AFM 373, Fall 2017

Course Wrap-up
 Course Wrap-Up
Expanded knowledge/intuition of corporate finance:

• Corporate objective (value-maximization)

• Financial projections (funding needs, relation to growth)

• WACC (understanding, calculations – divisional, firm wide)

• Capital structure (main determinants; relation to WACC)

• Payout policy (divs ‘sacred’, repurchases flexible)

• Valuation – DCF (forecast period, TV perpetuity), mkt multiples

• Restructurings, M&A – Value creation (NPV), wealth expropriation

• Governance (agency concerns; board, takeovers, active investors)

 Wrap-Up
And some general financial literacy:

• average market-to-book of about 2

• average corporate leverage of about 25%

• market risk premium for CAPM typically 5-6%

• average diversification discount of about 15%

• spread on AAA corporate versus government debt (about 1%)

 Final Exam

• ‘Cumulative’ since some themes run throughout the

course (e.g. WACC, DCF, corporate objectives)

• Review pre-midterm notes briefly

• Corporate objective, NPV, WACC, basic financial ratios

• Review post-midterm notes fully …

 Final Exam -- Post-midterm focus:

Capital structure:
• Roundtable reading: material we focused on in class
(general benefits and costs of leverage)
• Debt overhang example (slides)
• Deluxe: debt ratings, WACC, optimal leverage #, effects
on firm value

Payout Policy:
• Roundtable reading: material we focused on in class
(reasons for repurchases, dividends)
• Apple: FCF, Repurchases, active investors, corporate
governance
 Final Exam -- Post-midterm focus:
IPOs, M&A and Restructuring:

• IPOs – Ferrari; benefits and costs of ‘going public’, the

IPO process, factors in setting the initial price

• M&A preliminaries, Roundtable reading: market reaction

to announcements (bidder/acquirer returns, predicted
synergies), role/incentives of IB’s

• Marriott: Reasons for a spin-off, shareholder-bondholder

conflicts, ethics/reputation, “event risk” covenants

• Empire: Family ownership, Intrinsic (DCF) Valuation, NPV

of acquisition, distribution of NPV (bidder vs target)
 Wrap-up

Final is Monday Dec 18th, 9:00-11:00