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. Attendance is compulsory for the project presentationsessions.

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 InternalAssessment 60marks 40marks

Excelassessment 20marks Project 20marks EndTermExamination Therewouldbeatwohourclosedbookexamination.

SESSION PLAN SESSION TOPIC 1 2 3 4 5 6 7 8 9 10 11 12 13 CorporateFinanceAnoverviewI TimeValueofMoneyI TimeValueofMoneyII ExerciseonTimeValueusing EXCEL ValuationofBondsand SharesI ValuationofBondsand SharesII ConceptofRiskandreturnAn Overview TechniquesofCapitalbudgetingI TechniquesofCapitalbudgetingII TechniquesofCapitalbudgetingIII ExerciseonCapitalBudgetingusing 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

EXCEL 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Excelbasedassessment CostofCapitalI CostofCapitalII CaseStudy:CostofCapital PrasannaChandra PrasannaChandra AlpineLtd. 14 14 14 19 22 20 24 24 26 30

PayoutPolicyandCapitalStructure PrasannaChandra I PayoutPolicyandCaptalStructure II Understandingtheconceptof Leverage DebtFinancingLeasingandHire Purchase DebtFinancingDifferentkindsof Debt WorkingcapitalMgntI WorkingcapitalMgntII GuestLectureI GuestLectureII GuestLectureIII PrasannaChandra PrasannaChandra PrasannaChandra PrasannaChandra PrasannaChandra PrasannaChandra ToBeDecidedByFaculty ToBeDecidedByFaculty ToBeDecidedByFaculty

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