2F2Y BUSINESS FINANCE

Lecture 20: Revision & Exams

Dr George Daskalakis Lecturer in Finance

Topics covered

• What have you learned? • Exams description

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Syllabus

Module textbook: Brealey / Myers / Marcus Fundamentals of Corporate Finance 7th Edition, McGraw-Hill Chapters covered: 1, 2, 4, 5, 6, 7, 8, 11, 12, 13, 14, 15, 16, 17, 21, 23, 24 (Sections 1-3) Chapters NOT covered: 3, 9, 10, 18, 19, 20, 22, 25 NB: Basic understanding of accounting principles is assumed (Chapter 3). 3

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Revision strategy

• Study the material covered from the textbook…

– When studying the relevant chapters, focus especially on what has been discussed during lectures.

• Study the seminar material…

– It will be assumed that you are aware of the exercises presented during seminars.

• Study last year’s exam papers… These are found on the module’s Blackboard (Assessment tab). NB: Q1 from August 2011 reassessment paper is not relevant!

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Key topics: Introduction

Chapter 1: Goals & Governance of a Firm • Who is the financial manager? • What is the role of the financial manager? • What is a corporation? • What is the goal of corporations? • What are the agency problems and how can we address them? 5

Key topics: Introduction

Chapter 2: Financial Markets & Institutions • Why are financial markets and institutions important? • How do savings flow to corporations? • What is the function of financial markets and intermediaries?

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Key topics: Introduction

Chapter 4: Financial Statements & Indicators • What ratios are used for measuring profitability, efficiency, liquidity and leverage?

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Key topics: Value

Chapter 5: The Time Value of Money • Why is there a time value of money? • How can we calculate future from present values and vice versa? • What are annuities & perpetuities? • How can we calculate the present value of annuities & perpetuities? 8

Key topics: Value

Chapter 6: Valuing Bonds • What is a bond and the use of the bond market? • How are bonds priced? • How are bond prices affected by interest rates? • What is the current yield of a bond and what its yield to maturity?

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Key topics: Value

Chapter 7: Valuing Stocks • What are stocks? • How can we value a common stock? • What is the dividend discount model and how is it used?

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Key topics: Value

Chapter 8: Net Present Value & Other Investment Criteria • What are the main methods for investment appraisal? • How are the Net present value, Payback period & Internal rate of return used for investment appraisal? • What are the pros and cons of these methods?

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Key topics: Risk

Chapter 11: Introduction to Risk, Return and the Opportunity Cost of Capital • What do we mean and how do we measure risk? • What are the market indices? • What is the (opportunity) cost of capital and how do we calculate it? • What do we mean by diversification and how does it work? 12

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Key topics: Risk

Chapter 12: Risk, Return and Capital Budgeting • How can we measure market risk? • What do we mean by beta? • What is the risk return trade-off? • What is the Capital Asset Pricing Model (CAPM) and how is it used? • What is the Security Market Line (SML)? 13

Key topics: Risk

Chapter 13: The Weighted-Average Cost of Capital & Company Valuation • What is the WACC and how can we calculate it? • Why is WACC important? • What is the interpretation of the WACC?

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Key topics: Financing

Chapter 14: Introduction to Corporate Financing • What are common & what preferred stocks? • Which are the different corporate debt securities? • What do we mean by convertible securities?

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Key topics: Financing

Chapter 15: How Corporations Raise Venture Capital and Issue Securities • What do we mean by venture capital? • What is the Initial Public Offering (IPO)? • What is the process for an IPO? • What do we mean by general cash offers?

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