MN10311 Corporate Finance and Investment Appraisal

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MN10311
Corporate Finance and
Investment Appraisal
or
Finance
1
The Course Tutor
•
•
•
•
Mr A N Birts, ACT Cert ICM, BSc, MBA
WH 8.56
[email protected]
To obtain course outline, copies of
overheads and seminar questions go to my
personal website
2
Finance
• What is the objective of the organisation?
- Make a profit?
- Supply goods and or services?
- Provide employment?
- Growth?
- Customer care?
- Environmental care?
3
Finance
• All of these but for finance there is one
objective and that is :To Maximise Shareholder Wealth
or
Where no shareholders, an equivalent in
terms of use of resources.
4
Finance
• Maximising Shareholders Wealth means
Maximising Share Price.
• Current Share Price Should Reflect All
Future Cash Flows Discounted At The
Appropriate Discount Rate
5
Finance
• Obstacles to maximising shareholders wealth.
- Stakeholders
* Directors
* Managers
* Workers
* Customers
* Suppliers
What are their objectives?
6
Finance
• How may these be controlled?
- Non Executive Directors?
- AGM?
- Published Accounts?
- Audit?
- The Market?
7
Finance
• Generalised Organisation
Finance Director
Controller
Accountant
Internal
External
Management
Reporting
Accounts, costing
(the city!)
Treasurer
Funding
Risk
Bank relations
8
Finance
• Simple Model of Value
Cash Flow
Cost of Capital = Current Value
(Required Return)
9
Finance
• Example
Assume constant cash flow forever of
100,000 pa
and required return of 10% (.10), then
investor would be willing to pay today
100,000 = 1,000,000
.10
10
Finance
• We may add value by increasing cash flow
e.g. 120,000 = 1,200,000
.10
How would we do this:as a company?
as financial managers?
11
Finance
• Or by reducing the required rate of return
E.g.
100,000 = 1,250,000
.08
As financial managers how may we do this?
12
Finance
Cash Flow
Discount Rate
CM
FX
Effect
Liquidity
Payables/
Receivables
Cost of Capital
Rated
Variability
Equity/Debt
Tighter
Ratios
Lower
Cost
P&L
Seasonality
Better
Trade
Credit
copyright anbirts
13
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