1. Corporate Finance

2. Financial Role Financial Role Better Product at low Prices Better Product at low Prices High remunerations High remunerations Development of Managers/Employees Development of Managers/Employees Maximize return to Investors Maximize return to Investors Contributes in well being of economy. Contributes in well being of economy.

3. Basic Areas Of Finance Corporate Finance Corporate Finance Investment Investment Financial Institutions Financial Institutions International Finance International Finance

4. Domain of Corporate Finance Acquisition Acquisition Use of capital Use of capital Value maximization Value maximization

5. Why Study Finance? Marketing and Finance Marketing and Finance Marketers have to work with budgets Marketers have to work with budgets Need to get greatest payoffs from marketing expenditures and programs - Cost and Benefit analysis of projects Need to get greatest payoffs from marketing expenditures and programs - Cost and Benefit analysis of projects - So finance is vital for - So finance is vital for Marketing research Marketing research Design of marketing and distributions channels Design of marketing and distributions channels Product pricing Product pricing

6. Why Study Finance? Accounting and Finance Accountants are required to make financial decisions as well as understand the Accountants are required to make financial decisions as well as understand the implications of new financial contracts implications of new financial contracts Financial analysts make extensive use of accounting information Financial analysts make extensive use of accounting information Management and Finance Business Strategy is always disastrous if financial planning is not adhered to. Business Strategy is always disastrous if financial planning is not adhered to.

7. What is Finance In order to start any new business, the following issues become vital In order to start any new business, the following issues become vital What long-term investment should be taken on? What long-term investment should be taken on? From where to get the long-term financing to pay for investment? Bring in other owners or borrow the money? From where to get the long-term financing to pay for investment? Bring in other owners or borrow the money? How to manage everyday financial activities? How to manage everyday financial activities?

8. Responsibilities of Financial Manager Forecasting & Panning: Forecasting & Panning: Investment & Financing Decisions: Investment & Financing Decisions: Coordination & Control: Coordination & Control: Interaction With Capital Market: Interaction With Capital Market:

9. Hypothetical Organization Chart

10. Corporate Finance and Financial Manager Financial Management Decisions Financial Management Decisions Capital Budgeting Capital Budgeting Capital Structure Capital Structure Working Capital Management Working Capital Management

11. Financial Management Decisions Capital Budgeting Capital Budgeting The process of planning and managing a firm’s long- term investments The process of planning and managing a firm’s long- term investments Financial managers concern with how much, when and how likely is cash expected to receive Financial managers concern with how much, when and how likely is cash expected to receive Evaluating the size, timing and risk of future cash flows is the essence of capital budgeting Evaluating the size, timing and risk of future cash flows is the essence of capital budgeting

13. The Capital Budgeting Decision

14. The Capital Structure Decision

16. Capital Structure The value of the firm can be thought of as a pie. The value of the firm can be thought of as a pie. The goal of the manager is to increase the size of the pie. The goal of the manager is to increase the size of the pie. The Capital Structure decision can be viewed as how best The Capital Structure decision can be viewed as how best to slice up the pie. to slice up the pie. If how you slice the pie affects the size of the pie, then If how you slice the pie affects the size of the pie, then the capital structure decision matters. the capital structure decision matters.

17. The Net Working Capital Investment Decision

18. Changing Role Of Financial Management

19. Alternative Form of Businesses

20. Forms of Business Organization Three major forms Sole proprietorship Sole proprietorship Partnership Partnership General General Limited Limited Corporation Corporation Limited liability company Limited liability company

21. The Corporate Firm The corporate form of business is the standard method for solving the problems encountered in raising large amounts of cash. The corporate form of business is the standard method for solving the problems encountered in raising large amounts of cash. However, businesses can take other forms. However, businesses can take other forms.

