Corporate Finance: MBAC 6060

Course Introduction
Corporate Finance
Corporate Finance Decisions
Financial analysis and planning.
Assess the strengths and weaknesses of
the firm via the Financial Statements, ratio
analysis, and common sized financial
Pro forma financial statements.
 Cash flow for valuation.
Corporate Finance Decisions
Capital budgeting.
Decisions that involve what fixed assets
the firm should acquire.
 “Investment” or “Left-hand side” decisions.
The value of any asset is a function of:
 Size of its future cash flows.
 Timing of its future cash flows.
 Risk of its future cash flows.
How do we make an investment decision?
Corporate Finance Decisions
Capital structure.
Decisions that determine how to raise $ to buy
 Financing or “Right-hand side” decisions. (Liabs + Eqty).
Capital structure: blend of debt and equity to
finance firm’s portfolio of assets used to operate
the business. (Goal: minimize total financing cost.
Financial claims of a firm are contingent claims,
their value derives solely from “left-hand side” of
firm. (Assets)
Dividend decision part of this?
Corporate Finance Decisions
Risk versus return.
An important and difficult question is exactly how
to measure risk.
Once have handle on measuring risk, need to
explain how measured risk relates to required or
expected returns.
Corporate Finance Decisions
Working capital management.
Subset of investment and financing
decisions of the firm.
 Both sides of B/S affected.
 Focuses on current assets and liabilities.
Net working capital is an asset that must
be financed from some source of funds.
 It is an easy and dangerous thing to lose
control of.
Valuation Basics
Assets currently have value due to the future
“value” (CFs) provided to those who buy
The price you are willing to pay for an asset
depends upon value received from owning it.
Timing matters – a concept called “time value
of money.”