Summary
Summary Advanced Corporate Financial Management (E_BA_ACFM)
- Course
- Institution
This summary is an extended version of ACFM lectures.
[Show more]
Seller
Follow
SophievA
Reviews received
Content preview
Week 1 - Lecture 1 - Value creation, financial statements, and from FS to CFs 3Part 1 - Value creation 3
Part 2 - Investment in Growth (MVA and EVA) 4
Part 3 - Financial Statements 8
Part 4 - From Financial Statements to CFs 16
Part 5 - Special topic: provisions or contingencies 17
Part 6 - Projections A 20
Week 1 - Lecture 2 22
Part 2.1 - Capital Budgeting 22
Part 2.2 - Alternative investment decision methods 29
Part 2.3 - Capital Asset Pricing Model (CAPM) 34
Part 2.4 - Real Options 36
Part 2.5 - Corporate Governance 36
Part 2.6 - Executive Compensation 38
Part 2.7 - Shareholder Voting 40
Part 2.8 - Shareholder vs Stakeholder view 44
Week 2 - Lecture 3 - Capital Structure and Valuation 46
Part 1 - Basics and MM1958 46
Part 2 - MM1963 48
Part 3 - WACC after and before tax; levered and unlevered betas 53
Part 4 - Costs of financial distress and Miller 1977 56
Week 2 - Lecture 4 - Capital Structure and Valuation 60
Part 1 - Agency theory, Jensen and Meckling 1976 60
Part 2 - Free Cash Flow theory, Jensen 1986 64
Part 3 - Pecking Order Theory, Myers 1984 and Myers and Majluf 1984 65
Part 4 - Shyam-Sunder and Myers 1999 66
Part 5 - Summary and Tips 66
Part 4.6 - Risky Debt 69
Part 4.7 - Risky Debt Problem solved 70
Week 3 - Lecture 5 - CAPM, build up method, APT and factor models 72
Part 5.1 - Capital Asset Pricing Model (CAPM) 72
Part 5.2 - CAPM and Build Up model 75
Part 5.3 - Arbitrage Pricing Theory [part 1] 79
Part 5.4 - Arbitrage Pricing Theory [part 2] 81
Part 5.5 - Arbitrage Pricing Theory [part 3] 85
Part 5.6 - ‘Best Practices’ in Estimating the Cost of Capital: an update 88
Week 3 - Lecture 6 - Payout Policy 90
Part 6.1 - Payout Policy and Dividend Irrelevance 90
Part 6.2 - Payout Policy and Taxation 93
1
, Part 6.3 - Payout vs Retention of Cash 96
Part 6.4 - Signalling with Payout Policy 98
Week 4 - Lecture 7 - Risk Management 101
Part 7.1 - Risk Management 101
Part 7.2 - Insurance 103
Part 7.3 - Hedging input price risk 105
Part 7.4 - Interest rate risk 106
Week 4 - Lecture 8 - Short-term Financial Planning 111
Part 8.1 - Working Capital Management 111
Part 8.2 - NWC component management 112
Part 8.3 - Cash and credit constraints 115
Part 8.4 - The Matching Principle 116
Week 5 - Lecture 9 & 10 - Issuance 118
Lecture 9/10.1 - Equity Issuance 118
Lecture 9/10.2 - IPO 123
Lecture 9/10.3 - IPO Puzzles 126
Lecture 9/10.4 - Venture capital 131
Lecture 9/10.5 - Debt issuance 134
Week 6 - Guest Lectures 138
Part 1 - Tuesday - Securitization 138
Part 2 146
2
,Week 1 - Lecture 1 - Value creation, financial statements, and from FS to CFs
Part 1 - Value creation
When does a project create value?
NPV > 0 → project creates value
NPV < 0 → project destroys
NPV = 0 → neither creation nor destruction of value
Economic Value Added (EVA) = that attempts to measure the true economic profit
produced by a company.
Market Value Added (MVA) = is simply the difference between the current total market
value of a company and the capital contributed by investors (including both shareholders
and bondholders). It is typically used for companies that are larger and publicly-traded.
In this example:
Project A:
MVA (Market Value Added) = 10 (value you get on the market with r)
EVA (Economic Value Added)= 11/1+r (value you get when investing)
NPV = -100 + 121/1.1 = +10
Market Value balance sheet: 110 = market value of assets
Book Value balance sheet: 100 = book value of assets
3
, Investors often look at the market-to-book value.
Project B: the share price will go down
You can have profitable projects but you still should not invest in it.
Only invest in projects which have a positive NPV.
Part 2 - Investment in Growth (MVA and EVA)
Market Value Added (MVA) and Economic Value Added (EVA)
Some other numerical examples (ignore taxes)
Value = Present value of the expected Free Cash Flows
Value = PV E(FCF)
The FCF is the CF that you can pay out each year to the providers of capital.
Special case: Value0 = FCF1 / (WACC – g)
The CF will never end so it is a perpetual.
Because of a ROI of 20%, the EBIT in year 1 is 100 (500 x 20%).
EVA year 1 = 100 - 0.12 + 500
MVA 0 = EVA1 / (WACC - g) = 40 / (0.12-0.05) = 571,43
ROIC = EBIT / Invested Capital = = 20%
Growth = ROIC x (Net investment / EBIT) = 20% x 25% = 5%
EBIT = Earnings before interest and taxes
Invested capital = Operating working capital + Net property, plant, and equipment + Other
assets
Question: What if the investment rate* is 40% instead of 25%?
What happens with the growth rate? → increases
What happens with the FCF in year 1? → decreases
What happens with the value of the firm?
* Investment rate = Net investment / EBIT
4
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller SophievA. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $5.88. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
50843 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now