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MN10311 Corporate Finance and Investment Appraisal

MN10311 Corporate Finance and Investment Appraisal. or Finance. The Course Tutor. Mr A N Birts, ACT Cert ICM, BSc, MBA WH 8.56 mnsanb@management.bath.ac.uk To obtain course outline, copies of overheads and seminar questions go to my personal website. Finance.

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MN10311 Corporate Finance and Investment Appraisal

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  1. MN10311Corporate Finance and Investment Appraisal or Finance

  2. The Course Tutor • Mr A N Birts, ACT Cert ICM, BSc, MBA • WH 8.56 • mnsanb@management.bath.ac.uk • To obtain course outline, copies of overheads and seminar questions go to my personal website

  3. Finance • What is the objective of the organisation? - Make a profit? - Supply goods and or services? - Provide employment? - Growth? - Customer care? - Environmental care?

  4. Finance • All of these but for finance there is one objective and that is :- To Maximise Shareholder Wealth or Where no shareholders, an equivalent in terms of use of resources.

  5. Finance • Maximising Shareholders Wealth means Maximising Share Price. • Current Share Price Should Reflect All Future Cash Flows Discounted At The Appropriate Discount Rate

  6. Finance • Obstacles to maximising shareholders wealth. - Stakeholders * Directors * Managers * Workers * Customers * Suppliers What are their objectives?

  7. Finance • How may these be controlled? - Non Executive Directors? - AGM? - Published Accounts? - Audit? - The Market?

  8. Finance • Generalised Organisation Finance Director (the city!) Controller Accountant Treasurer Internal External Funding Management Reporting Risk Accounts, costing Bank relations

  9. Finance • Simple Model of Value Cash Flow Cost of Capital = Current Value (Required Return)

  10. Finance • Example Assume constant cash flow forever of 100,000 pa and required return of 10% (.10), then investor would be willing to pay today 100,000 = 1,000,000 .10

  11. Finance • We may add value by increasing cash flow e.g. 120,000 = 1,200,000 .10 How would we do this:- as a company? as financial managers?

  12. Finance • Or by reducing the required rate of return E.g. 100,000 = 1,250,000 .08 As financial managers how may we do this?

  13. Finance

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