Welcome to Finance
221
Corporate Finance
1
The First Day/Week Agenda






Course Overview
Top 10 List
What is finance and corporate finance.
The goal of the firm
Stock Prices and Intrinsic Value
Agency Costs: Conflicts between managers
and shareholders (probably disc. section)
 Different forms of Business Organizations. (disc
sect)
2
Required Class Materials
 Textbook: Custom version of Fundamentals of
Financial Management, Concise 5th ed. by
Brigham & Houston with Aplia in bookstores or
purchase e-book and Aplia online at aplia.com
($70).
 I-clicker for class participation
 Texas Instruments BAII Plus financial calculator
 Optional: Spring 2007 Fin 221 Course Syllabus
book
3
Important Internet Addresses
 Course Website:
http://www.business.uiuc.edu/~mdyer/fin221.ht
m


Syllabus and Class Notes
Solutions to suggested textbook problems via UIUC
Compass
 Textbook website:
http://brigham.swlearning.com (choose Brigham
and Houston, Concise 5th ed. of Fundamentals
of Financial Management)
4
Contacting Prof. Dyer
 Office: 328J DKH
 Telephone: 244-7807
 Office Hours:


10:15-noon Monday & Wednesday and 1-3
Thursday
e-mail: dyer1@uiuc.edu
5
The Nitty Gritty
 Grade Breakdown: 500 total points
 Exams (400 points from 4 exams worth
100 points each) 25 multiple choice
questions worth 4 points each

Plus optional final exam to replace.
 100 points from online Aplia
assignments, class participation and
investment project
6
Aplia Online Assignments (70
points)
 17 assignments consisting of graded
assignments for each chapter (Chapter # title II)
and 4 assessment review assignments (basic
math, calculator, accounting, 7 statistics). See
details and due dates on Assignments &
Projects page of the course website.
 First two assignments: Chapter 1 II and
Mathematics II are due Jan. 28.
 You are allowed to drop 4 assignments and no
credit will be given after an assignment’s due
date deadline (11 PM Sundays). No answer
feedback is given on the graded assignments
until after the deadline.
7
Aplia Registration (also on
Assignments page of 221 website)
 Our course key is 9G8K-VUEP-348Z
 You can begin working on your homework
as soon as you register!





In this course, you will use a textbook and Aplia's
website.
You will save money if you buy these together.
You have two purchase options.
You will have free access to the first four chapters
of an online copy of your textbook at Aplia. You can
access the remaining online chapters as soon as
you submit a payment for your Aplia course.
Don't buy anything until you understand your
alternatives.
8
Aplia Registration Instructions
Registration Instructions
 1. Connect to http://www.aplia.com.
 2. Click the System Configuration Test link below the Sign In and
Register sections to make sure you can access all of the features on Aplia's
website. This takes just a few seconds and tells you how to update your
browser settings if necessary.
 3. Return to http://www.aplia.com.


• If you have never used Aplia before, click the New Student button and
enter your Course Key: 9G8K-VUEP-348Z. Continue following the
instructions to complete your registration.
• If you have used Aplia before, sign in with your usual e-mail address and
password and enter your Course Key when prompted: 9G8K-VUEP-348Z. If
you are not prompted for a new Course Key, click the Enter Course Key
button to enroll in a new Aplia course. Enter your Course Key when you are
prompted.
 4. If you understand your payment options, pay now. Otherwise, postpone
your purchase decision by choosing the option to pay later. Your payment
grace period ends at the end of the day on 02/06/2007.
9
Aplia Purchase Options
Option A: Pay Aplia Directly
 Purchase access to your course directly from Aplia on their website
for $70.00 USD. The website includes:


Access to an online copy of your textbook.
Content that has been customized for your textbook and course.
 However, if you try using the online textbook and decide you would
also like a physical textbook, you can order one from Aplia for
$50.00 USD plus $7.50 for shipping and handling.
Option B: Purchase at Bookstore
 Purchase a bundle from your school's bookstore, which includes:


An Aplia Access Card containing a Payment Code that you can
enter on Aplia's website as payment for your Aplia course.
A physical textbook.
10
Investment Project and Class
Participation
 The Investment Project (15 points) will be posted at mid-
semester on the Assignments and Projects Page of the
course website. It is due Apr. 13.
 Class participation via I-clicker is worth a maximum of 15
points. I will ask 15 to 20 multiple-choice questions
during the semester in lecture to be answered with your
I-clicker. Register your I-clicker at
http://www.iclicker.com/registration/ after answering
questions in lecture next week. Please use your UIUC
NetID as your student ID during this registration process.
 The last student to miss a question in each lecture
section will win a $150 Best Buy or Circuit City gift
certificate.
11
Miscellaneous Items
 Textbook problems assigned in syllabus
will not be graded, but you are
responsible for knowing how to do them.
 Solutions to these suggested problems
are given on the course website via
UIUC Compass and syllabus book.
12
TOP
10
LIST
13
What is Finance?
 Finance is primarily about making
investment decisions.
 To make these decisions, one must
determine value.
 What is the value of a stock, a bond, a
company, or a real asset?
14
What is Corporate Finance?
15
Goal of the Firm
 To maximize owner’s wealth.
 The common stockholders
(shareholders) are the owners of a
corporation.
 This means maximizing shareholder
wealth by maximizing stock price.
16
Factors that affect stock price
 Projected cash
flows to
shareholders
 Timing of the cash
flow stream
 Riskiness of the
cash flows
17
Responsibility of the Financial Staff
 Maximize stock value by:





Forecasting and planning
Investment and financing decisions
Coordination and control
Transactions in the financial markets
Managing risk
18
Reminder
 Bring your Iclicker and financial
calculator to lecture on Monday!
19
What determines Value?
 Timing and amount of expected future cash
flows, and
 The riskiness of these expected cash flows
which determines an investment’s interest rate
or required rate of return.
 Value equals the present (today’s) value of
these cash flows discounted at the required
return. This is known as intrinsic value.
 A good investment is one whose value exceeds
its market price.
20
Stock Prices and Intrinsic
Value
 In equilibrium, a stock’s price should equal its
“true” or intrinsic value.
 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.
21
Conflicts Between Managers and
Stockholders (Agency Costs)
 Managers are naturally inclined to act in their
own best interests (which are not always the
same as the interest of stockholders).
 But the following factors affect managerial
behavior:




Managerial compensation plans
Direct intervention by shareholders
The threat of firing
The threat of takeover
22