Corporate Finance Syllabus and Outline: Aswath Damodaran

Download as pdf or txt
Download as pdf or txt
You are on page 1of 13

Corporate Finance Syllabus and Outline

http://www.damodaran.com
This class: http://www.stern.nyu.edu/~adamodar/New_Home_Page/triumdesc.html

Aswath Damodaran

Aswath Damodaran

General Information

Ofce: Room 9-96 Phone: 998-0340 E-mail: adamodar@stern.nyu.edu Home Page: http://www.stern.nyu.edu/~adamodar

Aswath Damodaran

What is corporate nance?

Every decision that a business makes has nancial implications, and any decision which affects the nances of a business is a corporate nance decision. Dened broadly, everything that a business does ts under the rubric of corporate nance.

Aswath Damodaran

Course Objectives

To give you the capacity to understand the theory and apply, in real world situations, the techniques that have been developed in corporate nance. If it cannot be applied, who cares?. To give you the big picture of corporate nance so that you can understand how things t together. You can forget the details, but dont miss the story. To show you that corporate nance is fun. It takes more work, but it is more fun

Aswath Damodaran

The Traditional Accounting Balance Sheet

The Balance Sheet


Assets
Long Lived Real Assets Short-lived Assets Investments in securities & assets of other firms Assets which are not physical, like patents & trademarks Fixed Assets Current Assets Financial Investments Intangible Assets Current Liabilties Debt Other Liabilities Equity

Liabilities
Short-term liabilities of the firm Debt obligations of firm Other long-term obligations Equity investment in firm

Aswath Damodaran

The Financial View of the Firm

Assets
Existing Investments Generate cashflows today Includes long lived (fixed) and short-lived(working capital) assets Expected Value that will be created by future investments Assets in Place Debt

Liabilities
Fixed Claim on cash flows Little or No role in management Fixed Maturity Tax Deductible

Growth Assets

Equity

Residual Claim on cash flows Significant Role in management Perpetual Lives

Aswath Damodaran

Tale of two companies


Con Eds Financial Balance Sheet Assets
$ 15 billion Investments already made Debt

Liabilities
$ 7 billion

$ 3 billion

Investments yet to be made

Equity

$ 11 billion

EBays Financial Balance Sheet Assets


$ 6 billion Investments already made Debt

Liabilities
$ 0.12 billion

$ 71.12 billion

Investments yet to be made

Equity

$ 77 billion

Aswath Damodaran

First Principles

Invest in projects that yield a return greater than the minimum acceptable hurdle rate.
The hurdle rate should be higher for riskier projects and reect the nancing mix used - owners funds (equity) or borrowed money (debt) Returns on projects should be measured based on cash ows generated and the timing of these cash ows; they should also consider both positive and negative side effects of these projects.

Choose a nancing mix that minimizes the hurdle rate and matches the assets being nanced. If there are not enough investments that earn the hurdle rate, return the cash to stockholders.
The form of returns - dividends and stock buybacks - will depend upon the stockholders characteristics.

Objective: Maximize the Value of the Firm

Aswath Damodaran

Outline for Class


Understand the objective function: The Investment Principle


Risk and Hurdle Rates Measuring Returns

Session 1
Session 1-2 Session 2,3 Session 4-5 Session 5

The Financing Principle


The Optimal Financing Mix The Right Kind of Debt

The Dividend Principle


How much to return to owners How to return

Linking nancial decisions to value

Session 5-6

Aswath Damodaran

Required Material

I. Text: Lecture Notes II. Supplementary Text: Applied Corporate Finance, Second Edition by Aswath Damodaran III. Practice Problems/Exams:
Every quiz I have ever given in any corporate nance class is available on my web site, with solutions. There are also problems in the supplementary book, and solutions.

IV. Computer Spreadsheet Programs: accessible on my home page www.stern.nyu.edu/~adamodar V. Real World Readings
Wall Street Journal, New York Times, Financial Times Fortune, Forbes, BusinessWeek and Barrons

Aswath Damodaran

10

Chapters and Readings by Session


Session 1 2-3 4 5 6 Readings Chapter 1, 2, 3 Chapter 4, 5 Chapter 7-9 Chapter 10,11 Chapter 12

Aswath Damodaran

11

Other Readings

The New Corporate Finance Reader, edited by Donald H. Chew.


This book has a number of readings on topics in corporate nance, which are both readable and informative.

Capital Ideas by Peter Bernstein


This book looks back at the development of many of the most important ideas in corporate nance.

A Random Walk down Wall Street by Burt Malkiel


This is not a corporate nance book, but it provides a 'skeptic's' view of Wall Street and its ways.

Sense and Nonsense in Corporate Finance by Louis Lowenstein


This book contests much that is taken as accepted wisdom in corporate nance. I agree with very little in this book, but it is worth reading for a contrary viewpoint.

Aswath Damodaran

12

Tests, Projects and Other Unpleasant stuff!

There will be two quizzes, one at the start of session 3 and the other at the start of session 5.
Each quiz will be 30 minutes in length and cover the material from the prior day. The quizzes are open book, open notes Each quiz will be worth 25% of your grade.

There will also be a comprehensive project that will be due a few weeks after the class ends. This project will be worth 50% of your grade. You can get more information on what the project involves by going to the website for the class.

Aswath Damodaran

13

You might also like