IILM Institute for Higher Education School of Business

Course Manual

Corporate Finance PGP 2010-12

Facilitators:
Ms.SandhyaPrakash(ModuleLeader) Mr.VivekSaxena Ms.Shegorika Ms.NeetiSanan MsRanjaniMatta MrNishantMishra

CourseObjectives:
Thecourseisdesignedtoenablestudents: Toinculcatethefinancialperspectiveofbusinessdecisionsinanorganization Tounderstandhowtoevaluateandtakedecisionsthataddvaluetoanorganization Tolearnandapplyfinancialtoolsandtheoreticalframeworksinreallifesituationsthatcall forafinancialanalysis

CourseDescription:

Everydecisionthatafirmmakeshasacorporatefinancecomponenttoit.Thesubjectofcorporate financethusincludesallofafirmsdecisionthathasfinancialimplications.Thosebroadlyinclude (i)InvestmentDecisions,(ii)FinancingDecisions&(iii)DividendDecisions. Thesedecisions takenhavetheimplicationsonthefirmsmarket/sharevalue.AsaFinanceManager,onehastotake theabovedecisions.Theobjectiveofthiscourseistoprovidetheconceptualframeworknecessary tounderstandabovefinancialissuesandthetechniquestomanagethemefficientlyandeffectively. One may choose a career in manufacturing companies, nongovernmental or service sector, investmentbanksormanagementconsultancy,thoroughlearningoftheartoffinancialmanagement isamust.

LearningOutcomes:

Followingthedeliveryofthiscourse,interactivediscussionsandprojectassignments,studentsshall developconceptualunderstandingoffinancialanalysisanddecisionmaking. Thecoursewillequipthestudentswithimportantandpracticaltoolssuchastimevalueofmoney andDCFAnalysis,applicationofcapitalbudgetingandcostofcapital.Also,thestudentshallbe abletoappreciateuseofexcelasapplicationtofinancefunction.

CourseOrganization:
Thecourseconsistsofbothlecturesessionsandprojectwork.TheprojectVivashallbeheldineach sectiononthedayscommunicatedinadvance.Anyteamcalledoutbytheinstructorwillpresentthe

projectandthepresentationswillbegraded.Attendanceiscompulsoryfortheprojectpresentation sessions.

Books and References:

CoreText: FinancialManagement,TheoryandPractice,PrasannaChandra,TataMcGrawHill,7thEdition Mainreferences

o PrinciplesofCorporateFinance,RichardABreyley,StewartC.Meyers,FranklinAllen, PitbasMohanty,TataMcGrawHill,8ed. o CorporateFinance,AswathDamodaran,Wiley,3rdedition o CorporateFinance,Ross,Westerfield,JaffeandKakni,TataMcGrawHill,8thedition o FinancialManagement,I.M.Pandey Website: http://pages.stern.nyu.edu/~adamodar/ RecommendedReadings o "THEBEHAVIOUROFPRICEMULTIPLESININDIA(19902007)",SanjaySehgal &AsheeshPandey,AAMJAF,Vol.5,No.1,3165,2009. Weblink:(http://www.usm.my/journal/aamjaf/vol5_1_2009.html). o FinancialDisclosureandCorporateGovernance:AnEmpiricalStudyof SelectlargeandMediumListedCompaniesinIndia,NeetiSanan.

Assessment:

Thecoursewillbeevaluatedonthefollowingbasis: EndTermExamination InternalAssessment

60marks 40marks

InternalAssessment Excelassessment 20marks Project 20marks EndTermExamination Therewouldbeatwohourclosedbookexamination.

SESSION PLAN SESSION TOPIC 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 CorporateFinanceAnoverviewI TimeValueofMoneyI TimeValueofMoneyII ExerciseonTimeValueusing EXCEL ValuationofBondsand SharesI ValuationofBondsand SharesII ConceptofRiskandreturnAn Overview TechniquesofCapitalbudgetingI TechniquesofCapitalbudgetingII TechniquesofCapitalbudgetingIII ExerciseonCapitalBudgetingusing EXCEL Excelbasedassessment CostofCapitalI CostofCapitalII CaseStudy:CostofCapital PrasannaChandra PrasannaChandra AlpineLtd. 14 14 14 19 22 20 24 24 PrasannaChandra PrasannaChandra PrasannaChandra PrasannaChandra PrasannaChandra PrasannaChandra 7 7 8 11 11 11 12 READINGS PrasannaChandra PrasannaChandra PrasannaChandra CHAPTER 1 1 6 6

