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Corporation FinanceFI 3300 – Fall 2010Instructor - Ryan Williams
My informationRyan WilliamsEmail: rwilliams83@gsu.eduWebsite: myrobinson.gsu.edu, Ulearn,
http://www.ryanwilliams7.comOffice location: Alpharetta Center, 123DOffice phone:404-413-7769
OFFICE HOURS: Mondays and Wednesdays from 11:00am – 12:00pm
Today’s AgendaQuick summary of syllabusDiscussion of courseMy expectationsMath SkillsChapter 1 - Introduction
Syllabus – Important HighlightsAttendance policy – Department-wide!On this – you are allowed to miss two weeks of
class. That means only FOUR classes.I reserve the right to pass the attendance
sheet at any point in time.Exam 1 – 9/27/2010Exam 2 – 11/1/2010Final Exam – 12/11/2010 at 3:45-6:15
Grading PolicyTwo midterms: 25% eachOne Final Exam: 40%Quizzes: 6%Resume: 2%Problem Set: 2%
We will have 5 quizzes and I will drop the lowest 2. If you miss a class you will receive a 0% for the quiz.
TextsMain text: “Lectures in
Corporate Finance”, 5th ed., by Jayant Kale and Richard Fendler.
Optional: 12-week subscription to The Economist, cheap student rates. Go to http://www.economistacademic.com and use Faculty ID code 6105.
CalculatorTexas Instruments BA II Plus
HP also makes a version
Can use NO calculator with a memory
We have used calculators available for $20. First come, first serve. Contact Prof. Genna Brown gbrown@gsu.edu
Course OutlineSplit into 3 sections:
1) Blending Accounting and FinanceFinancial Statements, F.S. Analysis, Fin. Mngt
2) Valuation from an Investor’s point of viewTime value of money, valuing stocks, valuing
bonds
3) Valuation from a CFO’s point of viewCapital Budgeting
Classroom rulesCellphones OFF – If your phone rings, I get to
answer it. (Also true for me).
No texting. If I see you texting you will be asked to solve a problem on the board.
I prefer no laptops. However, if you take notes on the laptop, please sit near the back of the classroom so you do not distract students behind you.
Final words of wisdomThis class is hard, however:
You may have heard the class requires a lot of math formulas, but everything is based on ONE FORMULA – not much memorization
This class rewards thinking, not arithmetic.
Math Test
Chapter 1- IntroductionWhy are you here?
Learning Objectives1. Identify the three main subject areas in
finance2. Know the different forms of business
organization and discuss the agency problem
3. Define the goal of corporate financial management
4. Compare/contrast finance and accounting5. Understand how cash affects value
Why is finance important?A horrible product (usually) dooms a
business.
A great product is not enough - horrible financial management coupled with a great product (usually) also dooms a business.
3 subfields of financeFinancial markets and institutions (or Banking) =
Middleman
Investments = Surplus (they invest money in stock, bonds, and savings accounts)
Corporate Financial Management (or Corporate Finance) = Deficit (they take money from investors and buy stuff)
*Identifying, managing, and valuing risky cash flows is the goal of finance*
Basic forms of Business OrganizationSole proprietorship
Partnership
Corporation
Advantages/Disadvantages?
Ownership structuresType Ownership Ability to Raise
CapitalLiability
Sole Proprietorship
•100% owned by a single individual•Owner usually manages company
Difficult Unlimited personal liability
Partnership Two or more individuals
Less difficult than Sole Proprietorship
Similar to Sole Proprietorship
Corporation Typical separation of owners and managers
The least difficult of all forms
Limited to owner’s initial investment
Also taxation and liquidity differences
Agency ProblemGetting the agent (the person running the
business) to act in the interest of the principal (the shareholders who own the business).
Financial manager’s goalMaximize value of the firm.
Same as maximizing stock price.
NOT the same as “maximizing profits”. Why not?
She accomplishes this goal by two basic decisions: How to get money (raise capital), and what to do with it (real investment).
Accounting and FinanceAccounting USUALLY deals in Book Value (i.e. cost)
Finance USUALLY deals with Market Value (what someone would pay you for it today).
Accounting is historical data (annual reports, 10-K filings, etc).
Finance attempts to project future data – BUT YOU NEED TO UNDERSTAND ACCOUNTING TO DO THIS
Cash and ValueValue = all future expected cash flows
discounted by their riskiness (we will slightly refine this definition later).
CASH is the only thing that matters here! This may seem counterintuitive right now,
but should be more clear when we look at Stock Valuation in Chapter 9.
Class Summary – Why should you care?After the introductory accounting chapters,
this entire class is associated with VALUE.
Specifically, how to value a bond, a stock, or a new project for a company.
Next Monday:You owe me:
Resume, upload picture to MyRobinson
Prepare for Quiz 1: Introduction, Income Statement and Balance Sheet