Course Number : BA (H) – 643
Credit Hours: 03

1. The Financial Environment

1. The Flow of Savings to Corporations

  • The Stock Market
  • Other Financial Markets
  • Financial Intermediaries
  • Financial Institutions
  • Total Financing of U.S. Corporations

1.2. Functions of Financial Markets and Intermediaries

  • Transporting Cash Across Time
  • Liquidity
  • The Payment Mechanism
  • Reducing Risk
  • Information Provided to Financial Markets
  • The Opportunity Cost of Capital

2. The Time Value of Money

2.1 Future Values and Compound Interest
2.2 Present Values

  • Finding the Interest Rate
  • 2.3 Multiple Cash Flows

  • Future Value of Multiple Cash Flows
  • Present Value of Multiple cash Flows
  • 2.4 Level Cash Flows Perpetuities and Annuities

  • How to Value Perpetuities
  • How to Value Annuities
  • Annuities Due
  • Future Value of an Annuity
  • 2.5 Inflation and the Time Value of Money

  • Real versus Nominal Cash Flows
  • Inflation and Interest Rates
  • Valuing Real Cash Payments
  • Real or Nominal
  • 2.6 Effective Annual Interest Rates


    3. Valuing Bonds

    3.1 Bond Characteristics

  • Reading the Financial Pages
  • 3.2 Bond Prices and Yields

  • How Bond Prices Vary with Interest Rates
  • Yield to Maturity versus Current Yield
  • Rate of Return
  • Interest Rate Risk
  • The Yield Curve
  • Normal and Real Rate of Interest
  • Default Risk
  • Variation in Corporate Bonds
  • 4. Valuing Stocks

    4.1 Stocks and Stock Market

  • Reading the Stock Market Listings
  • 4.2 Book Values, Liquidation Values, and Market Values
    4.3 Valuing Common Stocks

  • Today’s Price and Tomorrow’s Price
  • The Dividend Discount Model
  • 4.4 Simplifying the Dividend Discount Model

  • The Dividend Discount Model with no Growth
  • The Constant – Growth Dividend Discount Model
  • Estimating Expected Rates of Returns
  • Non-constant Growth
  • 4.5 Growth Stocks and Income Stocks

  • The Price Earning Ratio
  • Valuing Entire Businesses
  • 4.6 There are No Free Lunches on Wall Street

  • Method 1 : Technical Analysis
  • Method 2 : Fundamental Analysis
  • A Theory to Fit The Facts
  • 4.7 Behavioral Finance and the Rise and Fall of the Dot.Coms

    5. Net Present Value and Other Investment Criteria

    5.1 Net Present Value

    • A Comment on Risk and Present Value
    • Valuing Long Live Projects

    5.2 Other Investment Criteria

    • Payback
    • Internal Rate of Returns
    • A Closer Look and the Rate of Return Rule
    • Calculating the Rate of Return for Long Lived Projects
    • A Word of Caution
    • Some Pitfalls with the Internal Rate of Return Rule

    5.3 Mutually Exclusive Projects

    • Investment Timing
    • Long versus Short Lived Equipment
    • Replacing an Old Machine
    • Mutually Exclusive Projects and the IRR Rule

    5.4 Capital Rationing

    • Soft Rationing
    • Hard Rationing
    • Pitfalls of the Profitability Index

    5.5 A Last Look

    6. Using Discounted Cash Flow Analysis to Make Investment Decisions

    Discount Cash Flows, Not Profits
    6.2 Discount Incremental Cash Flows

    • Include all Indirect Effect
    • Forget Sunk Costs
    • Include Opportunity Cost
    • Recognize the Investment in Working Capital
    • Beware of Allocated Overhead Costs

    6.3 Discount Nominal Cash Flows by the Nominal Cost of Capital
    6.4 Separate Investment and Financing Decisions
    6.5 Calculating Cash Flow

    • Capital Investment
    • Investment in Working Capital
    • Cash Flow from Operations

    7. Project Analysis

    7.1 How Firms Organize the Investment Process

    • Stage One : The Capital Budget
    • Stage Two : Project Authorizations

    Problems and Some Solutions

    7.2 Some "What – If" Questions

    • Sensitivity Analysis
    • Scenario Analysis

    7.3 Break Even Analysis

    • Accounting Break Even Analysis
    • Economic Value Added and Break Even Analysis

    Operating Leverage

    7.4 Real Options and the Value of Flexibility

    • The Option to Expand
    • A Second Real Option : The Option to Abounded
    • A Third Real Option : The Timing Option
    • A Fourth Real Option : Flexible Production Facilitie

    8. Introduction to Risk, Return, and the Opportunity Cost of Capital

    8.1 Rate of Return: A Review
    8.2 A Century of Capital Market History

    • Market Indexes
    • The Historical Record
    • Using Historical Evidence to estimate Today’s Cost of Capital

