1 Welcome to Finance 221 Corporate Finance

2 The First Day Agenda Course Overview Top 10 List What is finance and corporate finance. The goal of the firm Stock Prices and Intrinsic Value Conflicts between managers and shareholders Different forms of Business Organizations. (disc sect)

3 Required Class Materials Textbook: Fundamentals of Financial Management, Concise 5 th ed. by Brigham & Houston with Thomson Now I-clicker for class participation Texas Instruments BAII Plus financial calculator Optional: Fall 2006 Fin 221 Course Syllabus book

4 Important Internet Addresses Course Website:  Syllabus and Class Notes  Solutions to suggested textbook problems via UIUC Compass Textbook website: (choose Brigham and Houston, Concise 5th ed. of Fundamentals of Financial Management)

5 Contacting Prof. Dyer Office: 328J DKH Telephone: Office Hours:  2:30-4:30 Monday & Wednesday and 1-3 Thursday 

6 The Nitty Gritty Grade Breakdown: 500 total points Exams (400 points from 4 exams worth 100 points each) 25 multiple choice questions worth 4 points each  Plus optional final exam to replace. 100 points from online assignments, class participation and investment project

7 Thomson Now Online Assignments (70 points) 11 chapter assignments consisting of 3-5 textbook-type problems. See details and due dates on Assignments & Projects page of the course website. You need to register for Thomson Now using your access card that came with your textbook. You can go to or to register. At one point during the registration process you will be prompted for the course key. Our course key is E-5VC85Y2XU3ZM6 This key will register you for our course on Thomson Now.

8 Investment Project and Class Participation The Investment Project (15 points) will be posted at mid- semester on the Assignments and Projects Page of the course website. It is due Nov. 10. Class participation via I-clicker is worth a maximum of 15 points. I will ask 15 to 20 multiple-choice questions during the semester in lecture to be answered with your I-clicker. Register your I-clicker at Please use your UIUC NetID as your student ID during this registration process. The last student to miss a question in each lecture section will win a Best Buy or Circuit City gift certificate.

9 Miscellaneous Items Textbook problems assigned in syllabus will not be graded, but you are responsible for knowing how to do them. Solutions to these suggested problems are given on the course website via UIUC Compass and syllabus book.

10 TOP 10 LIST

11 What is Finance? Finance is primarily about making investment decisions. To make these decisions, one must determine value. What is the value of a stock, a bond, a company, or a real asset?

12 What is Corporate Finance

13 Goal of the Firm To maximize owner’s wealth. The common stockholders (shareholders) are the owners of a corporation. This means maximizing shareholder wealth by maximizing stock price.

14 Factors that affect stock price Projected cash flows to shareholders Timing of the cash flow stream Riskiness of the cash flows

15 Responsibility of the Financial Staff Maximize stock value by:  Forecasting and planning  Investment and financing decisions  Coordination and control  Transactions in the financial markets  Managing risk

16 What determines Value? Timing and amount of expected future cash flows, and The riskiness of these expected cash flows which determines an investment’s interest rate or required rate of return. Value equals the present (today’s) value of these cash flows discounted at the required return. This is known as intrinsic value. A good investment is one whose value exceeds its market price.

17 Stock Prices and Intrinsic Value In equilibrium, a stock’s price should equal its “true” or intrinsic value. To the extent that investor perceptions are incorrect, a stock’s price in the short run may deviate from its intrinsic value. Ideally, managers should avoid actions that reduce intrinsic value, even if those decisions increase the stock price in the short run.

18 Conflicts Between Managers and Stockholders Managers are naturally inclined to act in their own best interests (which are not always the same as the interest of stockholders). But the following factors affect managerial behavior:  Managerial compensation plans  Direct intervention by shareholders  The threat of firing  The threat of takeover