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copfineverything

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    copfineverything copfineverything Presentation Transcript

    • Corporate Finance Everything….. R Srinivasan
    • Corporate Finance
      • Valuation and Cost of capital
      • Capital budgeting
      • Capital structure, financing and dividend policy
      • Working capital
    • Valuation
      • Generalised valuation
      • Arbitrage and value additivity
      • Patterns
      • Level perpetuity
      • Growing perpetuity
      • Level annuity
      • Growing finite cash flow
    • Valuation
      • Growing finite [t years] cash flow
      • C 1 /(r-g){1-(1+g) t /(1+r) t }
    • Valuation
      • Compounding intervals (1+r/m) m -1
      • Continuous compounding
      • Stated and effective rates
      • Nominal and real rates
      • 1+r nominal =(1+r real )(1+inflation rate)
    • Valuation: Straight Bonds
      • YTM
      • Duration
      • Sensitivity of value to changes in interest rates
      • [1*PV(C1)/V]+[2*PV(C2)/V]+[3*PV(C3)/V]
      •  V/V =  (1+r)/(1+r)*D
    • Valuation: Common Stock
      • Perpetual growth models
      • Sustainable growth
      • P 0 =No-Growth +PVGO
      • No-growth =EPS 1 /r
      • PVGO=NPV 1 /(r-g)
      • where NPV 1 =-INV 1 +INV 1 *ROE/r
      • g=Ploughback*ROE
      • EPS 1 /P 0 interpretation
    • Valuation
      • Multiple stages
      • Supernormal stage plus PV of normal growth
      • Free cash flow
      • NOI approach
    • Cost of Capital
      • Security return and standard deviation
      • Portfolio return and standard deviation
      • Diversification Portfolio variance=
      • 1/N Average Var+(N-1)/N Average covariance
      • Systematic and unsystematic risk
      • CAPM
      • Opportunity cost of capital r [r A ]and
      • Adjusted cost of capital r*
    • Cost of Capital
      • 1. V L = V U +T c *D
      • 2. WACC = D/V * (1-T c ) * r D +E/V * r E [Definition of WACC]
      • 3. r E = r A + (r A - r D ) * (1- T c ) * D/E [MM Proposition II]
      • 4.  E = {1+ (1- T c ) * D/E} *  A [If debt is risk free]
      • 5. r E = r f + (r M - r f ) *  E [CAPM]
      • 6. WACC= r A *(1- T c * D/V) MM
    • Valuation
      • Contingent cash flow
      • Call/Put
      • American/European
      • Binomial
      • Black-Scholes
      • Underlying asset price, Exercise Price, Risk-free rate, Volatility, Time
    • Capital Budgeting
      • NPV and IRR not payback and accounting rate of return
      • Accept/reject single project use NPV or IRR, unless no/multiple IRR
      • Mutually exclusive projects: Same life and risk
      • Use NPV [or IRR of difference between projects]
    • Capital Budgeting
      • Mutually exclusive projects: Different lives same risk
      • Use NPV-assumes replacement projects have zero NPV. OK for projects with long lives
      • Use NPV-with specific replacements that make project with comparable lives
      • Use replacement chain or EAC
      • Care: Use only real cash flows for EAC
    • Capital Budgeting
      • Incremental nominal cash flows with empirically measured discount rate
      • Components of cash flow
      • Investment in fixed assets, salvage value
      • Investment in working capital, release
      • Operating revenues/expenses
      • NO INTEREST
    • Capital Budgeting
      • NPV assumes “now or never”
      • Real Option framework
      • Abandonment
      • Follow-up
      • Wait and learn
      • Flexibility
    • Capital structure
      • Market Efficiency
      • MM-1 No taxes
      • MM-2 Corporate taxes
      • Miller Both corporate and personal taxes
      • G L = {1-(1-T C )*(1-T pE )/(1-T p )}
      • Bankruptcy costs
      • Agency costs
    • Dividends
      • MM Does not matter
      • Lintner behavioural model
      • DIV 1 -DIV 0 =Adjustment rate*(target ratio*EPS 1 -DIV 0 )
      • Agency costs/signalling
    • Working Capital Management
      • Operating cycle, cash conversion cycle, weighted cycles and supply chain management
      • Investment in receivables
      • Cash management
      • EOQ and Miller-Orr models