Summary
Summary + class notes + class exercises corporate finance
- Module
- Institution
- Book
Summary class notes book Based on the book: "Principles of corporate finance" - Brealey, Myers, Allen (12th edition)
[Show more]
Connected book
Book Title:
Author(s):
- Edition:
- ISBN:
- Edition:
More summaries for
-
Principles of Corporate Finance COMPLETE Solution manual - edition 12 - CH16 - CH20 &27 (Brealey, Myers,)
-
Principles of Corporate Finance druk 12 - Complete Minicase Solutions (Complete Minicase solutions 12th editions)
-
Principles of Corporate Finance COMPLETE uitwerkingen 12e druk H1 T/M H33 ( Complete Book solutions 12th edition CH1 - CH33 ; Brealey, Myers,)
1 review
By: frederique0202 • 4 year ago
Seller
Follow
bosmanssien
Reviews received
Content preview
CORPORATE FINANCEBridging program MBA 2019-2020
Dr. Alain Praet
[E-mailadres]
,Part 1: Value.................................................................................................................................... 8
Chapter 1 – introduction to corporate finance ................................................................................. 8
1. Corporate investment and financing decisions ...............................................................................8
1.1. Investment decisions ...............................................................................................................9
1.2. Financing decisions ..................................................................................................................9
1.2.1. Exercises ........................................................................................................................................ 10
1.3. What is a corporation? ..........................................................................................................11
1.3.1. Types of corporations (3) .............................................................................................................. 11
1.3.2. Disadvantages of being a corporation .......................................................................................... 12
1.4. Role of the financial manager ................................................................................................12
2. The financial goal of the corporation ............................................................................................13
2.1. Shareholders want managers to maximize market value......................................................13
2.1.1. Profit maximization ............................................................................................................13
2.1.2. Shareholders want three things .................................................................................................... 13
2.1.3. The investment trade-off .............................................................................................................. 14
3. Agency problem ............................................................................................................................14
3.1. Agency cost ............................................................................................................................14
3.2. Solutions for the agency problem (6) ....................................................................................15
4. Summary .......................................................................................................................................16
Chapter 2 – How to calculate present values ................................................................................. 17
1. Future values and present values ..................................................................................................17
1.1. Future values .........................................................................................................................17
1.2. Present value .........................................................................................................................18
1.2.1. The single period case ................................................................................................................... 18
1.2.2. Valuing an investment opportunity ....................................................................................19
1.2.3. Advantage of using present values ............................................................................................... 20
1.2.4. Risk and present value .................................................................................................................. 20
1.3. Net Present Value ..................................................................................................................20
1.3.1. Present value rules ........................................................................................................................ 21
1.4. Multiple cash flows ................................................................................................................21
1.4.1. Example ......................................................................................................................................... 21
2. Looking for shortcuts – perpetuities and annuities .......................................................................22
2.1. Perpetuity ..............................................................................................................................22
2.1.1. Example (slide 24) ......................................................................................................................... 22
2.2. Annuity ..................................................................................................................................23
2.2.1. PVAF .............................................................................................................................................. 24
2.2.2. Valuing annuities due .................................................................................................................... 24
3. More shortcuts – growing perpetuities & annuities......................................................................24
3.1. Constant growth perpetuity ..................................................................................................24
3.2. Growing annuity ....................................................................................................................25
3.3. PV summary ...........................................................................................................................25
4. How interest is paid and quoted ...................................................................................................25
4.1. EAR & APR ..............................................................................................................................25
5. Summary .......................................................................................................................................26
Chapter 3 – Valuing bonds ............................................................................................................. 27
1. Bonds Terminology........................................................................................................................27
2. Valuing a bond ..............................................................................................................................28
2.1. Semi-annual coupons and bond prices ..................................................................................29
2.2. Valuing a bond as an annuity .................................................................................................29
2.3. Financial calculators ..............................................................................................................30
2.4. Bond rates of return ..............................................................................................................30
2 CORPORATE FINANCE | Bridging program MBA 2019-2020
, 3. Maturity and prices .......................................................................................................................31
3.1. General rules .........................................................................................................................32
3.2. Duration and volatility ...........................................................................................................32
3.2.1. Duration ........................................................................................................................................ 32
3.2.2. Volatility ........................................................................................................................................ 32
3.2.3. duration – general rules ................................................................................................................ 33
4. Term structure of interest rates ....................................................................................................34
4.1. Terminology ...........................................................................................................................34
4.2. Spot rates, bond prices and the law of one price ..................................................................35
4.3. Measuring the term structure ...............................................................................................35
4.4. Why the discount factor declines as futurity increases .........................................................35
4.4. Explaining term structure ......................................................................................................35
4.4.1. Expectations theory of the term structure ................................................................................... 36
4.4.2. Introducing risk ............................................................................................................................. 36
4.4.3. Inflation and term structure ......................................................................................................... 36
5. Real and nominal interest rates ....................................................................................................37
5.1. Index to track the general level of prices ..............................................................................37
5.2. Interest rates and inflation ....................................................................................................37
5.3. Indexed bonds and the real rate of interest ..........................................................................38
5.4. What determines the real rate of interest?...........................................................................38
5.5. Inflation and nominal interest rates ......................................................................................39
6. Default risk ....................................................................................................................................40
6.1. Rating agencies ......................................................................................................................40
