Today:Syllabus and Introduction Principles of Corporate Finance
For This Course You Need to Have: 1. The textbook – Lasher. Buy a used book. Order on-line if cheap. I have pdf files of the first few chapters if you don’t have your book yet.
For This Course You Need to Have: 2. A financial calculator • HP 10-Bii is less than $30. You have time to order it on-line. • The calculator needs to do IRR (the most basic TI does not) • Textbook letter and Links on website • Other models of calculators do more than we need but are OK
Syllabus and Website • Hand out syllabus • Contact information • Exam dates • Get out of the final with a 93% • Term Project dates • Attendance policy • Grading weights • Office hours • Website
Expectations • Buy a book and calculator • Come to class: be engaged and ask questions • Do assignments • Keep up/study for tests • Pretend that you LOVE Finance • We are what we pretend to be, so we must be careful what we pretend to be. • Kurt Vonnegut, Mother NightUS novelist (1922 - 2007)
Assignments • Go to the course web page : • http://www.agecon.purdue.edu/academic/agec424/index2.html • At this site you can download: • Lecture PowerPoint slides • Assignments/schedule • Spreadsheet templates • Term project information • Lab information • Grades
What is going on in my life? • Teaching AGEC 424, AGEC 600, and supervising graduate students • Teach 2nd - 3rd grade Sunday School class at Saint Andrew United Methodist Church • Dealing with my wood hobby/business • Parenting two teenagers (HS senior and an “undecided” college freshman/sophomore)
This first week in AGEC 424 • Read Chapter 1. • Read Chapter 2. Accounting review is covered with via a set of test-type questions in lab this week. • Relationship to MGMT 200 • We will start Chapter 3 as soon as Fri. or Mon. • Commentary on “reading” the chapters • Assignments and HW due dates listed on web site • Don’t make yourself take the final because you didn’t do the homework • Bring your book and a calculator to lab this week
The Price of Securities—A Link Between the Firm and the Market • Investors buy securities (stock and bonds) for the future cash flows expected from them • Price investors are willing to pay depends on expectations of how well the companies are likely to do (present value of future cash flows expected) • Link between company management and investors comes from this relationship between price and expected financial results • Everything firm does is evaluated by market and ‘graded’ by either an increase, decrease, or no change in security price
Alternative Forms of Business Organization: • Sole proprietorship • Partnership • Corporation
Corporation: • Advantages: • Unlimited life • Easy transfer of ownership • Limited liability • Ease of raising capital • Disadvantages: • Double taxation • Cost of set-up and report filing
What are shares of Stock? • Equity • = Stock (Par Value & surplus) + retained earnings • A = L + OE • Book value of equity (per share) = (Owners Equity)/#shares • Why would stock be worth more (or less) than Book Value? • Publicly traded versus Privately held • Reporting requirements
Goal of the Corporation: • The primary goal is shareholder wealth maximization, which translates to maximizing stock price.
Factors Influenced by Managers that Affect Stock Price: • Projected earnings per share • Timing of the earnings stream • Riskiness of the earnings stream • Use of debt (capital structure) • Dividend policy