Corporate Finance Lectures Summary
As a supplement to the Microsoft Excel Book - Nando Piree
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Content
Simple Formula sheet....................................................................................................................................... 3
Lecture 1: Accounting refresher ....................................................................................................................... 5
Balance sheet .............................................................................................................................................. 5
Income statement........................................................................................................................................ 7
Link Balance sheet and income statement: ............................................................................................. 7
Cash flow statement .................................................................................................................................... 8
Lecture 2: NPV, WACC, CAPM........................................................................................................................... 9
Present and future value ............................................................................................................................. 9
NPV ............................................................................................................................................................. 9
Annuity Factor ............................................................................................................................................. 9
WACC......................................................................................................................................................... 10
CAPM......................................................................................................................................................... 10
Financial leverage and beta calculation ..................................................................................................... 10
Lecture 3: intro to capital structure (Modigliani & Miller) .............................................................................. 11
Lecture 4: Capital structure - M&M with taxes ............................................................................................... 12
MM proposition 1 (with taxes) .................................................................................................................. 12
MM proposition 2 (with taxes) .................................................................................................................. 12
Lecture 5 and 6: Limits to the use of debt....................................................................................................... 13
The tradeoff theory of debt ....................................................................................................................... 13
Cost of financial distress ............................................................................................................................ 13
Where do the costs of financial distress come from? ................................................................................. 15
Agency costs of debt .................................................................................................................................. 15
The pecking order theory ........................................................................................................................... 16
Essence of the pecking order theory ..................................................................................................... 17
Lecture 7: Dividends ....................................................................................................................................... 18
Payout policy: ............................................................................................................................................ 18
“The bird in the hand” fallacy .................................................................................................................... 19
Modigliani – Miller (MM) Proposition 3 ..................................................................................................... 19
, Second MM proposition 3 statement .................................................................................................... 20
Cum–dividend Price and Ex-dividend Price ................................................................................................. 20
Homemade dividends ................................................................................................................................ 23
Lecture 8: Dividend policy .............................................................................................................................. 25
Pros and cons of dividends ......................................................................................................................... 25
Why do firms pay dividends? ..................................................................................................................... 26
Clientele effect ........................................................................................................................................... 27
Clientele effect II ................................................................................................................................... 27
Clientele effect III .................................................................................................................................. 27
Catering ..................................................................................................................................................... 28
Catering II.............................................................................................................................................. 28
Catering III............................................................................................................................................. 28
Dividend Policy Mind Map ......................................................................................................................... 29
Lecture 12: Option pricing - risk neutral probability method .......................................................................... 43
Risk-neutral pricing.................................................................................................................................... 43
Black-Scholes Model .................................................................................................................................. 45
Lecture 13: Short term finance / efficient markets ......................................................................................... 47
Operating cycle and cash cycle .................................................................................................................. 47
Working Capital......................................................................................................................................... 48
Efficient capital market.............................................................................................................................. 49
,Simple Formula sheet
Does not include every formula – Ctrl+F in summary to find everything. These are most
common:
Working Capital = Inventory + Receivables - Payables
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