HBA1 Finance Course

“Finance” course, taught in the first term of HBA1.

Exams - Final

• Concepts Covered:
  • Focus is on second half of the course
    • WACC
    • Company Valuation Methods
• Previous concepts remain important (Time Value of Money, Capital Structure, Financial Ratios, Growing Perpetuities)

Module 4: The Cost of Capital

• Weighted Average Cost of Capital (WACC)

Module 5: Valuing Long-Term Investments and Businesses

Acquisition

• The acquirer refinances the target’s debt, and therefore the cost of debt changes to the buyer’s cost of debt.

Exams - Midterm

Module 1: Time Value of Money

Lecture: Time Value of Money

Primer

Note: below information is all duplicates of their respective notes. There exists atomic notes for all concepts including mathematical formulas and documentation on excel functions.

Concept	Mathematical Formula (inline)	Excel Function
Future Value	$FV=PV\times (1+r{)}^n$ • PV = present value • r = required rate of return • n = number of periods	=FV(rate, nper, pmt, [pv], [type]) • rate = required rate of return • nper = number of periods • pmt = recurring payment amount • pv = present value
Present Value	$PV=\frac{FV}{(1+r{)}^n}$ • FV = future value • r = required rate of return • n = number of periods	=PV(rate, nper, pmt, [pv], [type]) • rate = required rate of return • nper = number of periods • pmt = recurring payment amount • fv = future value
Net Present Value	$NPV=-C_0+\frac{C_1}{(1+r{)}^1}+\frac{C_2}{(1+r{)}^2}+\dots$ • $C$ = cash flow in a given period • r = required rate of return	=NPV(rate, value1, value2, …) • rate = required rate of return • values = undiscounted future cash flows (starting in period 1)
Internal Rate of Return	No closed-form expression (cannot be calculated analytically).	=IRR(values) • values = undiscounted cash flows beginning at time zero

Module 2: Financial Markets and Alternatives to Raising Capital

There is a lot of content here, but the main concepts are:

• Bond
• Financial Security Types
• Debt Securities

Additionally, we have some extra information here regarding terms:

• Bond Spread
• Flight to Quality
• Currency Matching and Exchange Rate Risk

Bonds vs. Stocks

Bonds:

• Fixed obligations
• Payment structure is generally known when issued.
• Indirect control only through debt contract terms
• Relatively high priority in bankruptcy

Stocks

• Residual claim on the firm
  • No guarantee of dividends or return of capital
  • Lowest priority in bankruptcy
  • Voting control

Equity

• Equity
• Preferred Shares
• Common Shares

We also note a important strategy Dividend Discount Model

Module 3: Capital Structure

• Capital Structure
  • references: Modigliani and Miller Capital Structure “irrelevance” theory