Study Guide

Topics: Net present value, Corporate finance, Investment Pages: 567 (76651 words) Published: October 10, 2013
Core Module_Grey

2 – Corporate Finance

Corporate
Finance

Study Guide & Workbook

Manchester Business School
Accounting and Finance
Division
Original Thinking Applied

Study Guide - FRONT COVER_New Format_Grey / 210 x 297mm / 4Cx0C / 3rd PROOF - 28 April 2011

Manchester Business School MBA

Manchester Business School MBA

Dr Arif Khurshed, Dr Susanne Espenlaub, Prof Norman Strong, Prof Ian Garrett, Dr Ning Gao and Dr Amedeo De Cesari

Dr Arif Khurshed, Dr Susanne Espenlaub, Prof Norman Strong, Prof Ian Garrett, Dr Ning Gao and Dr Amedeo De Cesari

We regret that the authors are unable to enter directly into any correspondence

We regret that the authors are unable to enter directly into any correspondence

be welcomed and should be addressed to:

be welcomed and should be addressed to:

This Study Guide and Workbook has been prepared for
Manchester Business School Worldwide by:

relating to, or arising from this Study Guide. Any comments on this work would

This Study Guide and Workbook has been prepared for
Manchester Business School Worldwide by:

relating to, or arising from this Study Guide. Any comments on this work would

THE ACADEMIC DIRECTOR

THE ACADEMIC DIRECTOR

Manchester Business School Worldwide

Manchester Business School Worldwide

The University of Manchester

The University of Manchester

Booth street West

Booth street West

Manchester

Manchester

M15 6PB

M15 6PB

© MBS Worldwide

© MBS Worldwide

Corporate Finance

Corporate Finance

The materials in this course were prepared by:
Dr Arif Khurshed, Dr Susanne Espenlaub, Prof Norman Strong, Prof Ian Garrett, Dr Ning Gao and Dr Amedeo De Cesari

The materials in this course were prepared by:
Dr Arif Khurshed, Dr Susanne Espenlaub, Prof Norman Strong, Prof Ian Garrett, Dr Ning Gao and Dr Amedeo De Cesari

Manchester Business School MBA

Manchester Business School MBA

Contents
Welcome and introduction

Contents
1

Unit1 – Introduction, Present Values and Capital Budgeting

1. Introduction to Corporate Finance
8
1.1. The financial manager’s tasks
8
1.2. The firm’s objective
9
2. Present value
11
2.1. Introduction11
2.2. Net Present Value (NPV)
12
2.3. The rationale for the NPV rule
13
3. Valuing long-lived assets
18
4. Valuing bonds, stocks, and companies
21
4.1. Valuing bonds
21
4.2. Stocks and the stock market: basic terminology
24
4.3. Valuing equity shares
26
4.4. Simplified dividend discount models: constant dividend growth 28
4.5. Simplified dividend discount models: two-stage dividend growth 32
4.6. An alternative perspective: separate valuation of growth opportunities 34
4.7. How financial analysts value companies in practice
37
5. Alternative investment appraisal rules
41
5.1. Do companies always and exclusively use the NPV rule? 41
5.2. The payback period rule
42
5.3. The internal rate of return (IRR)
43
6. Identifying relevant cash flows
49
6.1. Principles49
6.2. Inflation52
6.3. Taxation53
7. Sensitivity analysis, decision trees and real options
55
7.1. Sensitivity, scenario, break-even analysis and simulation 55
7.2. Flexibility in investment decisions: Real options
56
8. Conclusion59
Workbook Unit 1

73

Welcome and introduction

1

Unit1 – Introduction, Present Values and Capital Budgeting

1. Introduction to Corporate Finance
8
1.1. The financial manager’s tasks
8
1.2. The firm’s objective
9
2. Present value
11
2.1. Introduction11
2.2. Net Present Value (NPV)
12
2.3. The rationale for the NPV rule
13
3. Valuing long-lived assets
18
4. Valuing bonds, stocks, and companies
21
4.1. Valuing bonds
21
4.2. Stocks and the stock market: basic terminology
24
4.3. Valuing equity shares
26
4.4. Simplified dividend discount models: constant dividend growth 28
4.5. Simplified dividend discount...
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