6.2. Sovereign bonds and default risks .........................................................................................42
7. Summary .......................................................................................................................................43
Chapter 4 – The Value of Common Stocks ...................................................................................... 44
1. How common stocks are traded ...................................................................................................44
1.2. Stock listings ..........................................................................................................................45
2. How common stocks are valued ...................................................................................................46
2.1. Expected return .....................................................................................................................47
2.2. Dividend Discount Model ......................................................................................................48
2.2.1. What if H goes to infinity? ............................................................................................................ 48
2.2.2. Assumptions:................................................................................................................................. 49
3. Estimating cost of equity capital ...................................................................................................49
3.1. Market capitalization rate .....................................................................................................49
3.2. Return measurements ...........................................................................................................50
3.3. Dividend growth rate .............................................................................................................50
4. Stock price and earnings per share ...............................................................................................50
5. Valuing a business .........................................................................................................................51
5.1. Discounted free cash flow model ..........................................................................................51
5.2. Valuation format....................................................................................................................51
5.2.1. Estimating horizon value ............................................................................................................... 51
5.2.2. Valuing a business or project ........................................................................................................ 52
5.3. Cash flow ...............................................................................................................................52
5.3.1. Free cash flow ............................................................................................................................... 52
5.3.2. Cash flow to creditors and stockholders ....................................................................................... 53
6. Summary .......................................................................................................................................55
Chapter 5 – Net present value and other investment criteria ......................................................... 56
1. A review of the basics....................................................................................................................56
1.1. Points to remember about NPV (3) .......................................................................................57
1.2. Book rate of return ................................................................................................................58
1.3. Example .................................................................................................................................59
3 CORPORATE FINANCE | Bridging program MBA 2019-2020
, 2. Payback .........................................................................................................................................59
3. Internal rate of return ...................................................................................................................60
3.1. Calculating the IRR .................................................................................................................61
3.2. The IRR rule............................................................................................................................62
3.3. Problems/pitfalls with IRR (4): ...............................................................................................62
3.4. The verdict in IRR ...................................................................................................................63
4. Choosing capital investments when resources are limited ...........................................................64
4.1. Profitability index...................................................................................................................64
5. Summary: ......................................................................................................................................66
Chapter 6 – Making investment decisions with the net present value rule ..................................... 67
1. Applying net present value rule ....................................................................................................67
1.1. the rules .................................................................................................................................67
1.1.1. RULE 1: Only cash flow is relevant ................................................................................................ 67
1.1.2. RULE 2: estimate CF on an incremental basis ............................................................................... 68
1.1.3. RULE 3: Treat inflation consistently .............................................................................................. 69
1.1.4. Rule 4: Separate investment and financing decisions ................................................................... 70
2. Example calculating the CF, NPV and Tax shield ...........................................................................71
3. Using the NPV rule to choose projects. .........................................................................................74
3.1. Problems ................................................................................................................................74
4. Summary .......................................................................................................................................76
PART 2: Best practices in capital budgeting.................................................................................... 77
Chapter 10 – Project analysis ......................................................................................................... 77
1. The capital investment process .....................................................................................................77
1.1. Items for consideration .........................................................................................................77
1.2. How to handle uncertainty ....................................................................................................78
2. Sensitivity analysis ........................................................................................................................78
2.1. Limits to sensitivity analysis ...................................................................................................78
2.2. Scenario analysis ....................................................................................................................81
2.3. Break-even analysis ...............................................................................................................82
2.3.1. Break-even analysis table.............................................................................................................. 82
2.3.2. Accounting break-even point ........................................................................................................ 83
2.4. Operating leverage and the break-even point ......................................................................84
3. Monte Carlo simulation.................................................................................................................85
3.1. Modelling Process ..................................................................................................................85
4. Flexibility and real options ............................................................................................................86
4.1. Decision trees à EXAM .........................................................................................................86
4.2. Real options ...........................................................................................................................86
4.2.1. Option to expand .......................................................................................................................... 86
5. Summary .......................................................................................................................................87
PART 3: Risk .................................................................................................................................. 88
Chapter 7 – Introduction to risk and return ................................................................................... 88
1. Real returns on major assets classes .............................................................................................88
1.1. Average rates of return and risk Premia 1900-2014 (US) ......................................................89
1.2. Using historical evidence to evaluate today’s cost of capital ................................................90
1.2.1. 2 reasons that history may overstate the risk premium demand today ....................................... 91
1.3. Dividend yields and the risk premium ...................................................................................92
2. Measuring portfolio risk ................................................................................................................93
2.1. Variance and standard deviation ...........................................................................................94
1.2. How diversification reduces risk ............................................................................................96
3. Calculating portfolio risk ...............................................................................................................97
4 CORPORATE FINANCE | Bridging program MBA 2019-2020
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 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 bosmanssien. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £7.63. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
60904 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy revision notes and other study material for 14 years now