22. Corporation A business created as a distinct legal entity owned by one or more individuals or entities. A business created as a distinct legal entity owned by one or more individuals or entities. Forming of corporation involves preparing Forming of corporation involves preparing Charter including corporation’s name, intended life, business purpose and number of Charter including corporation’s name, intended life, business purpose and number of shares shares Set of bylaws which describes the regulations for the business Set of bylaws which describes the regulations for the business

23. Corporation Advantages Advantages Limited liability Limited liability Unlimited life Unlimited life Separation of ownership and management Separation of ownership and management Transfer of ownership is easy Transfer of ownership is easy Easier to raise capital Easier to raise capital Disadvantages Disadvantages Separation of ownership and management Separation of ownership and management Double taxation (income taxed at the corporate rate and then dividends taxed at personal rate) Double taxation (income taxed at the corporate rate and then dividends taxed at personal rate)

25. Goal Of Corporation Stockholder wealth maximization Stockholder wealth maximization Social Responsibility Social Responsibility Normal profits Normal profits Oligopolistic Oligopolistic Business Ethics Business Ethics Stock price maximization Stock price maximization

26. The Set-of-Contracts Perspective The firm can be viewed as a set of contracts. The firm can be viewed as a set of contracts. One of these contracts is between shareholders and managers. One of these contracts is between shareholders and managers. The managers will usually act in the shareholders’ interests. The managers will usually act in the shareholders’ interests. The shareholders can devise contracts that align the incentives of the managers with the The shareholders can devise contracts that align the incentives of the managers with the goals of the shareholders. goals of the shareholders. The shareholders can monitor the managers behavior. The shareholders can monitor the managers behavior. This contracting and monitoring is costly. This contracting and monitoring is costly.

27. Agency Problems Principals Principals Agents Agents Stock Holders Stock Holders Creditors Creditors

28. Leveraged Buyouts A situation in which a group, often management, uses credit to purchase the outstanding shares of the company. Arrange a line of credit Arrange a line of credit Makes a Tender Offer Makes a Tender Offer Takes the company private Takes the company private

29. Hostile Takeover Hostile takeovers (where management does not want the company to be taken over) are most likely to occur when company’s stock in under valued relative to its potential because of poor managerial decisions

30. Proxy Fight An attempt to gain control of firm by soliciting stockholders to vote for a new management team.

31. Agency Cost The cost associated with monitoring managements actions to insure that those actions are consistent with contractual agreement between manager, stock holder and creditors

32. Agency Cost Monitoring expenditure Monitoring expenditure Structuring expenditure Structuring expenditure Opportunity cost Opportunity cost

33. Business Combinations

34. Merger It refers to the combination of two or more corporations in such a way that legally just one corporation survive, while the other is dissolved according to laws of the state. It refers to the combination of two or more corporations in such a way that legally just one corporation survive, while the other is dissolved according to laws of the state.

35. Consolidation Consolidation occurs when two or more corporation combine to create an entirely new corporate entity.

36. Types of Mergers Congeneric Mergers Congeneric Mergers Occurs between firms that have related business interests. Conglomerate Mergers Conglomerate Mergers Occurs when unrelated businesses combine.

37. How Merges are Effected Friendly Takeovers Friendly Takeovers Purchase of Assets Purchase of Assets Purchase of Stocks Purchase of Stocks Hostile Takeovers Hostile Takeovers Tender Offer Tender Offer Proxy fight Proxy fight

38. Language Of Merges & Acquisitions Blank Check Blank Check Authorizing issuance of new shares at the discretion of BOD. Giving voting right to vote down HT. Authorizing issuance of new shares at the discretion of BOD. Giving voting right to vote down HT. Shark Repellents Shark Repellents Amending charter or bylaws to make HT more complex Poison Pills Poison Pills An action taken by firm to make it unattractive to potential buyers in an attempt to avoid hostile takeover.

39. Language Of Merges & Acquisitions Scorched Earths Scorched Earths Implementing a defensive strategy that may threaten the very survivability of the target. Pac-Man Strategy Pac-Man Strategy Trying to buy each other by buying the stock. Greenmail Greenmail A situation in which firm trying to avoid a takeover, offers to buy back stock at price above than marker price.

40. Language Of Merges & Acquisitions White Knight White Knight Coming to the rescue of a target firm threatened by a hostile takeover. Crown Jewel Crown Jewel Referring to a very highly profitable division owned by the target firm which is especially sought after by the acquiring firm.

41. Corporate Restructuring Sell off Sell off Liquidation Liquidation Going Private Going Private LBO LBO

42. Agency Problems Managers vs Stockholders Managers vs Stockholders Stockholders vs Creditors Stockholders vs Creditors

43. Dividend Policy Stock prices is dependent Stock prices is dependent Projected EPS Projected EPS Timing of the earnings stream Timing of the earnings stream Riskiness of projected earnings Riskiness of projected earnings Use of debt Use of debt Dividend policey Dividend policey