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Εισαγωγή στα Χρηματοοικονομικά (Διάλεξη)

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2016-2017

Corporate finance is the area of finance dealing with the sources of funding and the capital structure of corporations and the actions that managers take to increase the value of the firm to the shareholders, as well as the tools and analysis used to allocate financial resources. The primary goal of corporate finance is to maximize or increase shareholder value.

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...t1t0t2t3tn-100-200+800t1t0t2t3tn-200-100 -1802

(Present Value) / (Future Value) (Interest rate) (exchange rate) , :Discount rate / Cost of capital / Opportunity cost of capital / Required return

4.7Its important to point out that there are many different ways to refer to the interest rate that we use in time value of money calculations. Students often get confused with the terminology, especially since they tend to think of an interest rate only in terms of loans and savings accounts.

1000 5%. := 1000*(.05) = 50 = + = 1000 + 50 = 1050 (FV) = 1000*(1 + .05) = 1050 2 : FV = 1000(1.05)(1.05) = 1000(1.05)2 = 1102.50

4.8

FV = PV(1 + r)tFV = future value ( )PV = present value ( )r = period interest rate ( )t = number of periods (# )

() , 150 17 . 8% , ;t = 17; r = 8; FV = 150,000PV= 150,000 / (1.08)17 = 150,000(.270268951) = 40,540.34

4.10

5-11Discount Rate Example 1You are looking at an investment that will pay $1200 in 5 years if you invest $1000 today. What is the implied rate of interest?r = (1200 / 1000)1/5 1 = .03714 = 3.714%Calculator the sign convention matters!!!N = 5PV = -1000 (you pay 1000 today)FV = 1200 (you receive 1200 in 5 years)CPT I/Y = 3.714%

4.11It is very important at this point to make sure that the students have more than 2 decimal places visible on their calculator.

Efficient key strokes for formula: 1200 / 1000 = yx 5 1/x = - 1 = .03714

If they receive an error when they try to use the financial keys, they probably forgot to enter one of the numbers as a negative.

5-12Number of Periods Example 1You want to purchase a new car and you are willing to pay $20,000. If you can invest at 10% per year and you currently have $15,000, how long will it be before you have enough money to pay cash for the car?I/Y = 10; PV = -15,000; FV = 20,000 t = ln(20,000 / 15,000) / ln(1.1) = 3.02 years

4.12Formula: t = ln(20,000 / 15,000) / ln(1.1) = 3.02 years

7,000, 4,000 , 3 , 8%. 3, , : ( 0): FV = 7000(1.08)3 = 8,817.98 1: FV = 4,000(1.08)2 = 4,665.60 2: FV = 4,000(1.08) = 4,320 3: value = 4,000 3 ()= 8817.98 + 4665.60 + 4320 + 4000 = 21,803.58

5.13The book discusses that there are two ways to work this problem. The first method, computing the FV one year at a time and adding the cash flows as you go along, is illustrated in Example 6.1 in the book. The slides illustrate the other method, finding the future value at the end for each cash flow and then adding.

Point out that you can find the value of a set of cash flows at any point in time, all you have to do is get the value of each cash flow at that point in time and then add them together.

The students can read the example in the book. It is also provided here.

You think you will be able to deposit $4,000 at the end of each of the next three years in a bank account paying 8 percent interest. You currently have $7,000 in the account. How much will you have in three years? In four years?

Point out that there are several ways that this can be worked. The book works this example by rolling the value forward each year. The presentation will show the second way to work the problem.

Calculator:Today (year 0 CF): 3 N; 8 I/Y; -7000 PV; CPT FV = 8817.98Year 1 CF: 2 N; 8 I/Y; -4000 PV; CPT FV = 4665.60Year 2 CF: 1 N; 8 I/Y; -4000 PV; CPT FV = 4320Year 3 CF: value = 4,000Total value in 3 years = 8817.98 + 4665.60 + 4320 + 4000 = 21,803.58Value at year 4: 1 N; 8 I/Y; -21803.58 PV; CPT FV = 23,547.87

I entered the PV as negative for two reasons. (1) It is a cash outflow since it is an investment. (2) The FV is computed as positive and the students can then just store each calculation and then add from the memory registers, instead of writing down all of the numbers and taking the risk of keying something back into the calculator incorrectly.

: (Net Present Value) ( ) &

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8.14If the NPV is positive, accept the projectA positive NPV means the project is expected to add value to the firm and will therefore increase the wealth of the owners.Since our goal is to increase owner wealth, NPV is a direct measure of how well this project will meet our goal.

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7.16See the instructors manual for a discussion of the tax law changes regarding dividends received by individuals

Dividend exclusion: If corporation A owns less than 20% of corporation B stock, then 30% of the dividends received from corporation B are taxable. If A owns between 20% and 80% of B, then 20% of the dividends received are taxable. If A owns more than 80%, a consolidated statement can be filed and dividends received from B are essentially untaxed.

