2. Corporate Financial Management WELCOME TO FINANCE 254

3. The First Day Agenda n Meet the Fin 254 “braintrust” n Course Administrative Overview n Top 10 List n What is corporate finance n The goal of the firm n 10 Principles of Financial Management n Things you should know from Chapter 1

4. The Finance 254 “Braintrust”  Lecturer/Coordinator: Prof. Mike Dyer  Teaching Assistants:  Fernanda Toros  Ronald Stauber  Taie Wang  Lisa Hewgill  Kangwoo Lee  Minqling Li  Martin Maurer  Seth Patel

5. Required Class Materials  Textbook: Financial Management, Principles and Applications, 9 th Edition by Keown, Scott, Petty, and Scott.  Finance 254 Syllabus Book by yours truly in campus bookstores.  Texas Instruments BAII Plus financial calculator ($5 rebate card at front of your book!)  Included with the textbook: 15-week Wall Street Journal (print and online versions) subscription. Follow the registration instructions from card wrapped outside the back cover of the textbook. The WSJ people will be here Wednesday.

6. Important Internet Addresses  Course Website: http://www.cba.uiuc.edu/~mdyer/fin 254.htm http://www.cba.uiuc.edu/~mdyer/fin 254.htm  Syllabus and Lecture Notes  Assignments Posted Here  Textbook Website: http://myphlip1.pearsoncmg.com/student http://m  Select Financial Management 9 th edition by Keown

7. Contacting Prof. Dyer n Office: 328J DKH n Telephone: 244-7807 (voice mail available) n Office Hours: u 3-5 Monday & Wednesday, and 1-3 Thursday u e-mail: dyer1@uiuc.edu n TA office hours will be announced this week

8. The Nitty Gritty Grade Breakdown n 420 points from 3 exams: 140 points each (with optional final) u 36 multiple choice questions: 15 questions worth 4 points each, 16 problems worth 5 points each. u Formula sheets will be given at the end of each exam. n 100 points from 4 homework sets u posted on Website on Assignments Page u 1st assignment posted next week.

9. Exam Dates n #1, Monday, Feb. 18 (Chapters 1, 14, 5, 6, & 2) u 7-9 pm, Conflict 3-5 pm n #2, Thursday, March 28* Change from syllabus book (Chapters 3,4, 7, & 8) u 7-9 pm, Conflict 3-5 pm n #3, Monday, April 29(Chapters 9, 10, 12, 21, & 22) u 7-9 pm, Conflict 3-5 pm n Optional final exam dates: u Saturday, May 4: 9-11 am u Wednesday, May 8: 1:30-3:30 pm

10. Assignment Due Dates  All are due in your TA’s mailbox in 340 Wohlers Hall by 4 PM on the below dates and must be typed.  Assignments 1 & 2 are 20 points each, and Assignment 3 & 4 are 30 points each.  Can be done in groups of four if all group members have the same TA. n Feb. 1 Homework 1 Due n Feb. 8 Homework 2 Due n Mar. 8 Homework 3 Due n Apr. 19 Homework 4 Due n Late assignments are accepted with 50% penalty through the following Wednesday.

11. Miscellaneous Items n Textbook problems assigned in syllabus will not be graded, but you are responsible for knowing how to do them. n Solutions to all assigned textbook problems are in the back of syllabus. n Lecture Note Powerpoint files will be posted on the Fin 254 Website in “Syllabus and Lecture Note” section generally prior to first lecture on a chapter. Helpful textbook items: online study guide and questions at MyPhlip website. Register at http://myphlip1.pearsoncmg.com/

12. TOP 10 LIST

13. Chapter 1 Things To Know n What is finance? n The goal of the firm n Advantages and disadvantages of different business organizations u Sole proprietorship and partnerships u Corporations u How corporations raise money (carries over into Chapter 14) u 10 Principles of Financial Management

14. What is Corporate Finance? n In the simplest sense: involves what assets a company should invest in and how to raise cash to finance these investments in order to maintain and maximize economic value. n Where does a company get cash to run and finance its business?

15. Goal of the Firm  The primary goal is shareholder wealth maximization.  This means:  Maximizing Firm Value (market price per share of common stock x number of outstanding shares)  Maximizing stock price.

16. What Determines Shareholder Value?  Managerial decisions affecting:  Expected cash flows.  Timing of cash flows.  Riskiness of cash flows.  In other words, stock price = risk-adjusted present value of future expected cash flows.  Financial managerial decisions include capital structure, dividend policy, working capital management, and investment strategies.

17. Why not Profit Maximization?  Ignores timing of cash flows.  Ignores risk (or uncertainty) of cash flows.

18. Financial Management Principles or Axioms  1) Risk - return trade-off  2) Time value of money  3) Cash - not profits - is king  4) Incremental cash flows count  5) The curse of competitive markets  6) Efficient capital markets  7) The agency problem  8) Taxes bias business decisions  9) All risk is not equal  10) Ethical dilemmas are everywhere in finance

19. Key Financial Decision Making Rule  Finance is concerned with raising cash to invest in assets that are expected to generate future cash flows  Net Present Value (NPV) = present value of future expected cash flows - initial outlay.  A firm that follows the practice of investing in positive NPV assets will increase shareholder wealth & firm value.  This idea ties together most of the 10 Principles or Axioms together neatly.