Corporate Finance

FIN 6850

INSTRUCTOR
DR. ROSLILY RAMLEE
DEPT OF FINANCE, KENMS
E-MAIL: roslily@iium.edu.my
PHONE: 03-61964776
OFFICE: ROOM A447, LEVEL 4
CONSULTATION HOUR:
Mondays
Tuesdays

10.00am 11.20am
2.00pm 3.20pm

ASSESSMENT
LO
1, 3
1, 2, 3
1, 2, 3

Method
Cases/Class Participation
Assignment/Projects
Final Exam

%
20%
40%
40%

TOTAL 100

References:
Main:
Case Studies in Finance: Managing for Corporate Value Creation,

Robert Bruner, Kenneth Eades, Michael Schill, 7th Ed. McGraw-Hill;

(2014)
Case Problems in Finance, W. Carl Kester, Richard S. Ruback, Peter

Tufano, 12th Ed. McGraw Hill (2005)

Additional:
Principals of Corporate Finance, Richard Brealey,Stewart

Myers,Franklin Allen, 11th Ed. McGraw-Hill; (2013) ISBN-13:

9780078034763 / ISBN-10: 0078034760
Fundamentals of Corporate Finance, Berk, DeMarzo, Harford, 1st Ed.

Pearson International Edition ISBN-10: 0201741598 ISBN-13:

9780201741599
Modern Financial Management, Ross, Westerfield, Jaff, Jordan; 8th Ed.

McGraw-Hill. 2008
Financial Management Theory and Practice, Brigham, Eugene F. and

Ehrhardt, M.C., 10th Edition, Harcourt, Orlando: Florida, 2002.

INTRODUCTION
WHAT IS CORPORATE FINANCE?
You decide to start a firm, what to do?
hire people to purchase raw materials
assemble a workforce to produce & sell finished products
In language of finance: you make
Investment in assets; inventory, machinery, labor, land to
generate cash inflows & income
The amount invested must match by equal amount of cash raised
by Financing.
Value is created
Sell tennis ball, firm generates cash basis of value creation
THE PURPOSE OF THE FIRM IS TO CREATE VALUE TO THE OWNER
Reflected in the framework of simple Balance Sheet model

BALANCE SHEET MODEL

INTRODUCTION
Corporations financial managers faces

2 broad

financial questions:
What investment should the corporation make?
INVESTMENT

DECISION
How should it pay for those investment?
FINANCING DECISION

Corporate Finance can be thought as

a study of the following:
What long-term assets should the firm invest?
We use capital budgeting to describe the process of making

and managing CAPEX

How can the firm raise cash for the required capital

expenditure?
The answer involves the firms capital structure

How should the operating CFs be managed?

Mismatch between the timing of cash inflows and cash

outflows during operating activities

Timing of operating CF are not known with certainty
Fin managers attempt to manage the gap between the CFs
Net working capital
ST CF problems arise from the mismatching of CI F& COF.

Topics
Estimating Funding Requirements
Review, Cost of Capital
Review of Capital Budgeting
Management of Equity: Dividends

Repurchases
Target Debt Policy
How Corporations Issue Securities
Merger & Corporate Restructuring
Risk Management
Review of Islamic Corporate Financing

CASE ANALYSIS
Read the case!
Quick reading
First few paragraphs the problem

Getting into the case situation. Develop your

awareness
Defining the problems
Analysis run the numbers & go back to the
heart of the matter
Prepare to participate take a stand
In class participate actively in support of your
conclusion, be open to new insights
Prepare the summary of the report

CASE ANALYSIS
Getting into the case situation. Develop your awareness:
Who are the protagonist in the case? Who must take action on the

problem
What do they have at stake? What pressures are they under?
What business is the company in? What is the nature of the product?
What is the nature of the demand for that product? What is the firms
distinctive competence? With whom does it compete? What is the
structure of the industry? If the firm comparatively strong or weak? In
what ways?
What are the goals of the firm? What is the firms strategy in pursuit of
those goals?
What are the firms apparel functional policies in marketing (push vs pull
strategy), production (labor relations, use of new technology, distributed
production vs centralized) and finance (use of debt financing, payment
of dividend) Financial & business strategies can be inferred from an
analysis of financial ratios & a source-and-uses of funds statement
How well has the firm performed in pursuit of its goal? (analysis using
financial ratio such)