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Corporate finance
GOALS & GOVERNANCE OF THE FIRM 5
COMPANY GOALS 5
CORPORATE GOVERNANCE 5
AGENCY PROBLEMS 5
FINANCE VS. ACCOUNTING 6
EXAMPLE 6
BASIC CONCEPTS OF VALUATION 7
TIME VALUE OF MONEY 7
NET PRESENT VALUE (NPV) 7
PERPETUITY 7
ANNUITY 7
VALUING BONDS AND STOCKS 8
BONDS 8
EXAMPLE 8
Exercise 8
STOCKS 9
PERPETUITY 9
SIMPLIFYING ASSUMPTION: GROWTH 9
Example 1 9
Example 2 10
INVESTMENT DECISIONS 11
WHAT IS AN INVESTMENT? 11
INVESTMENT EVALUATION METHODS 11
NET PRESENT VALUE (NPV) 11
Example 11
INTERNAL RATE OF RETURN (IRR) 12
Problems 12
Example 12
PAYBACK PERIOD 12
Example 13
PROFITABILITY INDEX 13
Example 1 13
Example 2 13
DETERMINING THE RELEVANT CASH FLOWS 14
FCF 14
WHICH CF’S TO INCLUDE? 14
Corporate finance Goals & governance of the firm
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Example FCF 15
Example WC 15
Example salvage value 15
INFLATION 16
EXAMPLE 16
CAPITAL RATIONING 17
EXAMPLE 17
PROJECTS WITH DIFFERENT LIFETIMES 17
IN PRACTICE? 18
EXERCISE – EXAM 18
RISK AND REQUIRED RATE OF RETURN 19
RISK-RETURN ASSUMPTIONS 19
EXPECTED RETURN 19
Example 20
RISK AND DIVERSIFICATION 20
OPPORTUNITY SET – POSITIVELY CORRELATED 20
OPPORTUNITY SET – NEGATIVELY CORRELATED 21
OPPORTUNITY SETS - MANY SHARES 21
EQUITY DIVERSIFICATION REDUCES RISK 21
CAPM: THE MODEL 22
CAPITAL MARKET LINE 22
Example 23
WHAT ABOUT OTHER RISK FACTORS? 23
CONCLUSION: COST OF EQUITY (RE) 23
WACC 23
Example slide 69 24
COST OF DEBT 24
CAPITAL STRUCTURE 25
LIABILITIES/TOTAL ASSETS (BV) 25
FIRM VALUE & CAPITAL STRUCTURE 25
STATIC TRADE-OFF THEORY 25
PERFECT MARKETS: IRRELEVANCE OF CAPITAL STRUCTURE 25
Debt increase → Re increases 26
Example 27
IMPACT OF IMPERFECTIONS: TAXES 27
Tax decrease cost of debt and WACC 28
Exercise 28
IMPACT OF IMPERFECTIONS 2: FINANCIAL DISTRESS 28
Cost of financial distress 29
Static trade-off 29
PUTTING IT ALL TOGETHER: STATIC TRADE-OFF THEORY 30
Example 30
Academic evidence 31
Corporate finance Goals & governance of the firm
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PECKING ORDER THEORY 31
EXPLENATION FOR EMPERICAL OBSERVATIONS 31
How do we link this to what we see happening? 32
Sources and uses of funds 32
Static trade-off X pecking order 32
FINANCIAL MANAGEMENT 33
IMPORTANCE OF VALUATION 33
SETTING THE STAGE 33
VALUATION METHODS 34
STATIC APPROACH 34
Book value 34
Multiples 34
DYNAMIC MODEL (DCF) 35
Estimate cashflows 35
2-phase DCF model 36
Growth rate 36
EXAMPLE 36
WORKING CAPITAL MANAGEMENT 37
FINANCE WC REQUIREMENTS 37
HEDGING 37
HOW MUCH LT FINANCING IS NEEDED? 38
Example 39
CASH MANAGEMENT 39
OPTIMIZING TECHNIQUE: NETTING 39
OPTIMIZING TECHNIQUE: CASH POOLING 40
WHAT IF CASH IS LACKING? 40
ISSUING SHARES 41
PUBLIC EQUITY OFFERINGS 42
CAPITAL INCREASE 42
INITIAL PUBLIC OFFERING (IPO) 43
Investment banks 43
Underwriter syndicate 43
Alternatives to IPO’s 44
CROWDFUNDING 44
PRIVATE EQUITY ISSUES 45
BUSINESS ANGEL VS. VENTURE CAPITALISTS 45
FINANCIAL DEBT 46
ROLE OF BANKS 46
BOND ISSUES 46
Example: Altice France 46
Corporate finance Goals & governance of the firm
, Pagina 4 van 47
CONVERTIBLE BONDS 46
Example 47
OTHER TYPES OF BONDS 47
FUNDRAISING STRATEGY 47
