FINA 60013: Management of Financial Resources

FINA 60013: Management of Financial Resources


Fall 2008Fall 2008


Vassil Mihov

About me

• Vassil Mihov • Ph.D. in Finance (Purdue)• Associate Professor with tenure• My research Interests:

– Corporate finance; Options markets– Publications in the Journal of Finance,

the Journal of Financial Economics, and others

• Won the Neeley School Teaching Award for MBA core classes (2004), Mortar Board Preferred Professor (2001,2002)


Vassil Mihov

How to reach me

• E-mail: [email protected]• Office Phone: (817) 257-7147• Mobile Phone: (817) 793-0076• Office: Tandy 384• Office hours: Mon. and Wed., 1-

2 p.m.


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Class Overview

• Core course in finance• Focus:

– How do we value things? Value of financial instruments (stocks, bonds)

Value of “real” items: a sports car

Value of a service: education Political Futures Markets?


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How much are Michael Phelps's 8 gold medals worth?

?

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Course Topics

• Opportunity Cost of Capital and Discounted Cash Flow Valuation

• Capital Budgeting• Risk and Return• Capital Structure and Payout Policies• Corporate Governance and Control


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Readings for the Course

• Required Text: Berk and DeMarzo, Corporate Finance, First Edition


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Other Sources

• The Wall Street JournalPremier source for news and analysis You already subscribe!

• Financial sites online:Finance.yahoo.commoneycentral.msn.com

wrds.wharton.upenn.edu

• Bloomberg


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Useful tools

• Excel • Calculators will help you a great deal:

– Required capabilities: Time Value of Money and Net Present Value Worksheets

• I recommend: – Texas Instruments BA II Plus or HP 10 B– HP 17B or HP19B (advanced)


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What you are expected to do:

• Come to class!• Be enthusiastic• Read the assigned chapters and/or the

notes in advance: – Be prepared to discuss the problems

and chapter concepts, or to address comments by your classmates or the instructor

• Turn in the homework assignments on time• Keep up with the financial news


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Grades:

• Participation 10% (100 points)

• Homework Projects 20% (200 points)

• Presentations 5% ( 50 points)

• Midterm Exam (Oct. 15) 25% (250 points)

• Final Exam 30% (300 points)

• Integrative Project 10% (100 points)


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Participation

• Be prepared to discuss problems and chapter concepts in class

• The point of class the discussions are to arrive at the right answer -- you do not need to have the right answer to contribute to the discussion!

• Do volunteer to ASK and answer questions -- that way you contribute not only to your own learning, but to the quality of the learning process of the others as well


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Let’s switch positions for a moment:

• Briefly describe your expectations from this class (for example, list what would make this class an enjoyable experience for yourself and your colleagues)


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Today’s Topic

• What is finance about?

• Corporate Finance and the Financial Manager

• The Corporation and Its Environment– Separation of Ownership and Management

– Financial Markets

• The Goal of the Firm


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The subject of finance

• How do we value things?


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A general valuation approach

• Identify the cash flows that the asset generates over its life

• Find what these cash flows are worth today• Adjust for complications like taxes, possibility of

default (bankruptcy)• Compare the today’s value of the cash flows to

the initial cost of the asset


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Role of Financial Management

• Investment Decisions– Where to invest?

• Financial Decisions– How to finance investments?

Stocks, Bonds, Private vs. Public Placements


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• The view of the firm as a collection of contracts:– owners

– managers

– employees

– suppliers

– customers

– communities

• The agency relationship

The View of the Firm as a Nexus of Contracts


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Agency Conflicts between Managers and Shareholders

• Will managers work in the shareholders’ best interests or pursue their own interests?

• Factors that align managers’ and shareholders objectives:– ownership by management

– compensation for performances (bonuses, stock options)

– threat of dismissal


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Corporate Governance and Control

• Corporate control -- the power to make investment and financing decisions.

• Corporate governance – the mechanisms in place that help insure that shareholders get any return on their investment (the role of the Board of Directors, shareholder voting, proxy fights, actions taken by shareholders to influence corporate decisions)

• How do these mechanisms differ across countries, cultures, and legal systems?

FINA 60013: Management of Financial Resources

Documents

Transcript of FINA 60013: Management of Financial Resources