F: Par value (face value)r: Coupon rateC: Coupon paymentt: Maturity dateYield or Yield to maturity

PV of coupons

PV of par

YTM is the interest rate an investor would earn by investing every coupon payment from the bond at a constant interest rate until the bonds maturity date. The present value of all of these future cash flows equals the bonds market price. The calculation can be presented as:

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Figure 12.4

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(Interest Rate Risk) High coupon rate bonds have more reinvestment rate risk than low coupon rate bonds.

& Risk PremiumsInvestmentAverage ReturnRisk PremiumLarge stocks12.4%8.6%Small Stocks17.5%13.7%Long-term Corporate Bonds6.2%2.4%Long-term Government Bonds5.8%2.0%U.S. Treasury Bills3.8%0.0%

3.8%

10.23The extra return earned for taking on riskTreasury bills are considered to be risk-freeThe risk premium is the return over and above the risk-free rate

Ask the students to think about why the different investments have different risk premiums.

Large stocks: 12.4 3.8 = 8.6Small stocks: 17.5 3.8 = 13.7LT Corp. bonds: 6.2 3.8 = 2.4LT Govt. bonds: 5.8 3.8 = 2.0

A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations of $1,000 up to a maximum purchase of $5 million and commonly have maturities of one month (four weeks), three months (13 weeks) or six months (26 weeks).

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There are many investors out there doing researchAs new information comes to market, this information is analyzed and trades are made based on this informationTherefore, prices should reflect all available public informationIf investors stop researching stocks, then the market will not be efficient

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Corporate Finance

:Equity Financing. Initial Public Offering Loan Financing. Syndicated Loans Bond Financing Trade Finance

Capital structure - Motivation Use internal funds (retained earnings & depreciation) to finance new investments? Issue debt or equity to fill the financing gap of new investments? Is there a role for issuing hybrid securities, like convertible bonds? The role of banks (short- and medium-term debt, underwriting public issues etc.) Basic questions Does choice between debt and equity (capital structure/debt policy) create wealth? Does pay-out (dividend) policy matters for value of the firm?

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(Corporate Finance)

Corporate finance is the area of finance dealing with the sources of funding and the capital structure of corporations and the actions that managers take to increase the value of the firm to the shareholders, as well as the tools and analysis used to allocate financial resources. The primary goal of corporate finance is to maximize or increase shareholder value.

Although it is in principle different from managerial finance which studies the financial management of all firms, rather than corporations alone, the main concepts in the study of corporate finance are applicable to the financial problems of all kinds of firms.

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Corporate FinanceCapital structure - Motivation Use internal funds (retained earnings & depreciation) to finance new investments? Issue debt or equity to fill the financing gap of new investments? Is there a role for issuing hybrid securities, like convertible bonds? The role of banks (short- and medium-term debt, underwriting public issues etc.) Basic questions Does choice between debt and equity (capital structure/debt policy) create wealth? Does pay-out (dividend) policy matters for value of the firm?

Differences between book value and market value Book value is backward looking measure. Tells how much capital the firm has raised from shareholders in the past. Does not measure value that shareholders place on those shares today. Market value of the firm is forward looking. Depends on future dividends and free cash flows.

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& Modigliani Miller Irrelevance Theorem ( , )Modigliani - Miller Theorem ( )Static Trade-off Theory ( )Free-Cash Flow Theory ( - agents)Debt Overhang ( )

Financial decisions are irrelevant for firm value-Therefore, choice of capital structure is irrelevant for firm valuation Value is created only through investment decisions Intuitive Proof: Financing transactions are zero NPV investments (no arbitrage opp.) Neither increase nor decrease firm value.

Static trade-off:

Force (through corporate governance mechanisms) the firm not to keepdebt very low. This will make managers behave to the interests of the firm. Debt will enable better monitoring and encourage more wealth-generationby the firm.

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1. Modigliani - Miller Theorem

=

2. Modigliani - Miller Theorem ( )

3. Static Trade-off Theory ( )

4. Free-Cash Flow Theory ( - agents)

5. Debt Overhang ( ) (pay investment?) (seniority) (debt for equity exchange (swap), debt forgiveness or rescheduling)

6. , (Vs. , )

7. & (tech world) (IPO) : VC &

Apple, Microsoft, Google $258*bn & : , (, )

*2014

But..Two-tier capital structures (voting vs. non-voting shares), immune founding entrepreneurs/managers from shareholder pressure, ruling out hostile takeoversHard to vote-out CEO (esp. US and Japan). Anglo-Saxon notion of equity as residual claim does not fit. Main stakeholders are the managers and employees(Non-voting) equity investors hope for capital gains and not run-out of growth

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(Pecking order) ,

, : (Convertible)

At core of the theory are asymmetric information and moral hazard issues.

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& Tax ShieldStatic Trade-off Theory Free-Cash Flow Theory

Debt OverhangPecking Order123..

http://visual.ly/how-startup-funding-works