Corporate Finance

Corporate Finance deals with important decision making such as investment in FA (capital budgeting), CA & CL management ( Working capital management), Loan and equity balancing ( Capital Structuring) and Dividend decision involving Reserve & Surplus. This we seen using first principle and ten concepts of Corporate finance which involves in decision making. F or all the above decisions to make a firm needs money which can be obtained by issuing bonds and stocks. Bonds and stocks have different cash flows in future depending upon its interest and other components. So an individual or firm who obtains/issues bonds or stocks must know what the present value of future cash flow is or what will be the price of those in future. This is what we seen in time value of money. Valuation of stock can be done by Dividend Discount Model, CAPM model, etc. Where as in Bond valuation, value of bond depends upon Coupon rate and YTM rate. Bond theorems help us to give deep insights into bond.
In Shares and bonds we have risk and return involved. Greater the risk involved higher the return will be. Usually stock holders who are the owners of company have greater risk than bond holders. This is what we seen in risk and return. A single security is having greater risk than mix of securities (Portfolio). So securities should be purchased market risk and return involved in that.
Now company has to decide what to do with that money which they obtained through bonds and stocks. So purchasing of FA (capital investment)   and allocating money in various projects is seen in Capital Budgeting. Here we need to consider current value of future cash flows by involving money in a project. We seen NPV, IRR, payback period and benefit cash ratio.
Choosing a project based on our capital component (equity & debt) is done using WACC. It needs to be low for a company and project above this hurdle rate can be selected which is WMCC. Company which rises fund is leveraged firm. In Capital restructuring... [continues]

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