1) The document outlines key lessons learned from a corporate finance course, including that companies should choose projects and capital structures that maximize shareholder value. 2) Capital budgeting involves finding and analyzing long-term investment projects using techniques like payback period, NPV, and IRR to select projects that maximize shareholder value. 3) When raising external equity or debt, companies should consider the various financing options and terms to minimize their overall cost of capital.

1. Lessons Learned
Corporate Finance

2. Disclaimer
This is not intended to be a condensed outline of the course,
but simply what I took as key takeaways. In some courses
there are many areas discussed that aren’t contained in these
slides, as they are items I was already familiar with and didn’t
feel the need to document or felt they wouldn’t be useful to me
in my current career. I think of these as my “cheat sheet” of
material that can help me in my current & future roles and are
DRAFT…like Google’s Beta are subject to change – Matt
Crane
Boulton, Tom. (2011). Course presented on Applied Advanced
Corporate Finance. Miami University, Oxford & Cincinnati, OH.

3. Overview
• It’s all about maximizing shareholder value
– Choose projects with positive/largest NPV
– Choose capital structure that minimizes cost
of capital
• Separating ownership & management =
Agency Costs

4. Capital Budgeting
• Budgeting for long-term projects
– Find projects/investments
– Analyze them
• Payback period (cumulative), NPV (>0), IRR (>hurdle rate or if
NPV>0 using hurdle rate)
– Implement and report results
• All projects should consider:
– Time value of $
– Risk
– Cash flows
– Ranking of competing projects
– What project(s) will maximize shareholder value

5. External Equity
• IPO:
– Underwriter advises, buys, & resells offering
– Greenshoe option: underwriter can sell more shares if
oversubscribed
– Roadshow:
• Bookbuilding vs. Fixed Price vs. Auction
– Spread: diff b/w underwriter and public prices
• Seasoned offering: additional offering of traded
firm
• Private placement: sell shares privately

6. External Debt
• International bonds:
– Eurobond: selling bond in country but not with that
currency
– Foreign bond:
• Eurobond – selling a dollar-denominated bond to investors in
Europe
• Foreign bond - Selling foreign currency-denominated bonds
in that country
– Why (top 3)?
• Hedging foreign operations
• Keep funds locally
• Favorable foreign tax treatments

7. Bond Terms
• Indenture: agreement
• Registered: company records show ownership (vs.
Bearer – coupons must be turned in)
• Accrued interest: interest earned since last payment
– Dirty price: includes accrued interest (European markets)
– Clean price: doesn’t include accrued interest (US markets)
• Sinking fund: retires par before maturity
• Putable bond: bondholder can demand payment
• Covenants: limitations by bondholders on the firm
• Debentures: long-term unsecured debt
• Convertible: converts into stock, etc
• CDS: contract/insurance against default

8. Seniority ranking
• Bank debt
– Senior secured
• Senior unsecured
– Senior subordinated
» Subordinated
» Junior subordinated

9. Stock Repurchases & Dividends
• Repurchases:
– Open market
– Tender offer to shareholders
– Dutch Auction
– Private negotiation (Green Mail)
• Dividends:
– Ex-dividend: holder before this date gets
dividend (2 days before)

10. M&A
• Horizontal, Vertical, or Conglomerate
• Buyers:
– Strategic
– Financial
• Sale:
– Private negotiation
– Controlled sale
– Auction
– Unsolicited expression of interest
• Bootstrap game: short-term boost in P/E

11. Private/Public Takeover Process
• Deal initiation
• Select deal advisors (investment bank/lawyers)
• Target contacts bidders (bidders get advisors)
• Confidentiality/Standstill
• Indications of interest
• Formal private bids
• Takeover agreement
• Takeover announcement
• Public bidding
• Approval of deal
• Deal completion

12. Takeover Methods & Defenses
• Methods:
– Proxy contest
– Acquisition
– LBO
– Management Buyout
– Merger
– Tender Offer
• Defenses:
– White Knight (friendly partner)
– Shark Repellent (amendments to charter)
– Poison Pill (actions taken by shareholders to thwart acquisition)
– Green Mail (premium paid to acquiror to call off bidding)

13. Restructuring
• Divestiture: sale of assets to outside party
• Spin-off: create new legal entity w/ shares
of entity going to parent shareholders as
dividend
• Equity Carve-Out: like spin-off but raises
cash for parent like divestiture

14. Bankruptcy Process
• Ch 11:
– File in federal bankruptcy court
– Appoint DIP/court trustee
– Develop/present reorg plan
– Accept reorg plan:
• Creditors: 2/3 of $ value + simple majority of each group
• Shareholders: 2/3 in each group
• Bankruptcy court: approve or can cram down
– DIP pays court-approved expenses
• Payouts (if liquidated and order of importance):
– Secured creditors
– Admin (lawyers, accountants, etc)
– Statutory (taxes, rent, unpaid wages, etc)
– Equity