Corporate finance Goals & governance of the firm
Corporate finance
GOALS & GOVERNANCE OF THE FIRM 5
COMPANY GOALS 5
CORPORATE GOVERNANCE 5
AGENCY PROBLEMS 5
FINANCE VS. ACCOUNTING 6
EXAMPLE 6
BASIC CONCEPTS OF VALUATION 7
TIME VALUE OF MONEY 7
NET PRESENT VALUE (NPV) 7
PERPETUITY 7
ANNUITY 7
VALUING BONDS AND STOCKS 8
BONDS 8
EXAMPLE 8
Exercise 8
STOCKS 9
PERPETUITY 9
SIMPLIFYING ASSUMPTION: GROWTH 9
Example 1 9
Example 2 10
INVESTMENT DECISIONS 11
WHAT IS AN INVESTMENT? 11
INVESTMENT EVALUATION METHODS 11
NET PRESENT VALUE (NPV) 11
Example 11
INTERNAL RATE OF RETURN (IRR) 12
Problems 12
Example 12
PAYBACK PERIOD 12
Example 13
PROFITABILITY INDEX 13
Example 1 13
Example 2 13
DETERMINING THE RELEVANT CASH FLOWS 14
FCF 14
WHICH CF’S TO INCLUDE? 14
Corporate finance Goals & governance of the firm
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Example FCF 15
Example WC 15
Example salvage value 15
INFLATION 16
EXAMPLE 16
CAPITAL RATIONING 17
EXAMPLE 17
PROJECTS WITH DIFFERENT LIFETIMES 17
IN PRACTICE? 18
EXERCISE – EXAM 18
RISK AND REQUIRED RATE OF RETURN 19
RISK-RETURN ASSUMPTIONS 19
EXPECTED RETURN 19
Example 20
RISK AND DIVERSIFICATION 20
OPPORTUNITY SET – POSITIVELY CORRELATED 20
OPPORTUNITY SET – NEGATIVELY CORRELATED 21
OPPORTUNITY SETS - MANY SHARES 21
EQUITY DIVERSIFICATION REDUCES RISK 21
CAPM: THE MODEL 22
CAPITAL MARKET LINE 22
Example 23
WHAT ABOUT OTHER RISK FACTORS? 23
CONCLUSION: COST OF EQUITY (RE) 23
WACC 23
Example slide 69 24
COST OF DEBT 24
CAPITAL STRUCTURE 25
LIABILITIES/TOTAL ASSETS (BV) 25
FIRM VALUE & CAPITAL STRUCTURE 25
STATIC TRADE-OFF THEORY 25
PERFECT MARKETS: IRRELEVANCE OF CAPITAL STRUCTURE 25
Debt increase → Re increases 26
Example 27
IMPACT OF IMPERFECTIONS: TAXES 27
Tax decrease cost of debt and WACC 28
Exercise 28
IMPACT OF IMPERFECTIONS 2: FINANCIAL DISTRESS 28
Cost of financial distress 29
Static trade-off 29
PUTTING IT ALL TOGETHER: STATIC TRADE-OFF THEORY 30
Example 30
Academic evidence 31
Corporate finance Goals & governance of the firm
, Pagina 3 van 47
PECKING ORDER THEORY 31
EXPLENATION FOR EMPERICAL OBSERVATIONS 31
How do we link this to what we see happening? 32
Sources and uses of funds 32
Static trade-off X pecking order 32
FINANCIAL MANAGEMENT 33
IMPORTANCE OF VALUATION 33
SETTING THE STAGE 33
VALUATION METHODS 34
STATIC APPROACH 34
Book value 34
Multiples 34
DYNAMIC MODEL (DCF) 35
Estimate cashflows 35
2-phase DCF model 36
Growth rate 36
EXAMPLE 36
WORKING CAPITAL MANAGEMENT 37
FINANCE WC REQUIREMENTS 37
HEDGING 37
HOW MUCH LT FINANCING IS NEEDED? 38
Example 39
CASH MANAGEMENT 39
OPTIMIZING TECHNIQUE: NETTING 39
OPTIMIZING TECHNIQUE: CASH POOLING 40
WHAT IF CASH IS LACKING? 40
ISSUING SHARES 41
PUBLIC EQUITY OFFERINGS 42
CAPITAL INCREASE 42
INITIAL PUBLIC OFFERING (IPO) 43
Investment banks 43
Underwriter syndicate 43
Alternatives to IPO’s 44
CROWDFUNDING 44
PRIVATE EQUITY ISSUES 45
BUSINESS ANGEL VS. VENTURE CAPITALISTS 45
FINANCIAL DEBT 46
ROLE OF BANKS 46
BOND ISSUES 46
Example: Altice France 46
Corporate finance Goals & governance of the firm
, Pagina 4 van 47
CONVERTIBLE BONDS 46
Example 47
OTHER TYPES OF BONDS 47
FUNDRAISING STRATEGY 47
Corporate finance Goals & governance of the firm
