Finance (Basic) Ludek Benada Department of Finance Office 533

Slides:

Advertisements

Similar presentations

Cost of Capital Rate of return required by firm’s investors

Advertisements

29 April 2015Project Evaluation1 1. Fundamentals Decision Making, Cost Theory, Break Even Analysis, Financial Statements, Financial Ratios, Time Value.

01 May 2015Profitability Assessment1 1. Fundamentals Decision Making, Cost Theory, Break Even Analysis, Financial Statements, Financial Ratios, Time Value.

Session 9 Topics to be covered: –Debt Policy –Capital Structure –Modigliani-Miller Propositions.

How Much Should a Corporation Borrow?

Chapter 2 - Understanding Financial Statements, Taxes, and Cash Flows  2005, Pearson Prentice Hall.

Dividend policy Concepts and exemplification Objective Understand the role of dividend policy in the context of the firm’s overall financial policy.

Stocks and Their Valuation Chapter 10  Features of Common Stock  Determining Common Stock Values  Preferred Stock 10-1.

Alternative Valuation Tools - EVA1 Alternative Valuation Techniques Economic Value Added (EVA)

Capital Structure Decision

Overview of Finance 520.

Finance and the Financial Manager Chapter 1. Topics Covered  What Is A Corporation?  The Role of The Financial Manager  Who Is The Financial Manager?

Business Organization and Financial markets Some basic concepts Financial management: Lecture 2.

Chapter 12 Capital Structure  Quick Review of Capital Markets  Benefits of Borrowing  Pecking Order Hypothesis  Modigliani and Miller Optimal Capital.

Introduction to Finance Department of Finance and Operations Management Instructor :Martha Edith Bellini Pg. 1 INDEX 1. Finance Overview. 2. Defining Finance.

Introduction to Financial Management

FIN301 FUNDAMENTALS OF FINANCIAL MANAGEMENT

16- 1 McGraw Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved Fundamentals of Corporate Finance Sixth Edition Richard.

The Weighted Average Cost of Capital (WACC). WACC What precisely do the terms “cost of capital” and “weighted average cost of capital” mean? To begin,

> > > > Financing and Investing Through Securities Markets Chapter 18.

FIN 614: Financial Management Larry Schrenk, Instructor.

CHAPTER 1 Introduction to Corporate Finance 1. Why Study Finance? Marketing Budgets, marketing research, marketing financial products. Accounting Dual.

Discounted Cash Flow (DCF) Analysis Tutorial This presentation is to be used ONLY as a template for DCF Analysis presentations. In no way should it reflect.

Steve Paulone Facilitator Sources of capital  Two basic sources – stocks (equity – both common and preferred) and debt (loans or bonds)  Capital buys.

Capital Budgeting

THE FOUNDATIONS OF CORPORATE FINANCE: INTRODUCTION TO THE FINANCIAL STATEMENTS Lesson 1 Castellanza, 21 st September, 2011 Corporate Finance.

Chapter 15 Debt Policy Fundamentals of Corporate Finance Fifth Edition

How MUCH Should A CORPORATION BORROW?

The McGraw-Hill Companies, Inc., 2000

Capital Structure.

How MUCH Should A CORPORATION BORROW?

CORPORATE FINANCE VI ESCP-EAP - European Executive MBA

FINANCIAL MANAGEMENT Variables Affecting System Behavior SYSTEM Leadership Sources.

Weighted Average Cost of Capital

Chapter 2- Capital Structure Determination. After studying this chapter, you should be able to: Define “capital structure.” Explain the net operating.

FUNDAMENTALS OF CORPORATE FINANCE MGF301 Fall 1998 Vigdis Boasson SUNY at Buffalo

Chapter 2 - Understanding Financial Statements, Taxes, and Cash Flows 09/02/08.

FIN 351: lecture 12 The Capital Structure Decision MM propositions.

1 Contemporary Corporate Finance, 11th Edition ©2009 South-Western/Cengage By McGuigan, Kretlow, and Moyer Prepared by Rand Martin Bloomsburg University.

Chapter 18 Principles PrinciplesofCorporateFinance Tenth Edition How Much Should A Corporation Borrow? Slides by Matthew Will Copyright © 2010 by The McGraw-Hill.

1 THE INTERNAL RATE OF RETURN (IRR) is the discount rate that forces the NPV of the project to zero.

Exam 1 Review 09/23/2008. Goal of the Firm Shareholder Wealth Maximization? this is the same as: a) Maximizing Firm Value b) Maximizing Stock Price.

1 Topics in Chapter 16: Capital Structure Business risk & financial risk Impact of financial leverage on returns Analyzing alternative capital structures.

Intro to Financial Management Equities. Review Homework Types of bonds Bond risks Bond valuation.

1-0 Corporate Finance 1.1 Some important questions that are answered using finance What long-term investments should the firm take on? Where will we get.

