- Readings
- Videos
- Intro 1
- Course objectives
- To five you the capacity to understand the theory and apply, in real world situations, the techniques that have been developed in finance.
- To give you the big picture of finance so that you can understand how things fit together
- To show you that finance is fun
- Topics
- Financial statements
- Time value of money
- Bonds and stock valuation
- Risk and return
- Capital budgeting
- Course objectives
- Intro 2
- What is finance?
- The study or management of funds
- Two main branches of finance
- Investors
- Investors use stocks and bonds to finance corporations
- Corporate finance
- Corporations use these to finance investors
- Bonds: coupons (bond interest) + face value of bond
- Stocks: dividends, capital gains (stock appreciation)
- Corporations create value through financing by selecting projects
- capital budgeting: risk of project defines cost of capital and interest returned
- Corporations use these to finance investors
- Investors
- What is finance?
- Intro 1

- Cont
- Cont
- What is corporates finance?
- Financial activities related to running a corporation
- Capital budgeting
- What projects should we invest in and how much?
- Capital Structure
- How to raise the funds needed to the investment
- some mix of bonds/stocks/etc
- How to raise the funds needed to the investment
- Working capital management
- how do we manage the day-to-day finances of the firm
- What are investments?
- financial activities related to investments
- bond valuation
- how much should i pay for a bond
- stock valuation
- how much is a stock worth
- portfolio management
- what is the optimal mix of different types of assets
- we call these decisions investment decisions
- What is corporates finance?
- Cont
- Chapter 1
- Forms of business organization

- Cont
- Cont
- Forms of business organization
- Proprietorship
- Owned by one owner
- Easy to form
- Few regulations
- No corporate income taxes
- Difficult to raise capital
- Unlimited liability
- Unless set up as LLC/LLP
- Limited lifespan
- Partnership
- Owned by two or more people
- Easy to form
- Few regulations
- No corporate income taxes
- Difficult to raise capital
- Unlimited liability
- Unless set up as LLC/LLP
- Limited lifespan
- Corporation
- Owned by many shareholders
- Complex to form
- Many regulations
- Subject to corporate income taxes
- Easier to raise capital
- Limited liability
- Unlimited lifespan
- Easy transfer of ownership
- Double taxation
- Have to file financial reports
- Proprietorship
- Forms of business organization
- Creating value for investors
- Stock prices and intrinsic value
- In equilibrium, a stock’s price should equal its “true” or intrinsic value: present value of future cash flows
- Intrinsic value is a long-run concept
- 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
- Stock prices and intrinsic value
- Cont

- Cont
- Stockholder-manager conflicts
- Managers are naturally inclined to act in their own best interests (which are not always the same as the interests of stockholders)
- The following factors affect managerial behavior:
- Managerial compensation packages
- Direct intervention by shareholders
- The threat of firing
- The threat of takeover
- Stockholder-debtholder conflicts
- Stockholders are more likely to prefer riskier projects because they receive more of the upside if the project succeeds.
- Bondholders receive fixed payments and are more interested in limiting risk
- Bondholders are particularly concerned about the use of additional debt
- Bondholders attempt to protect themselves by including covenants in bond agreements that limit the use of additional debt and constrain managers’ actions
- Balancing shareholder interests and society interests
- Stockholder-manager conflicts
- Discussion
- Assignment