1. 1 MN20211 Advanced Corporate Finance Revision Session

2. 2 Revision Session Course Overview The Investment Decision Risk and Return Debt and Equity and some Investment Mergers and Acquisitions Project Finance Run through major points and discuss types of questions that could come up

3. 3 Revision Session Investment Decision My Web, MN20211Capital Investment Decision 1.General - Ways to evaluate - NPV vs IRR - Scale and time and capital rationing

4. 4 Revision Session Capital Investment Decision NPV We have to look at all the relevant, incremental cash flows - Taxes/tax losses - Opportunity costs - Depreciation - Working capital - Cannibalisation - Opportunity cost - Terminal values

5. 5 Capital Investment Decision From Table 7.1 HomeNets Incremental Earnings Forecast (Spreadsheet)

6. 6 Capital investment Decision To Table 7.3 Calculation of HomeNets Free Cash Flow (Including Cannibalization and Lost Rent)

7. 7 Revision Session Capital Investment Decision Break even analysis Using the IRR to give a feel for the margin of safety ref the cost of capital Sensitivity analysis Scenario analysis

8. 8 Revision Session Applying the NPV rule MN20211 NPV2 1.WACC - Assumes you know the financing mix 2.Adjusted NPV - Work out the present value of the tax shield 3.Free Cash Flows to Equity - Deduct payments to debt holders and discount at cost of equity

9. 9 Revision Session Sort of Questions Numbers -From Earnings flow to incremental cash flow plus decision -WACC, APV, FTE Chatty - NPV vs IRR - Ways to gain confidence in numbers

10. 10 Revision Session Weighted Average Cost of Capital MN20211Risk and Return Cost of debt, Easy, well sort of Cost of Equity, Tricky - Expected return, Variance, Standard deviation, Portfolio, Capital Asset Pricing Model

11. 11 Revision Session Other models - Gordon Dividend Growth Model What is it? - Arbitrage Pricing Theory What is it? Weighted Average Cost of Capital

12. 12 Revision Session Weighted Average Cost of Capital Sorts of Questions Numbers Work out the WACC given numbers for the 1.CAPM - Know the equation, risk free, market premium, return on the market, beta etc 2. Gordon dividend growth

13. 13 Revision Session Weighted Average Cost of Capital 2. Gordon dividend growth Know the equation, share price, dividends, growth implied or given 3. After tax cost of debt

14. 14 Revision Session Chatty - What is CAPM? diversified/undiversified, systematic unsystematic, beta, covariance market portfolio etc - Discuss the various models Weighted Average Cost of Capital

15. 15 Revision Session Funding MN20211 Equity and debt, Debt/bonds and Investments 1. Equity and Debt. Mainly about equity after some brief revision. So -Sources and then focus on IPOs -Reasons for listing -Process for listing -Methods/mechanics of selling

16. 16 Revision Session Equity/IPOs -IPO puzzles Seasoned offerings - mechanics Sort of questions Mostly chatty i.e. process, puzzles etc could be numbers on rights issues

17. 17 Revision Session Bonds Very brief mainly mechanics Investments -Types and pitfalls of the ways in which yields may be calculated. -Sort of question. Mainly chatty e.g. what is? When would it be used? Criteria for investing? What pitfalls to watch out for?

18. 18 Revision Session Mergers and Acquisitions Definition Types of M&A Motivations for M&A - strategic etc, bootstrapping Do they work? Determinants of success Valuation Form of payment Defence - Pre, during and post bid Codes, rules and regs

19. 19 Revision Session Mergers and Acquisitions Sorts of questions Numbers could be bootstrapping or valuations but probably not detailed cash flows as per Be&DeM Chatty Types of/ motivation for Success or lack of it Defences

20. 20 Revision Session Project Finance MN20211Projectfinance and following files to Equity and debt. What is it? Why use it? Risks involved Process

21. 21 Revision Session Project Finance Risk analysis and risk sharing - Pre construction, construction and post construction Causes of failure Funding - the layers of debt * senior, subordinated, mezzanine etc features and advantages multi sourcing e.g. aid subsidies export guarantees etc

22. 22 Revision Session Project Finance Sorts of questions Chatty. What is it? Why? What risks involved in a project? Structure of financing Good Luck