Principles of Corporate Finance

u Finance and the Financial Manager Principles of Corporate Finance Brealey and Myers Sixth Edition Chapter 1 ...

Topics Covered w What Is A Corporation? w The Role of The Financial Manager w Who Is The Financial Manager? w Separation of Owne ...

Corporate Structure Sole Proprietorships Corporations Partnerships Unlimited Liability Personal tax on profits Limited Liability ...

Role of The Financial Manager Financial manager Firm's operations Financial markets (1) Cash raised from investors (2) Cash inve ...

Who is The Financial Manager? Chief Financial Officer Treasurer Comptroller ...

Ownership vs. Management Difference in Information w Stock prices and returns w Issues of shares and other securities w Dividend ...

Financial Markets Primary Markets Secondary Markets OTC Markets Money ...

Financial Institutions Company Intermediaries Banks Insurance Cos. Brokerage Firms Obligations Funds ...

Financial Institutions Intermediaries Investors Depositors Policyholders Investors Obligations Funds ...

u Present Value and The Opportunity Cost of Capital Principles of Corporate Finance Brealey and Myers Sixth Edition Chapter 2 ...

Topics Covered w Present Value w Net Present Value w NPV Rule w ROR Rule w Opportunity Cost of Capital w Managers and the Intere ...

Present Value Present Value Value today of a future cash flow. Discount Rate Interest rate used to compute present values of fut ...

Present Value PV = discount factor 1 Present Value = PV × C ...

Present Value Discount Factor = DF = PV of $ Discount Factors can be used to compute the present value of any cash flow. DF r t ...

Valuing an Office Building Step 1: Forecast cash flows Cost of building = C 0 = 350 Sale price in Year 1 = C 1 = 400 Step 2: Est ...

Valuing an Office Building Step 3: Discount future cash flows Step 4: Go ahead if PV of payoff exceeds investment PV= ( 1 C+^1 r ...

Net Present Value r C + + 1 NPV = C NPV = PV - required investment 1 0 ...

Risk and Present Value w Higher risk projects require a higher rate of return. w Higher required rates of return cause lower PVs ...

Risk and Present Value 374 1. 400 PV PV of C 1 $400 at 7% = + = = 357 1. 400 PV PV of C 1 $400 at 12% = + = = ...

Rate of Return Rule w Accept investments that offer rates of return in excess of their opportunity cost of capital. Example In t ...