epected inF305

A lot o# material Ti"-t sc-edule +o emp-asis or deemp-asis on any part o# t-e class materials +o ma$eup lecture

A lot o# #ormulas I ,ill provide a s-eet o# relevant #ormulae #or eams) T-is class isnot a&out calculators or memorizin" #ormulas it is a&outunderstandin" and applyin" $ey concepts in corporate /nance

+o lectures on -o, to use calculators

ery &i" pro;ect

Am&i"uity o# t-e de/nitions In some cases! you ,ill /nd t-ere is no de/nite ans,er= Lou -ave to

set up and ;usti#y your assumptions! and "ive your ans,er &ased onyour assumptions

1-8

7/23/2019 F303 Day 1


elp#ul tips

Be do pro&lems in class) <rin" yourcalculator

+o laptops allo,ed in class until laptopmaterial is to &e covered in class period

Get my #eed&ac$ #or your eams+o "ivin" &ac$ eams= I stron"ly encoura"e you to

drop &y a#ter t-e test so t-at ,e can "o over t-eeam to"et-er

tart your pro;ects as early as possi&le

Pa attention to .+C.U6> announcements1-9

7/23/2019 F303 Day 1


1-10

Key Concepts and

Skills• Role of the nancial

manager

• Corporationclassications

• Goal of nancialmanagement

• Potential conicts

between nancial

7/23/2019 F303 Day 1


1-11

Corporate Financeome important 9uestions t-at areans,ered usin" /nance=

1) B-at lon"term investmentss-ould t-e /rm ta$e on7

() B-ere ,ill ,e "et t-e lon"

term /nancin" to pay #or t-einvestment7

3) o, ,ill ,e mana"e t-e

everyday /nancial activities o#

7/23/2019 F303 Day 1


1-12

ecisions

• Capital &ud"etin"

• B-at lon"term investments orpro;ects s-ould t-e &usiness ta$e

on7

• Capital structure

• o, s-ould ,e pay #or our assets7• -ould ,e use de&t or e9uity7

• Bor$in" capital mana"ement

• o, do ,e mana"e t-e daytoday

7/23/2019 F303 Day 1


1-13

Forms of !"siness#rgani$ation in the %&S&

• Single #wnerSole

Proprietorship

• General• 'imited

Partnership

•C(Corporation•S(Corporation• 'imited 'iabilityCompany )''C*

Corporation

7/23/2019 F303 Day 1


1-14

Chapter #"tline

• Corporate Finance and theFinancial Manager

• Forms of !"siness #rgani$ation

• +he Goal of Financial Management

• +he ,gency Problem and Controlof the Corporation

• Financial Markets and the

Corporation

7/23/2019 F303 Day 1


1-15

Management

-hat sho"ld be the goal of acorporation.

Ma/imi$e prots.

Minimi$e costs.Ma/imi$e market share.Ma/imi$e the c"rrent 0al"e of thecompany1s stock.

oes this mean we sho"ld doanything and e0erything toma/imi$e owner wealth.

7/23/2019 F303 Day 1


1-16

+he ,gency Problem,gency relationship

• Principal hires an agent torepresent his2her interests

• Stockholders )principals* hiremanagers )agents* to r"n thecompany

,gency problem

Conict of interest betweenprincipal and agent

Management goals and agencycosts

7/23/2019 F303 Day 1


1-17

Managing ManagersManagerialcompensation

• 3ncenti0es can be"sed to align

management andstockholder interests

• +he incenti0es needto be str"ct"red

caref"lly to makes"re that theyachie0e their goal

Corporate control

+he threat of a

7/23/2019 F303 Day 1


1-18

-ork the -eb 4/ample

+he 3nternet pro0ides a wealth ofinformation abo"t indi0id"al companies

#ne e/cellent site is nance&yahoo&com

Click on the web s"rfer to go to thesite5 choose a company and see what

information yo" can nd6

http://www.finance.yahoo.com/

http://www.finance.yahoo.com/

7/23/2019 F303 Day 1


7/23/2019 F303 Day 1


1-20

8"estions.

f303 day 1

Documents