CorporateFinanceAnoverviewII PrasannaChandra

EstimationofprojectedCashFlows PrasannaChandra

PayoutPolicyandCapitalStructure PrasannaChandra I PayoutPolicyandCaptalStructure II Understandingtheconceptof Leverage DebtFinancingLeasingandHire Purchase DebtFinancingDifferentkindsof PrasannaChandra PrasannaChandra PrasannaChandra PrasannaChandra

Debt 23 24 25 26 27 WorkingcapitalMgntI WorkingcapitalMgntII GuestLectureI GuestLectureII GuestLectureIII PrasannaChandra PrasannaChandra ToBeDecidedByFaculty ToBeDecidedByFaculty ToBeDecidedByFaculty 26 30

SESSION DETAILS

Session1:
This session will cover topics like the overview of Corporate Finance including the Introduction , Scope of Financial Management , Key activities of the Financial Manager . Chapter1 ; Prasanna Chandra

Session 2 :
This session will introduce the Topics of Objectives of Financial Management , Profit maximisation v/s Wealth maximization Criteria , Agency problem . Chapter : 1; Prasanna Chandra

Session 3 :
This session will deal with the concept of Time Value of Money , Introduction and the Rationale behind it . Techniques of Compounding , Future value of a single amount , Future value of Annuity . Chapter : 6; Prasanna Chandra

Session 4 :
This session will cover topics like techniques of Discounting , Present value of a single amount , Present value of Annuity , Present value of Perpetuity , Present Value of Growing Annuity. Chapter : 6; Prasanna Chandra

Session 5 :
This session will be applying the concepts learnt in Session 3 and 4 on the given exercise using Excel.

Session 6 :
This session will introduce and discuss about the concept of Valuation , Valuation of Bond, Yield to maturity , Valuation of Preference shares . Chapter : 7; Prasanna Chandra

Session 7 :
This session will cover approaches to equity valuation- Dividend Discount Model; P/E ratio approach. The relationship between Earnings-Price Ratio, Expected return and Growth Chapter : 7 ; Prasanna Chandra

Session 8 :
This session will introduce the concept of Risk and Return , Risk and Return of a single Asset , Risk and Return of Portfolio , Introduction to Beta . Chapter : 8; Prasanna Chandra

Session 9 :
This session will deal with the Introduction to Capital Budgeting , Importance , Rationale , kinds . Chapter :11; Prasanna Chandra

Session 10 :
This session will devoted to the Non DCF techniques including ARR , Pay back period and DCF techniques including NPV . Chapter : 11; Prasanna Chandra

Session 11 :
This session will cover the topics like DCF techniques including IRR , Profitibility Index, Identification of Relevant cash flows , cash v/s accounting profit , Incremental cash flows. Chapter : 11; Prasanna Chandra

Session 12 :
This session will deal with the topics like the effect of Tax , Effect of Depriciation , Working Capital Effect on the cash flows of the company . Chapter : 12; Prasanna Chandra

Session13:
This session will deal with application of capital budgeting on real life situations using Excel.

Session 14 :
Assessment based on excel application.

Session 15 :
This session will introduce the topics like concept of cost of capital, explicit and implicit cost, Cost of Debt , cost of redeemable debt , cost of perpetual debt , cost of preference shares , cost of redeemable preference shares , perpetual security . Chapter : 14; Prasanna Chandra

Session 16 :
This session will deal with the concept of cost of Equity shares , weighted average cost of

capital, floatation cost and the cost of capital, factors affecting weighted average cost of capital. Chapter : 14;Prasanna Chandra

Session 17 :
Case study on cost of capital.

Session 18:
This session will introduce different approaches to Capital structure Net Income Approach and Net operating income approach. Chapter 19; Prasanna Chandra

Session 19 :
This session will deal with the Introduction to dividend , Determinents of dividend policy , Bonus shares and Stock Splitt . Chapter : 22; Prasanna Chandra

Session 20:
This session will cover the topics like operating leverage , financial leverage and combined leverage Chapter : 20; Prasanna Chandra

Session 21 :This session will introduce concepts of Leasing and Hire Purchase and the
difference between them. Chapter : 24; Prasanna Chandra

Session 22 :
This session will cover topics on Operating Leases and financial lease. Chapter : 24; Prasanna Chandra

Session 23 :
This session will cover the topics like Nature of Working Cpaital , Concepts and Definition of Working capital , Planning of working Capital , Determinants of Working capital, Recievables Management , Objectives , credit policies and Credit Terms. Chapter : 26; Prasanna Chandra

Session 24 :
In this session will introduce the topics like , Cash discounts , Collection policies and some practical problems. Chapter : 30; Prasanna Chandra