    8.3 Measuring Risk

    • Variance and Standard Deviation
    • A Note on Calculating Variance
    • Measuring the variance in Stock Return

    8.4 Risk and Diversification

    • Diversification
    • Asset versus Portfolio Risk
    • Market Risk versus Unique Risk

    8.5 Thinking about Risk

    • Message 1 : Some Risk look Big and Dangerous but Really are Diversifiable
    • Message 2 : Market Risk are Macro Risks
    • Message 3 : Risk can be Measure

    9. Risk, Return and Capital Budgeting

    9.1 Measuring Market Risk

    • Measuring Beta
    • Betas for and Exxon Mobile
    • Portfolio Betas

    9.2 Risk and Return

    • Why the CAPM works
    • The Security Market Line
    • How Well does the CAPM work?
    • Using the CAPM to estimated expected Return

    9.3 Capital Budgeting and Project Risk

    • Company versus Project Risk
    • Determinant of Project Risk
    • Don’t add Fudge Factors to Discount Rates

    10. The Cost of Capital

    10.1 Geothermal Cost of Capital
    10.2 The Weighted-Average Cost of Capital

    • Calculating Company Cost of Capital as a Weighted Average
    • Market versus Book Weights
    • Taxes and the Weighted-Average Costs of Capital
    • What If There Are Three (or More) Sources of Financing?
    • Wrapping up Geothermal
    • Checking our Logic

    10.3 Measuring Capital Structure
    10.4 Calculating the Required Rate of Returns

    • The Expected Return on Bonds
    • The Expected Return on Common Stock
    • The Expected Return on Preferred Stock

    10.5 Calculating the Weighted Average Cost of Capital

    • Real Company WACCs

    10.6 Interpreting the Weighted Average Cost of Capital

    • When You Can and Can’t Use WACC
    • Some Common Mistakes
    • How Changing Capital Structure Affects Expected Returns
    • What happens When the Corporate Tax Rate Is Not Zero

    11. An Overview of Corporate Financing

    11.1 Creating Value with Financing Decisions
    11.2 Common Stock

    • Ownership of the Corporation
    • Voting Procedures
    • Classes of Stock

    11.3 Preferred Stocks
    11.4 Corporate Debt

    • Debt Comes in Many Forms
    • Innovation in the Debt Market

    12 Debt Policy

    12.1 How Borrowing Affects Values in a Tax Free Economy

    • MM’s Argument
    • How Borrowing Affects Earnings Per Share
    • How Borrowing Affects Risk and Return
    • Debt and the Cost of Equity

    12.2 Capital Structure and Corporate Taxes

    • Debt and Taxes of River Cruises
    • How Interest Tax Shields Contribute to the Value of Stockholders’ Equity
    • Corporate Taxes and the Weighted Average Cost of Capital
    • The implications of Corporate Taxes for Capital Structure

    12.3 Costs of Financial Distress

    • Bankruptcy Costs
    • Financial Distress without Bankruptcy
    • Cost of Distress Vary with Type of Asset

    12.4 Explaining Financing Choices

    • The Trade-off Theory
    • A Pecking Order Theory
    • The Two Forces of Financial Stock

    13 Dividend Policy

    13.1 How Dividends are Paid

    • Cash Dividends
    • Some Legal Limitations on Dividends
    • Stock Dividends and Stock Splits

    13.2 Share Repurchase

    • The Role of Share Repurchases
    • Repurchases and Share Valuation

    13.3 How Do Companies Decide on Dividend Payments?
    13.4 Why Dividend Policy Should Not Matter

    • Dividends Policy is Irrelevant in Competitive Markets
    • The Assumptions behind Dividend Irrelevance

    13.5 Why Dividends May Increase Firm Value

    • Market Imperfections
    • Dividends as Signals

    13.6 Why Dividends May reduce Firm Value

    • Why Pay any Dividends at All?
    • Taxation of Dividends and Capital Gains under Current Tax Law

    14 Financial Planning

    14.1 What is Financial Planning

    • Financial Planning Focuses on the Big Picture
    • Why Build Financial Plans?

    14.2 Financial Planning Models

    • Components of a Financial Planning Model
    • An example of a Planning Model
    • An Improved Model

    14.3 Planners Beware

    • Pitfalls in Model Design
    • The Assumption in Percentage of Sales Models
    • The Role of Financial Planning Models

    15 Working Capital Management and Short-Term Planning
    16 Cash and Inventory Management
    17 Credit Management and Bankruptcy

    Recommended Books:

    • Brealey Myers Marcus: Fundamentals of Corporate Finance 4th Edition Irwin Mc-Graw Hill