Chapter 18 Principles of Corporate Finance Eighth Edition How Much Should a Firm Borrow? Slides by Matthew Will Copyright © 2006 by The McGraw-Hill Companies,

Finance and the Financial Manager. “Any legal economic activity to earn profit is called business.” Kinds of Business:  Manufacturing Business  Services.

FUNDAMENTALS OF CORPORATE FINANCE saklviTüal½yCatiRKb;RK g National University of Management mUldæanRKwHén hirBaØvtßúsaCIvk mµ

Investment in Long term Securities Investment in Stocks.

1 Chapter 7 Accounting for Financial Management. 2 What is free cash flow (FCF)? Why is it important? FCF is the amount of cash available from operations.

101 EXAMPLE, Historical Weights, using Market Value Weights In addition to the data from Ex. 10.7, assume that the security market prices are as follows:

ALL RIGHTS RESERVED No part of this document may be reproduced without written approval from Limkokwing University of Creative Technology 1-1 Chapter 10.

Goals and Governance of the Firm

Financial Management Chapter 17.

6- 1 Outline 6: Capital Structure 6.1 Debt and Value in a Tax Free Economy 6.2 Capital Structure and Corporate Taxes 6.3 Cost of Financial Distress 6.4.

1 The Cost of Capital Corporate Finance Dr. A. DeMaskey.

Financial Management Decisions n Investment: What assets to own? n Financing: How to pay for those assets? n Dividend: What to do with Net Income?

1- 1 CURRICULUM  Introduction: goal of the firm  Financial markets and institutions, accounting and finance  Measuring corporate performance  Long-term.

FIA Technical Workshop March 2015 Prepared by Yih Pin Tang.

MODIGLIANI – MILLER THEOREM ANASTASIIA TISETSKA. AGENDA:  MODIGLIANI–MILLER I – LEVERAGE, ARBITRAGE AND FIRM VALUE  MODIGLIANI–MILLER II – LEVERAGE,

16- 1 McGraw Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved Fundamentals of Corporate Finance Chapter 16 McGraw Hill/Irwin.

Chapter 12 Fundamentals of Corporate Finance Fifth Edition Slides by Matthew Will McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc.

Cost of debt = Interest Payments. Debts are the borrowing which company takes to finance the company therefore they have to pay interest on those borrowing.

Financial terminologies

Fundamentals of Corporate Finance

Capital Structure Debt versus Equity.

Chapter 2 - Understanding Financial Statements, Taxes, and Cash Flows

The composition of long-term finance used by the firm

Introduction & Terminology

Presentation transcript:

Finance (Basic) Ludek Benada Department of Finance Office 533 75970@mail.muni.cz

Corporate Finance Corporation – Stock holders Closely held Public Companies

Financial Manager The role of FM: Investment decision Financing decision FM is a person responsible for a significant investment or financing decision

Chief Financial Officer Senior Financial managers in large corporations Chief Financial Officer (CFO) Treasurer Controller

Flow of Cash between FMs and the Firm's Operations (a bundle of real assets) 2 Financial manager 1 Financial Markets (investors holding financial assets) 4a 3 4b 1... 2... 3... 4a... 4a...

The main objective of Financial Management ..to maximize the Shareholders Value!

The Financing Decision Capital structure: Equity (stock, re) Debt (loan, bond, rd) Hybrid securities

The Optimal Capital Structure MM (irrelevance of CS) Trade-off theory (tax benefit, bankruptcy costs) Pecking order theory (priority in capital sources)

WACC

The Dividend Policy Free Cash Flow (surplus cash) Dividend Clienteles (different client preferences) Information Signaling (future development)

Working Capital Policy WC = Current Assets – Current Liabilities Criterias for WC-Management: Liquidity (CF) Profitability (ROC)

Working Capital Management Cash Management Inventory Management Debtor Management Short-term Financing

Estimating Value of Project The Investment Decision Capital allocation Estimating Value of Project (Future CF) Capital Budgeting

Project Valuation DCF PV NPV

Other Methods for Valuating a Project The Payback Period IRR MIRR

Example for valuating a project Decide which project is preferable for investors. The initial costs of investment for the project A are $ 90,000.00, and in the fourth year it is required to pay the repairing costs of $ 30,000.00. Project implementation is planned for five years with the generation of the following cash flows after one year: $ 10,000.00, $ 17,000.00, $ 34,000.00, $ 41,000.00, $ 38,000.00. All cash flows are definite. Furthermore, it is known, that the price of the foreign capital is 6%, and shareholders require interest at minimal rate of 7,5%. The total debt is up to 70% in the capital structure. The project B has the following structure of investments: $ 10,000.00 as initial costs and $2,000.00 as annual additional costs. Estimated life of the project is 3 years. Project might generate different payoff: $ 2,000.00, $ 3,000.00, $ 7,000.00 with 30% probability, $ 4,000.00, $ 6,000.00, $ 9,000.00 with 50% probability, and $ 5,000.00, $7,000.00, $ 10,000.00 with 20% probability. The inclusion of income tax (15%) into the calculations is required.

Thank you for your attention