3 Finance Resources

Electronically available on Blackboard

Syllabus
Practice Problems (including solutions)
Available in Class
Lecture Notes

Well stay for the whole class time

Course Details
Readings
Textbook edition
WSJ

Financial Calculator
Grading
Exams

Slides vs. Lecture Notes

Course Details
TAs (We have three TAs)
BBAs that have done very well in the Class

Review sessions: Fridays (1 2:30)

Room (to be announced)
Office Hours Saturdays 10:30 12:00
Individual appointments (contact TAs by email)

I can be easily reached by email: lbenven@emory.edu

Make appointments
Ask simple questions

Attendance

Corporate Finance: an Example

Machine costs $100K
Annual Revenue $30k
Annual Cost
$15k
Net income
$15k
Profitable?
Think Economics!

Must consider the cost of capital!

What is Capital?
Financial Resources that are used over multiple periods

In example = $100k

How much will capital cost?

Measured as a rate of return (Depends on risk)
Is it enough to know that $15 (15%) > cost of capital?

Enough is measured by future payments

How to evaluate?

Corporate Finance Questions?

How much capital does (and will) the business need?
How is (should) the firm financed?- Debt, Equity (Capital Structure)?
What determines the Cost of each form of capital (leverage)
Are future cash flows sufficient to cover capital costs?
What is the market value of the firm?
(The present value of FUTURE CASH FLOWS)
How to evaluate a potentially new Project that requires additional capital?
New lines of business
Acquisitions

Objective is to maximize the value of the firm.

Sources of Capital Primary Markets

Debt

Friends, family, self

Intermediaries
Banks, Insurance Companies, Pension Funds
Investment bankers (bonds)
Public offering, Private Placement

Equity

Friends, families, self

Venture Capital
Investment Bankers
Initial Public Offering (Publicly traded - stock market)

Liquidity and Efficiency

Liquidity makes capital cheaper why?
Publicly traded Equity (most liquid form of long term
capital)
Secondary Markets Stock Exchanges
NYSE, NASDAQ
Efficiency makes capital cheaper-why
Subject to intense scrutiny and discipline by sophisticated
investors searching for potential gains.
Information is heavily monitored and regulated (SEC)

Legal Structures of Firms

Considerations
Governance and control
Taxes
Liability
Expected Life
Access to capital

Business Structures

Sole Proprietorship
Partnership
General or limited
Corporations

Goal of Financial Management

The goal of financial management is to maximize the
value of the firm
Managers decisions may also factor in the interest of
others
Stakeholders
someone other than a stockholder or creditor who potentially
has a claim on the cash flows of a firm.
Employees, customers, suppliers, government

Gravity Payments offers $70,000 minimum wage

The Principal Agent Problem

Separation of ownership and decision making
Agency theory (The challenge with delegating)
principals (owners)
agents (managers)
Managers may not always act in the best interest of owners
(Shareholders verses Boards of Directors)
Did Apple really need $200 billion of cash?
Agency costs
Direct : (luxurious corporate apartments and Jets)
Indirect: Monitoring costs and lost value
Activist Investors (used to be called Corporate Raiders)