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,*,Slide Title,Body Text,Second Level,Third Level,Fourth Level,Fifth Level,Topic Flow Chart,Goal of Finance=Maximize Value of Firm,HOW?Get the most cash,Steps,1.Methods to evaluate projects cash flow (NPV,IRR,etc),2.Develop risk adjusted discount rates for use in NPV,3.Apply NPV,IRR,Decision Trees,PVI,etc to capital budgeting decisions,4.Changes in capital structure influence discount rates,5.Financial Distress can result form changes in capital structure,1,Efficient Capital Markets,Switches gears,Past lectures decided how to spend money(invest),Todays lecture deal with raising money(financing decisions),Fisher Separation Theorem,2,Market Efficiency Theory sez,Capital markets reflect all relevant information.You can not consistently earn excess profits.,Efficient Capital Markets,3,Efficient Capital Markets,D,S,R,Qty,Cost of Capital=Price of Money,4,Type of Market Efficiency,Weak Form Efficiency,Semistrong Form Efficiency,Strong Form Efficiency,5,Efficient Market Theory,Announcement Date,6,Efficient Market Theory,Average Annual Return on 1493 Mutual Funds and the Market Index,7,Efficient Market Theory,IPO Non-Excess Returns,Year After Offering,8,Efficient Market Theory,Strong-Form Efficiency Test,Historical performance,9,Random Walk Theory,10,Random Walk Theory,11,Efficient Market Theory,Fundamental Analysts,Research the value of stocks using NPV and other measurements of cash flow,12,Efficient Market Theory,Technical Analysts,Forecast stock prices based on the watching the fluctuations in historical prices(thus“wiggle watchers),13,Market Efficiency Theory,Conflicts in Theory,Stock market crash of 1987,Daily fluctuations,Culprits?,Arbitrage,Computers,Institutions,14,Efficient Market Theory,1987 Stock Market Crash,15,Efficient Market Theory,1987 Stock Market Crash,16,Lessons of Market Efficiency,Markets have no memory,Trust market prices,There are no financial illusions,Do it yourself diversification,Seen one stock,seen them all,Reading the entrails,17,Corporate Financing,Types of Financing,1-,Equity,2-Debt,3-Hybrids,18,Corporate Financing,READ TEXT FOR TERMINOLOGY,19,Initial Offering,Initial Public Offering(IPO),-First offering of stock to the general public.,Underwriter,-Firm that buys an issue of securities from a company and resells it to the public.,Spread,-Difference between public offer price and price paid by underwriter.,Prospectus,-Formal summary that provides information on an issue of securities.,Underpricing,-Issuing securities at an offering price set below the true value of the security.,20,General Cash Offers,Seasoned Offering,-Sale of securities by a firm that is already publicly traded.,General Cash Offer,-Sale of securities open to all investors by an already public company.,Shelf Registration,-A procedure that allows firms to registration statement for several issues of the same security.,Private Placement,-Sale of securities to a limited number of investors without a public offering.,21,Rights Issue-example,YRU Corp currently has 9 million shares outstanding.The market price is$15/sh.YRU decides to raise additional funds via a 1 for 3 rights offer at$12 per share.If we assume 100%subscription,what is the value of each right?,Current Market Value=9 mil x$15=$135 mil,Total Shares=9 mil+3 mil=12 mil,Amount of new funds=3 mil x$12=$36 mil,New Shre Price=(136+36)/12 =$14.25/sh,Value of a Right=15-14.25=$0.75,22,WSJ Article,DJIA 10%below pre-terrorist attacks,Long term interest rates.below historical levels,Risk premiums are higher than normal,Inflation expectations are low,23,WSJ Article,Effect on prices&PE,Malkiel research shows 22 as current required market PE,compared to 15 historially,Inflated earnings estimates may exist,New higher PE base may exist due to growth,24,
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