Corporate Financial Management

 Course Administrative Overview
 Top 10 List
 What is corporate finance
 The goal of the firm
 10 Principles of Financial Management
 Things you should know from Chapter 1

 Textbook: Financial Management, Principles and Applications, 9 th Edition by Keown, Scott,
Petty, and Scott.
 Finance 254 Syllabus Book by yours truly in campus bookstores.
 Texas Instruments BAII Plus financial calculator

 Course Website: http://www.cba.uiuc.edu/~mdyer/fin254.htm
 Syllabus and Lecture Notes
 Assignments Posted Here
 Textbook Website: http://myphlip1.pearsoncmg.com/student
 Select Financial Management 9 th edition by
Keown

 Office: 328J DKH
 Telephone: 244-7807
 Office Hours:
 2-4 Monday & Wednesday
 1-3 Thursday
 e-mail: dyer1@uiuc.edu

TOP
10
LIST

 What is finance?
 The goal of the firm
 Advantages and disadvantages of different business organizations (in discussion)
 Sole proprietorship and partnerships
 Corporations
 How corporations raise money
 10 Principles of Financial Management

 In the simplest sense: involves what assets a company should invest in and how to raise cash to finance these investments in order to maintain and maximize economic value.
 Where does a company get cash to run and finance its business?

 The primary goal is shareholder wealth maximization.
 This means:
 Maximizing Firm Value (market price per share of common stock x number of outstanding shares)
 Maximizing stock price.

 Managerial decisions affecting:
 Expected cash flows.
 Timing of cash flows.
 Riskiness of cash flows.
 In other words, stock price = risk-adjusted present value of future expected cash flows.
 Financial managerial decisions include capital structure, dividend policy, working capital management, and investment strategies.

 Ignores timing of cash flows.
 Ignores risk (or uncertainty) of cash flows.

The Corporation and
Financial Markets
Corporation cash reinvest securities
Investors
Secondary markets
Cash flow dividends, etc. tax
Government

The Corporation and
Financial Markets
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 Market in which new issues of a security are sold to initial buyers.
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 Market in which previously issued securities are traded.

The Corporation and
Financial Markets
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The first time the firm’s stock is sold to the general public.
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 A new stock offering by a firm that already has stock that is traded in the secondary market.

Financial Management
Principles or Axioms
 1) Risk - return trade-off
 2) Time value of money
 3) Cash - not profits - is king
 4) Incremental cash flows count
 5) The curse of competitive markets
 6) Efficient capital markets
 7) The agency problem
 8) Taxes bias business decisions
 9) All risk is not equal
 10) Ethical dilemmas are everywhere in finance

 Finance is concerned with raising cash to invest in assets that are expected to generate future cash flows
 Net Present Value (NPV) = present value of future expected cash flows - initial outlay.
 A firm that follows the practice of investing in positive NPV assets will increase shareholder wealth & firm value.
 This idea ties together most of the 10
Principles or Axioms together neatly.


Grade Breakdown
420 points from 3 exams: 140 points each
(with optional final)
 31 multiple choice questions: 15 questions worth 4 points each, 16 problems worth 5 points each.
 Formula sheets will be given at the end of each exam.
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100 points from 4 homework sets
 posted on Website on Assignments Page
 1st assignment posted next week.
A few extra credit “pop” quizzes in discussion

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#1, Monday, Oct. 7 (Chapters 1, 14, 5, 6 & 7)
 7-9 pm, Conflict 3-5 pm
#2, Monday, Nov. 4 (Chapters 2, 3,4 & 8)
 7-9 pm, Conflict 3-5 pm
#3, Monday, Dec. 9 (Chapters 9, 10, 12 & 21)
 7-9 pm, Conflict 3-5 pm
Optional final exam dates:
 Wednesday, Dec. 18: 9-11 am
 Saturday, Dec. 21: 1:30-3:30 pm

 All are due in your
TA’s mailbox in 340
Wohlers Hall by 4 PM on the below dates and must be typed.
 Can be done in groups of four if all group members have the same TA.
 Name(s) and discussion section(s) must be typed on 1 st page with
NO cover page .
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Sept. 20 Homework 1
Due (25 points)
Sept. 27 Homework 2
Due (20 points)
Oct. 25 Homework 3
Due (25 points)
Nov. 22 Homework 4
Due (30 points)
Late assignments are accepted with 50% penalty through the following Wednesday.

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Textbook problems assigned in syllabus will not be graded, but you are responsible for knowing how to do them.
Solutions to all assigned textbook problems are in the back of syllabus.
Lecture Note Powerpoint files will be posted on the Fin 254 Website
Helpful textbook items: online study guide and questions at MyPhlip website. Register at http://myphlip1.pearsoncmg.com/