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Theme 2: Corporate finance is focused…
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¨ It is the focus on maximizing the value of the business
that gives corporate finance its focus. As a result of this
singular objecDve, we can
¤ Choose the “right” investment decision rule to use, given a menu of such rules. ¤ Determine the “right” mix of debt and equity for a specific business ¤ Examine the “right” amount of cash that should be returned to the owners of a business and the “right” amount to hold back as a cash balance.
¨ This cerDtude does come at a cost. To the extent that
you accept the objecDve of maximizing firm value,
everything in corporate finance makes complete sense.
If you do not, nothing will.
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Theme 3: The focus in corporate finance
changes across the life cycle…
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Assets Liabilities Investments already made
Debt
Equity
$ 7 billion
Investments yet to $ 11 billion be made
$ 15 billion
$ 3 billion
Con Ed’s Financial Balance Sheet
$ 13.6 billion
$ 0.00 billion
13.35 billion
$0.25 billion
Assets Liabilities Investments already made
Debt
Investments yet to Equity be made
Linkedin's Financial Balance Sheet
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Theme 5: If you violate first principles, you will
pay a price (no maaer who you are..)
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¨ There are some investors/analysts/managers who
convince themselves that the first principles don’t
apply to them because of their superior educaDon,
standing or past successes, and then proceed to put
into place strategies or schemes that violate first
principles.
¨ Sooner or later, these strategies will blow up and
create huge costs.
¨ Almost every corporate disaster or bubble has its
origins in a violaDon of first principles.
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Outline for Class
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Chapter references…
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Grading DistribuDon
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Exam Ground Rules
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- Quizzes will be on the designated days in the first 30 minutes of the class.
- Exams will be open book, open notes. You can bring in as much supporDng material as you can carry.
- Exams are NOT group work. You cannot consult with, talk to, communicate with or pass telepathic (or text) messages to anyone else in or out of the classroom. There are no cultural excepDons.
- When Dme is called on the quiz, please stop wriDng.
- Each quiz is worth 10%.
- If you have to miss a quiz for good reason, you will have to let me know (by email) at least 15 minutes before the quiz that you will be missing the quiz.
- If you miss a quiz for good reason, the 10% weight on that quiz will be reallocated across your remaining exams (quizzes and final). You cannot weight prior quizzes more.
- If you take all three quizzes, the score on your worst quiz will be pushed up to the average score across all of your other exams (the other two quizzes and the final exam) (Note: It will not be thrown out). If you miss a quiz, you will not have this opDon, even if you miss the quiz for good reason.
- I grade all of your quizzes and I give parDal credit. So, please show all work. If you have a beef with the grading (and I do make mistakes), please come to me
- You can bring calculators to the quiz but you cannot use your laptop (yet). Good reasons for missing quiz: Physical or mental sickness (you, spouse or child), Stalled subway train, Important interview (and you cannot change Bme), Tickets to Yankee Opening day. Not good reasons for missing quiz: Did not have Bme to prepare, Feeling overwhelmed, Not quite ready, Tickets to Red Sox or Mets opening day.
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Rules of Engagement for class and group work
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¨ Rules of group work
¤ Pick your own groups. (If you have trouble geyng picked, I will help) ¤ All group work will be self policed, except in extreme circumstances. ¤ There will be one grade per group, no maaer how the work load is distributed among the group members
¨ Rules for class
¤ I do not enforce aaendance, but I would really like you to be here. Of course, if you have to miss a class, you can always use the webcast as a fall-‐back. ¤ Cell phones … (Please, need I say more..) ¤ All parDcipaDon is welcome.
