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ADVANCED CORPORATE FINANCE cute-74 (CHAPTER 6: EFFICIENCY MARKET &…
ADVANCED CORPORATE FINANCE
CHAPTER 1: INTRODUCTION TO CO. FINANCE :!!:
Definition
process used to direct and manage the business
Agency Theory
used to explain organizational behavior in the relationship between business principal and the agents
Goals of corporation
Max profit :check:
Min cost :check:
Max market share :check:
Agency Problem
possibility of interest between the shareholder and the management of firm
CHAPTER 2: VENTURE CAPITAL :tada:
Definition
Private equity and financing for start up firm and small business
Advantages
Increase resources
Provide information
Disadvantages
Time consuming
Venture capitalist normally get equity in the company
Choosing a venture capitalist
Financial Strength
Style
Exit Strategy
Contact
References
CHAPTER 3: CAPITAL STRUCTURE :fire:
Financial Distress
COST OF FINANCIAL DISTRESS
: Cost arising from bankruptcy or distorted business decision before bankruptcy
Occur when promises to creditors are broken
Types of financial distress
Bankruptcy cost
Cost of threatened firm
Pecking Order Theory
Firms prefer internal financial. If not sufficient, issue the debts. Because to prevent the price of stock fall due to investors perceptions. Equity issue as a last resorts
Trade-Off Theory
Less issuing debt to have tax savings and distress cost of debt.
Financial Leverage and Capital Restructuring
M&M Proposition I and II
(without tax)
M&M I
Value of the firm is independence of the firm's capital structure.
WACC remain the same
M&M II
The firms cost equity capital is positive linear function of firm's capital structure.
WACC remain the same
M&M Proposition I and II
(with tax)
M&M I
Value of firm increases as total debt increases. WACC decreases
M&M II
The firm's cost of equity rises as the firm relies more on debt financing
CHAPTER 4: CASH FLOW DETERMINATION :red_flag:
Project Cash Flow
Operating Cash Flow
Changes in NWC
Capital Spending
Bottom up approach
Tax Shield
Special Cases
Evaluating cost cutting proposal (NPV)
Setting minimum bid price (NPV = 0)
Evaluating equipment with difference useful life (EAC)
CHAPTER 5: PROJECT ANALYSIS AND EVALUATION :!:
Scenario Analysis
1) Base Case Scenario
- It is used to compare between best and worst case scenario
2) Best Case Scenario
- It is what people want to happen and to achieve. To calculate this, price higher and cost lower
3) Worst Case Scenario
- It is consider the most severe possible outcomes. To calculate this, price and quantity lower and cost higher
Sensitivity Analysis
Techniques used to determine what happens to NPV when only one variable is changed.
Break-even Analysis
1) Accounting Break-even
:arrow_right: Net Income = 0
2) Cash Break-even
:arrow_right: Cash Flow = 0
3) Financial Break-even
:arrow_right: NPV = 0
CHAPTER 6: EFFICIENCY MARKET & BEHAVIOURAL FINANCE :star:
EM is a market in which securities reflect all possible and relevant information
Random Walk Theory
Past movement of stock prices cannot be used to predict future movement. The movement of stock price is random
Efficient Market Theory
Information is reflected in not only price but also the quality and speed which it is reflected in price.
3 Forms of Efficiency Market
Weak Form EMH
Semi-strong EMH
Strong Form EMH
Lesson of ME
1) Market have no memory
2) Trust market prices
3) Read the entrails
4) Do it Yourself
5) Seen one stock, seen them all
CHAPTER 7: CASH DIVIDEND AND STOCK REPURCHASE :warning:
Cash Dividend
: fund or money paid to stockholders as part of the corporation current earning and profit.
Method of Payment
Declaration Date, Ex-Dividend Date, Record Date and Payment Date
Stock Repurchase
: a transaction whereby a company buys back its own share form the market place.
CHAPTER 8: MERGERS AND AQUISITIONS :no_entry:
Merger
is the complete absorbtion of one company where is the acquiring firm retains their identity and the acquired firm ceases to exist as a separate entity.
Acquisition
is where one company purchase all almost of another company's share or asset'
Purpose
Increases market share
Promote growth
Defensive Tactics
Poison Pill
Leverage Buyout
Golden Parachute
Crown Jewel
White Knight
