Principles of Corporate Finance
Today:
Syllabus and Introduction
For This Course You Need to
Have:
1. The textbook – Lasher. Buy a used book. Order on-line if cheap. I
have pdf files of the first few chapters if you don’t have your
book yet.
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For This Course You Need to
Have:
2. A financial calculator
• HP 10-Bii or HP 10-Bii+ . You have time to
order it on-line.
• The calculator needs to do IRR (the most
basic TI does not)
• Textbook letter and Links on website
• Other models of calculators do more than
we need but are OK
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Syllabus and Website
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Hand out syllabus
Contact information
Exam dates
Get out of the final with a 93%
Term Project dates
Attendance policy
Grading weights
Office hours
Website
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Expectations
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Buy a book and calculator
Come to class: be engaged and ask questions
Do assignments
Keep up/study for tests
Pretend that you LOVE Finance
We are what we pretend to be, so we must be
careful what we pretend to be.
Kurt Vonnegut, Mother Night
US novelist (1922 - 2007)
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Assignments
• Go to the course web site :
• http://www.agecon.purdue.edu/academic/agec424/index2.html
• At this site you can download:
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Lecture PowerPoint slides
Assignments/schedule
Spreadsheet templates
Term project information
Lab information
Grades
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What is going on in my life this
semester?
• Teaching AGEC 424 and supervising graduate students
• Teach 2nd - 3rd grade Sunday School class at Saint Andrew
United Methodist Church
• Dealing with my wood hobby/business
• Parenting two daughters (college freshman/sophomore)
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This first week in AGEC 424
• Read Chapter 1.
• Read Chapter 2. Accounting review is covered with via a set of
test-type questions in lab this week.
• Relationship to MGMT 200/AGEC 311
• We will start Chapter 3 as soon as Fri. or Mon.
• Commentary on “reading” the chapters
• Assignments and HW due dates listed on web site
• Don’t make yourself take the final because you didn’t do the
homework
• Bring your book and a calculator to lab this week
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Chapter AFN. Additional funds needed and part of Ch. 13
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The Price of Securities—A Link Between the
Firm and the Market
• Investors buy securities (stock and bonds) for the
future cash flows expected from them
• Price investors are willing to pay depends on
expectations of how well the companies are likely to
do (present value of future cash flows expected)
• Link between company management and
investors comes from this relationship between
price and expected financial results
• Everything firm does is evaluated by market and
‘graded’ by either an increase, decrease, or no change
in security price
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Alternative Forms of
Business Organization:
• Sole proprietorship
• Partnership
• Corporation
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Corporation:
 Advantages:
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Unlimited life
Easy transfer of ownership
Limited liability
Ease of raising capital
 Disadvantages:
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Double taxation
Cost of set-up and report filing
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What are shares of Stock?
• Equity
• = Stock (Par Value & surplus) + retained earnings
plus/minus a few other items
• A = L + OE
• “book” versus market value
• Book value of equity (per share) =
(Owners Equity)/#shares
• Why would stock be worth more (or less) than Book
Value?
• Publicly traded versus Privately held
• Reporting requirements
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Goal of the Corporation:
• The primary goal is shareholder
wealth maximization, which
translates to maximizing stock price.
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Factors Influenced by Managers
that Affect Stock Price:
• Projected earnings per share
• Timing of the earnings stream
• Riskiness of the earnings stream
• Use of debt (capital structure)
• Dividend policy
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