FINA 60013:
Management of Financial Resources
Fall 2007
About me
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Vassil Mihov
Ph.D. in Finance (Purdue)
Associate Professor (with tenure)
My research Interests:
– Corporate finance; Options markets
• Publications in the Journal of Finance, the
Journal of Financial Economics
• Won the Neeley School Teaching Award for
MBA core classes (2004), Mortar Board
Preferred Professor (2001,2002)
FINA 60013: Management of Financial Resources
Vassil Mihov
How to reach me
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E-mail: V.Mihov@TCU.edu
Office Phone: (817) 257-7147
Office: Tandy 384
Office hours: Mon. and Wed., 8-9 a.m.,
or whenever I am in the office.
FINA 60013: Management of Financial Resources
Vassil Mihov
Class Overview
• Core course in finance
• Focus:
– How do we value things?
 Value of financial instruments
(stocks, bonds)
 Value of “real” items: a sports car
 Value of a service: education
FINA 60013: Management of Financial Resources
Vassil Mihov
How much is B*nds’ home run #756 worth?
?
=
FINA 60013: Management of Financial Resources
Vassil Mihov
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
FINA 60013: Management of Financial Resources
Vassil Mihov
Readings for the Course
• Required Text:
Berk and DeMarzo, Corporate
Finance, First Edition
FINA 60013: Management of Financial Resources
Vassil Mihov
Other Sources
• The Wall Street Journal
Premier source for news and analysis
You already subscribe!
• Financial sites online:
Finance.yahoo.com
moneycentral.msn.com
wrds.wharton.upenn.edu
• Bloomberg
FINA 60013: Management of Financial Resources
Vassil Mihov
Useful tools
• Excel
• Calculators will help you a great deal:
– Required capabilities: Time Value of Money and Net
Present Value Worksheets
– Texas Instruments BA II Plus or HP 10 B
– HP 17B or HP19B (advanced)
FINA 60013: Management of Financial Resources
Vassil Mihov
What you are expected to do:
• Come to class!
• Be enthusiastic
• Read the assigned chapters and/or the notes in
advance:
– 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
FINA 60013: Management of Financial Resources
Vassil Mihov
Grades:
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Participation
Homework Assignments
Midterm Exam (Oct. 8)
Final Exam
Integrative Project
FINA 60013: Management of Financial Resources
10% (100 points)
25% (250 points)
25% (250 points)
30% (300 points)
10% (100 points)
Vassil Mihov
Participation
• 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
FINA 60013: Management of Financial Resources
Vassil Mihov
Let’s switch positions for a moment:
• Briefly describe your expectations from this class
(for example, list what would make this class an
enjoyable experience for yourself and your
colleagues)
FINA 60013: Management of Financial Resources
Vassil Mihov
Today’s Topic
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What is finance about?
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Corporate Finance and the Financial Manager
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The Corporation and Its Environment
– Separation of Ownership and Management
– Financial Markets
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The Goal of the Firm
FINA 60013: Management of Financial Resources
Vassil Mihov
The subject of finance
• How do we value things?
FINA 60013: Management of Financial Resources
Vassil Mihov
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
FINA 60013: Management of Financial Resources
Vassil Mihov
Role of Financial Management
• Investment Decisions
– Where to invest?
• Financial Decisions
– How to finance investments?
 Stocks, Bonds, Private vs. Public
Placements
FINA 60013: Management of Financial Resources
Vassil Mihov
The View of the Firm as a Nexus of Contracts
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The view of the firm as a collection of contracts:
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owners
managers
employees
suppliers
customers
communities
The agency relationship
FINA 60013: Management of Financial Resources
Vassil Mihov
Agency Conflicts between
Managers and Shareholders
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Will managers work in the shareholders’ best
interests or pursue their own interests?
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Factors that align managers’ and shareholders
objectives:
– ownership by management
– compensation for performances (bonuses,
stock options)
– threat of dismissal
FINA 60013: Management of Financial Resources
Vassil Mihov
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
decisions)
• How do these mechanisms differ across countries, cultures,
and legal systems?
FINA 60013: Management of Financial Resources
Vassil Mihov