CORPORATE FINANCE – SUMMARY OF LEARNINGS TILL NOW

Corporate Finance started with stating that profit maximization is the objective of any firm. Then we
learnt the principles and ten concepts of finance which enabled us to understand how decisions are
made. After that we started Time Value of Money were we learnt the valuation of money when it is
used today and in the future. We understood that value of a unit of money now is greater than its
value in future. Using time value of money as the base we studied the valuation of bonds and stocks.
Bond is valued at a par value plus it’s present value of future cash flows as specified by its coupon
rate. Stock is valued either using Dividend discount model or the CAPM model. Here we learnt
about Beta, an indicator of how returns of a security changes with change in market. Then we
studied the risk and return of bonds and stocks and how they relate to their required return. Then
we moved to Capital Budgeting where we learnt how to make capital investment decisions based on
the NPV and IRR of the project. We calculated the Cost of Capital of taking debt or equity and the
minimum required return that the company ought to get to take decisions on whether to accept a
project or not. By leveraging the capital structure with debts we can reduce the Cost of Capital. We
saw this with the MM I and II propositions with corporate taxes.