Today:Syllabus and Introduction

Principles of Corporate Finance

For This Course You Need to Have:1. The textbook – Lasher. Buy a used book. Order on-line if cheap. I

have pdf files of the first few chapters if you don’t have your book yet.

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For This Course You Need to Have:

2. A financial calculator • HP 10-Bii is less than $30. You have time

to order it on-line.• The calculator needs to do IRR (the most

basic TI does not)• Textbook letter and Links on website• Other models of calculators do more than

we need but are OK

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Syllabus and Website• Hand out syllabus• Contact information• Exam dates• Get out of the final with a 93%• Term Project dates• Attendance policy• Grading weights• Office hours• Website

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Expectations• Buy a book and calculator• Come to class: be engaged and ask questions• Do assignments• Keep up/study for tests• Pretend that you LOVE Finance

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We are what we pretend to be, so we must be careful what we pretend to be.

Kurt Vonnegut, Mother NightUS novelist (1922 - 2007)

Assignments

• Go to the course web page :• http://www.agecon.purdue.edu/academic/agec424/index2.html• At this site you can download:

• Lecture PowerPoint slides • Assignments/schedule• Spreadsheet templates• Term project information• Lab information• Grades

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What is going on in my life?

• Teaching AGEC 424, AGEC 600, and supervising graduate students

• Teach 2nd - 3rd grade Sunday School class at Saint Andrew United Methodist Church

• Dealing with my wood hobby/business• Parenting two daughters (college freshman/sophomore)

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This first week in AGEC 424 • Read Chapter 1. • Read Chapter 2. Accounting review is covered with via a set of

test-type questions in lab this week.• Relationship to MGMT 200/AGEC 311• We will start Chapter 3 as soon as Fri. or Mon.• Commentary on “reading” the chapters• Assignments and HW due dates listed on web site• Don’t make yourself take the final because you didn’t do the

homework• Bring your book and a calculator to lab this week

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Chapter AFN. Additional funds needed and part of Ch. 13

The Price of Securities—A Link Between the Firm and the Market

• Investors buy securities (stock and bonds) for the future cash flows expected from them• Price investors are willing to pay depends on

expectations of how well the companies are likely to do (present value of future cash flows expected)

• Link between company management and investors comes from this relationship between price and expected financial results• Everything firm does is evaluated by market and

‘graded’ by either an increase, decrease, or no change in security price

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• Sole proprietorship•Partnership•Corporation

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Alternative Forms of Business Organization:

Advantages: Unlimited life Easy transfer of ownership Limited liability Ease of raising capital

Disadvantages: Double taxation Cost of set-up and report filing

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Corporation:

What are shares of Stock?

• Equity• = Stock (Par Value & surplus) + retained earnings

plus/minus a few other items

• A = L + OE• “book” versus market value• Book value of equity (per share) = (Owners Equity)/#shares• Why would stock be worth more (or less) than Book

Value?• Publicly traded versus Privately held• Reporting requirements

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• The primary goal is shareholder wealth maximization, which translates to maximizing stock price.

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Goal of the Corporation:

• Projected earnings per share• Timing of the earnings stream• Riskiness of the earnings stream• Use of debt (capital structure)• Dividend policy

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Factors Influenced by Managers that Affect Stock Price:

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