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FNCE 3P93
FNCE 3P93
Corporate Finance
Corporate Finance
Fall 2012
2012

General Information
Instructor: Dr. Lawrence He
Office:

Taro 328

Phone:

(905) 688-5550 ext. 4540

Email:

LHE@brocku.ca

General Information
Classroom and Time:
Sec 1
14:00 – 15:30 T R
Sec 2
08:00 – 09:30 M
11:00 – 12:30 R
Sec 6
19:00 – 22:00 M

TA 405
TA 405
TA 405
PL 409

Office Hours:
Monday 09:30 – 11:00, 14:30 – 16:00
or
after class
or
by appointments

Course Materials
Ross, Westerfield, Jordan and Roberts,
h
Fundamentals of Corporate Finance, 7tth
Canadian Edition.
Lecture Notes on Sakai
Lecture Notes on Sakai
Financial Calculator (recommended)
Financial Calculator (recommended)

Grading & Policy
Two Case Studies (15%)
Form a group of 2 – 3 students
Midterm Test (35%)
Comprehensive Final Exam (50%)
Common Course Outline
Common Problem Sets & Exams
Common Exam Grading Scheme

What is Corporate Finance?
Corporate Finance addresses the following three
questions:
1.

2.

3.

What long-term investments should the firm
engage in?
engage in? (investment decision)
decision
How can the firm raise the money for the
required investments?
required investments? (financing decision)
decision
How much short-term cash flow does a
company need to pay its bills?
company need to pay its bills? (net working
working
capital)

The Balance-Sheet Model
of the Firm
Total Value of Assets:

McGraw-Hill/Irwin
Corporate Finance, 7/e

Total Firm Value to Investors:
Fi

The Balance-Sheet Model
of the Firm
The Capital Budgeting (Investment) Decision
Capital Budgeting
Decision

McGraw-Hill/Irwin
Corporate Finance, 7/e

What longterm
investments
should the
firm engage
firm engage
in?

The Balance-Sheet Model
of the Firm
The Capital Structure (Financing) Decision
St

How can the
firm raise the
money for the
required
investments?

McGraw-Hill/Irwin
Corporate Finance, 7/e

The Balance-Sheet Model
of the Firm
The Net Working Capital Investment Decision
Net Working Capital Investment Decision

Net
Working
Capital

How much
short-term cash
flow does
flow does a
company need
to pay its bills?
McGraw-Hill/Irwin
Corporate Finance, 7/e

Capital Structure
The value of the firm can be
thought of as a pie.
The goal of the manager is to
increase the size of the pie.

The Capital Structure decision can
be viewed as how best to slice up
a the pie.

25%
50% Debt
30%
Debt
Equity
70% Debt
75%
50%
Equity

If how you slice the pie affects the size of the pie, then the capital structure decision matters
capital structure decision matters.

The Financial Manager
To create value, the financial manager should:
1. Try to make smart investment decisions.
2.

Try to make smart financing decisions.

3.

Try to make smart use of net working capital.

Th Fi
The Firm and the Financial Markets
th Fi
Firm

Firm issues securities (A)

Invests
in assets
(B)

Retained
cash flows (F)
Short-term debt
Cash flow
from firm (C)

Dividends and
debt payments (E)
Taxes (D)

Current assets
Fixed assets

Ultimately, the firm must
be a cash generating

activity
activity.

McGraw-Hill/Irwin
Corporate Finance, 7/e

Financial
markets

Government

Long-term debt
Equity shares

The cash flows from
the firm must exceed
th
the cash flows from
fl
the financial markets.

Course Objectives
Build on the concepts and tools developed in
2P91 to address various firm financing
issues.
The central concern is to introduce the basic
theories of financing decision-making within a
corporation, i.e., D/E, dividend policy, etc.
To achieve this, you need to solve a lot of
ac
you
so
numerical problems assigned to you.

What have you learned in 2P91?
Valuation of Cash Flows
The price of any asset is the present value
of all future cash flows discounted at a
required rate of return
required rate of...
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