FINA 60013: Management of Financial Resources
FINA 60013: Management of Financial Resources
Fall 2008Fall 2008
FINA 60013: Management of Financial Resources
Vassil Mihov
About me
• Vassil Mihov • Ph.D. in Finance (Purdue)• Associate Professor with tenure• My research Interests:
– Corporate finance; Options markets– Publications in the Journal of Finance,
the Journal of Financial Economics, and others
• Won the Neeley School Teaching Award for MBA core classes (2004), Mortar Board Preferred Professor (2001,2002)
FINA 60013: Management of Financial Resources
Vassil Mihov
How to reach me
• E-mail: [email protected]• Office Phone: (817) 257-7147• Mobile Phone: (817) 793-0076• Office: Tandy 384• Office hours: Mon. and Wed., 1-
2 p.m.
FINA 60013: Management of Financial Resources
Vassil Mihov
Class Overview
• Core course in finance• Focus:
– How do we value things? Value of financial instruments (stocks, bonds)
Value of “real” items: a sports car
Value of a service: education Political Futures Markets?
FINA 60013: Management of Financial Resources
Vassil Mihov
How much are Michael Phelps's 8 gold medals worth?
?
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FINA 60013: Management of Financial Resources
Vassil Mihov
Course Topics
• Opportunity Cost of Capital and Discounted Cash Flow Valuation
• Capital Budgeting• Risk and Return• Capital Structure and Payout Policies• Corporate Governance and Control
FINA 60013: Management of Financial Resources
Vassil Mihov
Readings for the Course
• Required Text: Berk and DeMarzo, Corporate Finance, First Edition
FINA 60013: Management of Financial Resources
Vassil Mihov
Other Sources
• The Wall Street JournalPremier source for news and analysis You already subscribe!
• Financial sites online:Finance.yahoo.commoneycentral.msn.com
wrds.wharton.upenn.edu
• Bloomberg
FINA 60013: Management of Financial Resources
Vassil Mihov
Useful tools
• Excel • Calculators will help you a great deal:
– Required capabilities: Time Value of Money and Net Present Value Worksheets
• I recommend: – Texas Instruments BA II Plus or HP 10 B– HP 17B or HP19B (advanced)
FINA 60013: Management of Financial Resources
Vassil Mihov
What you are expected to do:
• Come to class!• Be enthusiastic• Read the assigned chapters and/or the
notes in advance: – Be prepared to discuss the problems
and chapter concepts, or to address comments by your classmates or the instructor
• Turn in the homework assignments on time• Keep up with the financial news
FINA 60013: Management of Financial Resources
Vassil Mihov
Grades:
• Participation 10% (100 points)
• Homework Projects 20% (200 points)
• Presentations 5% ( 50 points)
• Midterm Exam (Oct. 15) 25% (250 points)
• Final Exam 30% (300 points)
• Integrative Project 10% (100 points)
FINA 60013: Management of Financial Resources
Vassil Mihov
Participation
• Be prepared to discuss problems and chapter concepts in class
• The point of class the discussions are to arrive at the right answer -- you do not need to have the right answer to contribute to the discussion!
• Do volunteer to ASK and answer questions -- that way you contribute not only to your own learning, but to the quality of the learning process of the others as well
FINA 60013: Management of Financial Resources
Vassil Mihov
Let’s switch positions for a moment:
• Briefly describe your expectations from this class (for example, list what would make this class an enjoyable experience for yourself and your colleagues)
FINA 60013: Management of Financial Resources
Vassil Mihov
Today’s Topic
• What is finance about?
• Corporate Finance and the Financial Manager
• The Corporation and Its Environment– Separation of Ownership and Management
– Financial Markets
• The Goal of the Firm
FINA 60013: Management of Financial Resources
Vassil Mihov
The subject of finance
• How do we value things?
FINA 60013: Management of Financial Resources
Vassil Mihov
A general valuation approach
• Identify the cash flows that the asset generates over its life
• Find what these cash flows are worth today• Adjust for complications like taxes, possibility of
default (bankruptcy)• Compare the today’s value of the cash flows to
the initial cost of the asset
FINA 60013: Management of Financial Resources
Vassil Mihov
Role of Financial Management
• Investment Decisions– Where to invest?
• Financial Decisions– How to finance investments?
Stocks, Bonds, Private vs. Public Placements
FINA 60013: Management of Financial Resources
Vassil Mihov
• The view of the firm as a collection of contracts:– owners
– managers
– employees
– suppliers
– customers
– communities
• The agency relationship
The View of the Firm as a Nexus of Contracts
FINA 60013: Management of Financial Resources
Vassil Mihov
Agency Conflicts between Managers and Shareholders
• Will managers work in the shareholders’ best interests or pursue their own interests?
• Factors that align managers’ and shareholders objectives:– ownership by management
– compensation for performances (bonuses, stock options)
– threat of dismissal
FINA 60013: Management of Financial Resources
Vassil Mihov
Corporate Governance and Control
• Corporate control -- the power to make investment and financing decisions.
• Corporate governance – the mechanisms in place that help insure that shareholders get any return on their investment (the role of the Board of Directors, shareholder voting, proxy fights, actions taken by shareholders to influence corporate decisions)
• How do these mechanisms differ across countries, cultures, and legal systems?