1. Corporate Finance MGT 535 Course Overview

2. Course Contents What Is A Corporation? – All large and medium-sized businesses are organized as corporations. The Role of The Financial Manager – Capital Budgeting vs Financing Decision. Who Is The Financial Manager? – Anyone responsible for a significant investment or financing decisions.

3. Continue Separation of Ownership and Management – Who has the power? Financial Markets – First hand vs Second hand Present Value (PV) – A dollar today is worth more than a dollar tomorrow.

4. Continue Net Present Value (NPV) – NPV = PV – INV NPV Rule – Accept the project that makes a net contribution to value. Rate Of Return Rule – Rate of Return is > Cost of Capital 11/16/2014Instructor: Mr. Wajid Shakeel Ahmed

5. Continue Opportunity Cost of Capital – Rate of an Alternative investment opportunity having a similar risk. Investment vs. Consumption – Manager finds it difficult to reconcile the different objectives of the shareholders. 11/16/2014Instructor: Mr. Wajid Shakeel Ahmed

6. Continue Calculations of NPV & ROR – Rule Game Managers and the Interests of Shareholders Do managers really looking after the interests of shareholders? Fundamental Study Result

7. Continue Valuing Long-Lived Assets – What is the theory of valuation? – PV value Rule – DCF PV Calculation Short Cuts – Annuity – Perpetuity Numeric Examples

8. Continue How To Value Common Stock – Capital Markets – Future Payoffs Valuing Common Stock – DCF – Continuous Growth Capitalization Rates – Dividend Yied

9. Continue Returns Measurements – EPS; P\E – Growth Opportunity – Growth Stock vs NO Growth Stock FCF and PV – Theoretical basis – Practical implication

10. Continue NPV and its competitors – The payback Period – The book rate of return – Internal rate of return – Profitability Index Internal Rate of Return – Pitfalls of IRR

11. Continue What To Discount – Why Cash Flow – Inflation – Incremental Cash Flows Case: IM&C Project – Depreciation vs. Tax rate effect Project Analysis

12. Continue Project Analysis Project Interaction – Equivalent Annual Cost – Replacement – Project Interaction – Timing – Fluctuating Load Factors

13. Continue 75 Years of Capital Market History – Relationship between risk and returns – Why to have historical data Measuring Risk – Variability measures Risk Premium – How to determine it?

14. Continue Measuring Portfolio Risk – Stocks return and risk – Coin game vs Stock market investment Measuring Risk Variability – Probability – Past events Unique Risk vs Market Risk – Diversification

15. Continue Portfolio Risk – Correlation coefficient Market Risk Is Measured by Beta – Why Beta? Beta as a Portfolio Risk Measurement – Interpretation – Understanding

16. Continue Markowitz Portfolio Theory – CAPM – Birth of Portfolio Theory Risk and Return Relationship – Rules Efficient Portfolio – Best Choice

17. Continue Borrowing & Lending Efficient Frontier Security Market Line CAPM Validity of CAPM Testing the CAPM

18. Continue Value Vs Growth Stock – Modified Beta Standard vs Consumption CAPM – Modified version of CAPM Asset Pricing Model – Macroeconomic Factors Three Factor Model – Size vs Book to market

19. Continue Qualification of Statements. Examples. Numerical – CAPM – APT – Three Factors Model

20. Continue Company and Project Costs of Capital – Rule of Thumb – Similarity of risks of new project Beta As a Proxy – General Motors – Exxon Mobil – Dell Computers – Industry

21. Continue Capital structure and COC – Perfect Pitch – Capital Structure and COC Measuring the Cost of Equity – Effect on the Beta Capital structure and Discount rate

22. Continue Discount Rates for International Projects – International Risk – In the absence of Beta Asset Beta – Example Risk, DCF and CEQ – Example

23. Continue Look First To Market Values. – Why Markets are important? Case 1: Departmental Store – How to evaluate an investment – Rents vs Income Example: Pricing a Gold – Who priced it?

24. Continue Case 2: Gold Mine – Consult the Market – Credit Worthy Buyer – Fixed Price Markets Forecasting Economic Rents – Competitive advantages

25. Continue Avoiding $100 M Mistake – Simplified Spread Analysis – Competitive Spread Analysis Case: Marvin Enterprises – Conclusion 1 st – Conclusion 2 nd – Conclusion 3 rd

26. Continue Conclusion 4 th Conclusion 5 th Lessons of Marvin Enterprises

27. Continue The capital investment process Project Authorization Off Budget Expenditure Decision Makers and Information