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FI 3300 - Corporate Finance - AUG30 Lecture

by: Mariah Law

FI 3300 - Corporate Finance - AUG30 Lecture FI 3300

Marketplace > Georgia State University > FI 3300 > FI 3300 Corporate Finance AUG30 Lecture
Mariah Law

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These notes come from mostly the power point from the 1st lecture but as well as some of the things he added to it. The formulas are highlighted.
Corporation Finance
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This 8 page Class Notes was uploaded by Mariah Law on Tuesday August 30, 2016. The Class Notes belongs to FI 3300 at Georgia State University taught by Fendler in Fall 2016. Since its upload, it has received 28 views.


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Date Created: 08/30/16
[FI3300­ Corporate Finance­ Online Lecture Aug 30] Introduction and Chp 1 & 2 Overview *Reminder : make sure to take weekly quizzes, Take home problem  sets and continue readings Agenda  : ­how chat sessions work Pre­session quizzes ­questions about course ­into to finance ­review of financial statements  The income statement  The balance sheet CHAT SESSIONS  Some sessions will be on collaborate (mainly)  Occasionally, class will be in the iCollege "typing" chat room  Will go over solutions to problems in the chats *reminder* : only email with GSU email account, not through iCollege Use subject : FI 3300 Online Student THPS1 ­print these out and complete them ­there will be a submission form (open next Tues. After chat) ­due Sept. 8 (12:00 pm) ­accounting review ­simple math ( +,­,*, /) INTRODUCTION TO FINANCE divided into sub­subject areas: ­corporate financial management ­investments ­financial markets & institutions All areas are inter­connected: The firm<­> Financial Markets <­> Investors <­> Financial Institutions Financial Management *where we will focus  ­Manage the company's short­term assets and liabilities  Manage cash, accounts receivable and inventory  Manage short term loans (notes payable), accounts payable and  accruals 2 ­determine what long­term investments should be undertaken?  Buildings  Machinery  Equipment  R & D ­determining where to get the long­term financing needed?   Debt (borrow money from bank and/or issue bonds)  Equity (sell stock and/or retain earnings) Goal of Financial Management   For publicly traded corporations, shareholders own the firm  Shareholders desire one thing: o Increased wealth  Must manage finances of the firm in a way that maximizes  shareholder wealth  How? o We will find out later in the semester Market Values  Market value of debt = number of bonds outstanding times price per bond  Debt value is largely outside control of financial manager  Market value of equity = number of shares outstanding times price per share  Goal is to maximize market value of equity (i.e., shareholder wealth) 3  Maximize market value of assets (if A increases with D constant, then E increases = increased shareholder wealth) *Market value = debt of any asset in the PRESENT VALUE of all  expected future cash flows  Assume you expect to receive $100,000 exactly 5 years from  today o Worth today is the present value o Function of amount, time and risk Balance sheet view of firm ______________________ Assets            |           Debt Equity Unlike accounting, in finance all value are MARKET values (not book  values) Like accounting, market value balance sheets must balance (A=D+E) 4 How increase the market value?   Manage assets so as to maximize the future cash flow, generate expected amounts sooner rather than later and minimize the  riskiness of the cash flows  What could GM do to increase the market value of its assets  (and therefore increase shareholder equity)? *Make all of the assets better *Invest to increase future cash flow *Increase value : Spend money to make money FINANCIAL STATEMENT RELATIONSHIPS Income Statement Revenue COGS Gross profit Operating Exp Depreciation Operating profit Interest 5 Earnings before taxes Taxes Net Income *We assume that all income statements are from retail businesses Income Statement Equations Gross revenue – allowances = net revenue ­allowances can be established for: ­bad debt ­returns ­net revenue is the top figure that most companies report on their income statement (net revenue = sales) COGS = number of units sold * cost per unit FIFO, LIFO or average cost COGS = beginning inventory + purchases – ending inventory Depreciation expense on income statement ­>  change in  accumulated depreciation from the balance sheet                                             2012                   2013                  2014 6 Ex: gross fixed assets       $100,000              150,000              180,000 (accumulated depreciation)  (20,000)             (28,000)            (31,000) Net fixed assets                    80,000               122,000             149,000 Depreciation expense on IS                             8,000                    3,000 Interest expense : interest rate x amount of debt outstanding Taxes = tax rate  x   earnings before taxes (EBT) Change in RE (retained earnings) = net income ­ dividends Retained Earnings : money that has been reinvested back into the firm over the firm's entire history Additional paid in capital : amount of money that was raised when the  stock was sold OVER AND ABOVE par value per share A = D + E  Net accounts receivable = gross accounts receivable ­ allowances Ending Inventory (on the balance sheet) = beginning inventory +  purchase – COGS Net fixed assets = gross fixed assets – accumulated depreciation 7 Change in accumulated depreciation (from one accounting period to  the next) is the depreciation on the income statement for the latter  accounting period.  Total long­term debt = current portion of long­term debt + long term  debt  Current portion – will be paid off this accounting period  Long­term debt – will be paid off in the future  Current liabilities = notes payable + accounts payable + accruals +  current portion of long­term debt     * notice that says the current portion Change in RE = net income – dividends paid  8


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