The American Competitvness in the 21 Century Act (“AC 21”) and

FINA 30153:
Financial Management
Neeley Fellows Program
Fall 2009
Class Overview
• Core course in finance
• Focus:
– How do we value things?
 Value of financial instruments
(stocks, bonds)
 Value of a service: education
 Valuation in politics, social issues,
Course Topics
• Opportunity Cost of Capital and
Discounted Cash Flow Valuation
• Capital Budgeting
• Risk and Return
• Capital Structure and Payout Policies
• Corporate Governance and Control
Readings for the Course
• Required Text:
Berk and DeMarzo, Corporate
Finance, First Edition
Other Sources
• The Wall Street Journal
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• Financial sites online:
• Bloomberg
Useful tools
• Excel
• Calculators will help you a great deal:
– Required capabilities: Time Value of Money and Net
Present Value Worksheets
• I recommend:
– Texas Instruments BA II Plus or HP 10 B
– HP 17B or HP19B (advanced)
What you are expected to do:
• Come to class!
• Be enthusiastic
• Read the assigned chapters and/or the notes in
– Be prepared to discuss the problems and
chapter concepts, or to address comments by
your classmates or the instructor
• Turn in the homework assignments on time
• Keep up with the financial news
Homework Assignments
Midterm Exam (Oct. 20)
Final Exam
15% (150 points)
25% (250 points)
5% ( 50 points)
25% (250 points)
30% (300 points)
• Be prepared to discuss problems and chapter
concepts in class
• The point of class the discussions are to arrive at
the right answer -- you do not need to have the
right answer to contribute to the discussion!
• Do volunteer to ASK and answer questions -that way you contribute not only to your own
learning, but to the quality of the learning
process of the others as well
Today’s Topic
What is finance about?
Corporate Finance and the Financial Manager
The Corporation and Its Environment
– Separation of Ownership and Management
– Financial Markets
The Goal of the Firm
The subject of finance
• How do we value things?
A general valuation approach
• Identify the cash flows that the asset generates
over its life
• Find what these cash flows are worth today
• Adjust for complications like taxes, possibility of
default (bankruptcy)
• Compare the today’s value of the cash flows to
the initial cost of the asset
Role of Financial Management
• Investment Decisions
– Where to invest?
• Financial Decisions
– How to finance investments?
 Stocks, Bonds, Private vs. Public
The View of the Firm as a Nexus of Contracts
The view of the firm as a collection of contracts:
The agency relationship
Agency Conflicts between
Managers and Shareholders
Will managers work in the shareholders’ best
interests or pursue their own interests?
Factors that align managers’ and shareholders
– ownership by management
– compensation for performances (bonuses,
stock options)
– threat of dismissal
Corporate Governance and Control
• Corporate control -- the power to make investment and
financing decisions.
• Corporate governance – the mechanisms in place that help
insure that shareholders get any return on their investment
(the role of the Board of Directors, shareholder voting, proxy
fights, actions taken by shareholders to influence corporate
• How do these mechanisms differ across countries, cultures,
and legal systems?