math managerial finance ii afm372
Download
Skip this Video
Download Presentation
Math Managerial Finance II—AFM372

Loading in 2 Seconds...

play fullscreen
1 / 12

Math Managerial Finance II—AFM372 - PowerPoint PPT Presentation


  • 118 Views
  • Uploaded on

Math Managerial Finance II—AFM372. AKA: Corporate Finance Instructor: Alan Huang Office Hours: HH386E, TR 3:00-4:30 or by appointment Email: [email protected] Normally emails are answered within 48 hours (72 hours if received in weekends)

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Math Managerial Finance II—AFM372' - perry-sloan


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
math managerial finance ii afm372
Math Managerial Finance II—AFM372
  • AKA: Corporate Finance
  • Instructor: Alan Huang
  • Office Hours: HH386E, TR 3:00-4:30 or by appointment
  • Email: [email protected]
    • Normally emails are answered within 48 hours (72 hours if received in weekends)
    • Emails received shortly before midterm and final will only be answered in additional office hours
    • Use your TAs, course discussion forum, and office hours wisely. Physical presence has priority over phone/emails/electronic posts.
slide2
Required Text:
    • Corporate Finance (4th Canadian edition, 2008) by Ross, Westerfield, Jaffe and Roberts
    • Course Notes
  • Problem Sets
course web page
Course Web page

http://www.arts.uwaterloo.ca/~aghuang/AFM372 (Also accessible through UWACE)

    • Syllabus
    • Announcements
    • Lecture notes
    • Chapter solutions
    • Problem sets
    • Quizzes & Exams
    • Case
  • Discussion Forum: UWACE, discussion forum tab
important dates
Important Dates
  • September 30: Quiz 1
  • October 24: Midterm Exam
  • November 13: Quiz 2
  • November 20: Case Due
slide6
What is Corporate Finance

The Classical Objective Function

STOCKHOLDERS

Hire & fire managers

-Board

-Annual Meeting

Maximize stockholder wealth

No social costs

Lend $

BONDHOLDERS

MANAGERS:

-Operation decisions

SOCIETY

Protect bondholder interests

Costs can be traced to firm

Reveal information honestly and on time

Markets are efficient & assess effect on value

FINANCIAL MARKETS

slide7
What can go wrong?

STOCKHOLDERS

Have little control over managers

Managers put their interests above stockholders

Significant social costs

Lend $

BONDHOLDERS

MANAGERS:

-Poor Operation decisions

SOCIETY

Bondholders can get ripped off

Some costs can not be traced to firm

Delay bad news or provide misleading information

Markets make mistakes and can over- or under-react

FINANCIAL MARKETS

slide8
Advanced topics: Counter actions

STOCKHOLDERS

  • More activist investors
  • Hostile takeovers

Managers of poorly run firms are put on notice

Corporate good citizen constraints

Protect themselves

BONDHOLDERS

MANAGERS

SOCIETY

  • Covenants
  • New type
  • More laws
  • Investor/Customer backlash

Firms are punished for misleading information

Investors and analysts become more skeptical

FINANCIAL MARKETS

important concepts from afm272
Important concepts from AFM272
  • Time value of money
    • Perpetuities, annuities
  • Risk adjustments
    • CAPM:

E(Rj) = Rf + βj [E(Rm) – Rf]

  • Capital budgeting
    • NPV rule
basic principles
Basic Principles

Objective: Maximize the Value of the Firm

  • Invest in projects that yield a return greater than the minimum acceptable hurdle rate (i.e. that have positive NPV)
    • The hurdle rate should reflect the (systematic) risk of the project and the financing mix used
  • Choose a financing mix that minimizes the hurdle rate
  • If there are not enough investments that earn the hurdle rate, return the cash to the owners of the firm
    • The form of returns - dividends and stock buybacks - will depend upon the stockholders’ characteristics
another important principle no arbitrage
Another important principle: No-arbitrage
  • a.k.a. the “law of one price”
  • arbitrage involves the simultaneous purchase and sale of assets in such a way as to generate risk free profit at zero cost (a free lunch)
  • in well-functioning capital markets, arbitrage opportunities will be extremely rare and will not last for long
  • another way of thinking about this idea is that any two assets with identical future cash flows must sell for the same price today (or else there would be an arbitrage opportunity)
  • though simple, this is a surprisingly powerful idea that is widely used in financial theory and practice
what will be covered in afm372
What will be covered in AFM372
  • Interactions with stock and bond markets: How to raise money?
    • Chapters 14, 15, 20, 21
  • Deciding the right financing mix
    • Chapters 16—18
  • Dividend policy
    • Chapter 19
  • Financial Derivatives & Risk management
    • Chapters 23—26
  • Special topics
    • Leasing (ch. 20), M&A (ch. 31)
ad